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We've Given Up On Growth

Increasingly, society has leaned heavily upon consumer spending to create the impression of economic vibrancy. The belief this rests upon is that if more people bought more stuff then the companies that made the stuff would be moved to hire more people, creating ever more buyers to buy even more stuff.

It has been this logic that has led those in government to focus much of their attention (when they’re not raising money for their next election) to figuring out how to best encourage spending. Not surprisingly, making cheap debt capital abundantly available has been the primary answer that politicians and their economic advisors on both sides of the aisle have arrived at.

So, seemingly not having learned the lessons of 2008 well enough, or intellectually unable to come up with a plan other than the same one that nearly destroyed global finance, or, maybe worst of all, having completely abandoned hope of any real economic growth occurring, these folks have returned to the failed policies of the past.

Loosening credit standards for prospective mortgage borrowers and punishing banks or investors for holding low risk assets by forcing real rates of return towards zero and even negative will always cause a bubble that will inevitably burst.  How sad it is that those in power, who must know this, are either so bereft of fresh ideas (and are thus poor choices for their current jobs) or are so cynical and uncaring about our society as to pursue policies that will surely lead to bust.  Today, these policies are not only being pursued with abandon in the U.S. but even in China, the place of economic miracles and booming growth statistics. Last month its central bank besieged Chinese banks to find a way to finance more first time homebuyers in order to counteract the collapse in housing values that is taking place in many Chinese cities.

What the world needs is real economic growth.  However, as a necessary prelude to that we need to first believe that economic growth is possible.  It seems to me that all of the redistributionist rhetoric, along with the aforementioned government policy, is a reflection that our leadership has given up on growth and is now busy bickering as to how best to distribute the pieces of a static pie.  There are too few leaders articulating a vision of future vibrancy.  As I said last week in my posting entitled “Dreams and Freedom”, the world needs dreamers and a society that encourages them to pursue their dreams.  Innovation, creativity, and good old-fashioned hard work are still the correct recipe for economic growth.  But we live in a political and regulatory world that is set up to obstruct innovation, and with policies that actually discourage hard work.

There are huge industries yet to be built that can and should add immense value to our economy and, importantly help and not hurt our planet.  Waste management is one such example.  Energy efficiency is another and there are countless others.  There is an important role for government, but government must be effective.  Today our government has created many obstacles towards entrepreneurship, and has done little to protect us, or the planet we live on.  Our water and food systems are being degraded daily, our infrastructure is decayed, and our power system is dirty, dangerous, and antiquated.

Our economy is stuck in the slowest gear, with barriers that keep new companies from getting strong and that, at the same time, prop up companies and even entire industries whose plans are old and tired.  Last week I read a WSJ editorial written by Governor Sam Brownback of Kansas in which he explained how his policy changes have invited a surge in new business creation.  One of his key moves was to eliminate the previous 6.45% state income tax for smaller businesses, which, by the way, employ 77% of all Kansans. In the past year a record number of small businesses have been started in Kansas.  There are many other tools in the toolkit to encourage and stimulate real economic growth.  Genuine change can happen and must if we are going to create economic vibrancy.  If we continue to quarrel about how to divide a static economic pie our society will continue to fracture and it won’t be fun for anyone.

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