US data was pretty solid last week, with a good jobs report (215,000 new jobs in March) and good manufacturing data from both the US and China. That was enough to rally markets, because in a slow growth (less than 2%) environment the incremental data pointing to either acceleration or deceleration is particularly important. There is a lot of discussion out there regarding how the US might get back up to its normal growth path of 3% per year. I’ve mentioned in prior Kee Points economist George Shultz’s growth precepts from his piece, Three Principles of a Vibrant Economy. They are:
(1) Keep the regulatory system clear, simple, and easy to administer, and then live with it.
(2) Keep the tax system as simple as possible.
(3) Make economic policies predictable.
Shultz was a career Republican who held four major cabinet positions (Head of Office of Management and Budget (OMB)), Secretary of Treasury, Secretary of State, and Council of Economic Advisors). In the interest of balance it would be nice to have the views of a similarly accomplished Democrat on what would constitute a good growth plan. Fortunately, Larry Summers (former Treasury Secretary, Chief Economist at the World Bank, President of Harvard University, and Director of the United States Economic Council, Head of Council) recently gave a talk at the University of Chicago with the title, “Four Common Sense Ideas for Economic Growth.” Summers’ points include:
(1) Expand public investment (government spending on infrastructure) and increase support for private investment in infrastructure (mostly by eliminating bureaucratic red tape).
(2) Corporate tax reform, particularly lowering taxes on earnings of US companies that were generated overseas.
(3) Grow the effective labor force through education spending, more intelligent immigration policy, and design of our social safety net and disability insurance (more incentives to work and more confidence that help will be there if jobs are lost).
(4) Reduce the crisis-prone nature of our financial system.
Interestingly (or even oddly), Summers echoes Nobel Laureate Robert Mundell from about 20 years ago stressing the growth imperative, or that no matter what is on your wish list (more money for social programs, concerns over debts and deficits, etc.), it will be better facilitated with higher growth. Summer’s last point on financial reform also mirrors Mundell, who has argued that we have lurched from one financial crisis to another ever since we went off of the Bretton-Woods system of a gold-linked dollar and fixed currency exchange rates.
Posted on Mon, April 4, 2016
by Danny Aleman