Principles for Economic Revival
September 20, 2010
America's financial crisis, deep recession and anemic recovery have largely been driven by economic policies that have deviated from proven fact-based principles, say George P. Shultz, a fellow at the Hoover Institution, and his colleagues. Here are the priorities that should guide policymakers as they seek to restore more rapid growth.
First, take tax increases off the table:
- Higher tax rates are destructive to growth and would ratify the recent spending excesses.
- For example, the U.S. corporate tax is one of the highest in the world.
Second, balance the federal budget by reducing spending:
- The publicly held debt must be brought down to the precrisis safety zone.
- The government should begin by rescinding unspent "stimulus" and Troubled Asset Relief Program (TARP) funds, ratcheting down domestic appropriations and repealing entitlement expansions, most notably the subsidies in the health care bill.
Third, modify Social Security and health care entitlements to reduce their explosive future growth.
Fourth, enact a moratorium on all new regulations for the next three years:
- Going forward, regulations should be transparent and simple, pass rigorous cost-benefit tests and on market-based incentives instead of command and control.
- Direct and indirect cost estimates of regulations and subsidies should be published before new regulations are put into law.
Fifth, monetary policy should be less discretionary and more rule-like. The Federal Reserve should announce and follow a monetary policy rule, such as the Taylor rule, in which the short-term interest rate is determined by the supply and demand for money. The rate is then adjusted through changes in the money supply when inflation rises above or falls below the target, or when the economy goes into a recession.
Source: George P. Shultz, Michael J. Boskin, John F. Cogan, Allan Meltzer and John B. Taylor, "Principles for Economic Revival," The Wall Street Journal, September 16, 2010.
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