4% annual macro growth would be great. Today, Paul Krugman offers a couple of suggestions for how to achieve this and he explores how the U.S economy grew in the 1990s. In June 2015, John Cochrane offered a much more specific plan that would achieve this key goal. Will Dr. K really allow Dr. C. to “Trump him” in the market for ideas?
Let’s start with what the Nobel Laureate and Clark Medalist has to say; his focus here is why the 1990s was such a good decade for the U.S
(a direct quote)
“Specifically, the 1990s were the decade in which American business finally figured out what to do with computers — the decade in which offices became networked, in which retailers like Wal-Mart learned to use information technology to manage inventories and coordinate with suppliers. This led to a surge in productivity, which had grown only sluggishly for the previous two decades.
The technology takeoff also helped fuel a surge in business investment, which in turn produced job creation at a pace that, by the late 1990s, brought America truly full employment. And full employment was the force behind the rising wages of the 1990s.”
…
One big lesson of the Clinton boom, then, is that the conclusion conservatives want you to draw from their incessant Reaganolatry — that lavishing tax cuts on the rich is the key to prosperity, and that any rise in top tax rates will bring retribution from the invisible hand — is utterly false.
The other big lesson from the Clinton I boom is that while there are many ways policy makers can and should try to raise wages, the single most important thing policy can do to help workers is aim for full employment.
AND HERE are his new policy proposals
Unfortunately, we can’t count on another spontaneous surge in technology-driven private investment to drive job creation. But some kinds of private investment might grow rapidly if we take long-overdue steps to address climate change.
And in any case, not all productive investment is private. We desperately need to repair and upgrade our infrastructure; meanwhile, the federal government can borrow money incredibly cheaply. So there’s an overwhelming case for a surge in public investment – and one side benefit of such a surge would be full employment, which would help produce another era of rising wages.”
Now let’s hear from John Cochrane (a direct quote)
When I answer the question, is 4% growth for a decade economically possible, my answer is whether the most extreme pro-growth policies would yield at least that result. A short list:
The tax code is thoroughly reformed to do nothing but raise revenue with minimal distortion — a uniform consumption tax and no income, corporate, estate etc. taxes, or deductions.
A dramatic regulatory reform. For example
Simple equity-financed banking in place of Dodd-Frank.
Private health-status insurance (with, if needed, on-budget voucher subsidies) in place of Obamacare.
An end to the mess of energy subsidies and interference. No more fuel economy standards, HOV lanes, Tesla tax credits, windmill subsidies, and so on and so on. (If you want to control carbon, a uniform carbon tax and nothing else.)
Many agencies cease to exist.
No more endless waits for regulatory decisions.
No more witch hunts for multibillion dollar settlements.
Thorough overhaul of social programs to remove disincentives. Most help comes via on-budget vouchers.
No more agricultural subsidies.
No more subsidies, period. Fannie and Freddie closed down.
Unilateral free trade.
Essentially open immigration — anyone can work.
Much labor law rolled back. Uber drivers can be contractors, thank you. Most occupational licenses removed — anyone can work.
Drug legalization.
School vouchers.
Source:
http://greeneconomics.blogspot.com/2016/05/paul-krugman-vs-john-cochrane-on.html
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