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Economic Growth and the Policy Debate

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argue.jpg In a campaign season here in the United States that seems more like a shouting match than politics, this week's EconTalk episode raises an interesting question. According to guest John Cochrane, a.k.a. The Grumpy Economist, the main issue that we should be concerned about is economic growth. Indeed, "...nothing matters as much as reestablishing or improving on the traditional growth rates." So why don't we hear more about this? (And is Cochrane right regarding the primacy of growth?)

Cochrane is concerned that ever-increasing regulatory burdens are rendering US economic growth sclerotic. His solution- a more "simplified" public life and a renewed focus on the rule of law. But what exactly does this mean? Cochrane offers some policy suggestions throughout. The one most developed focuses on decreasing the debt leverage in banks and turning their holdings to equities as a means of avoiding regulation. He also advocates dispensing with corporate taxes. To what extent might such changes have saved us trouble leading up to 2008? Going forward?

To me one of the most interesting threads is early in the interview as Roberts and Cochrane discuss inequality. Cochrane acknowledges people's concerns about it, and toward the end of the conversation even laments the way he perceives America as turning into a class-based society defined by income. Yet when worrying about inequality, Cochrane says what people are really concerned about is not inequality per se, but rather people's ability to "get ahead." Again, later in the interview, he suggests that in terms of social welfare programs, we should be more generous financially, but this generosity should be paired with more limited time. The problems with social programs today, he says, are with the disincentives they create rather than the amount of money that is spent on them.

If you haven't listened yet, head over to EconTalk and do so. Or read the Highlights. However you approach it, why not let us know what questions this conversation raises for you? (And stay tuned for our EconTalk Extra on this episode, too!)

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COMMENTS (5 to date)
Thaomas writes:

Getting rid of taxes on business income cannot get too much airtime, though it needs to be coupled with proposals like a progressive consumption tax to make it possible. Less leverage in the financial system is a good idea. I think he misses how much of costly regulation is sub-federal. As for promoting growth, I think the federal and state and local governments are passing up many income increasing investments because of fear of "deficits."

Nick Bradley writes:

What are these mysterious 'burdensome regulations' that are holding back US Growth? Any regulations of significance deal with serious externality problems (e.g. pollution).

real GDP growth per 25-54 year old (core working age pop) has been fine.

We've been undershooting our core inflation target by about a half a percent a year for the good part of a decade.

Roger McKinney writes:

Nick, The Federal Register of only new regs has grown by 70K pages per year since 1970 and the pace has picked up since the recession. That's over 3 million pages of new regs. Only a tiny fraction have to do with externalities. Most come from large corps intended to reduce competition.

Check out Phillip Hamburger's Is Administrative Law Unlawful?

Nick Bradley writes:

Roger - please tell me which regulations, specifically, you would eliminate and how the elimination of those regulations would boost growth.

the right is treating it like pixie dust.

AJ writes:

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