Assessing America’s Economic Growth Conditions

Introduction:  Economic growth in a complex economic system has many variables. This essay concentrates primarily on those conditions that may reasonably be actionable to increase growth.  The more opportunities that are acted upon, the greater will be the favorable result, but for ceteris paribus.  

There is always uncertainty in the economy, even if something positive is expected, there is uncertainty until it happens.  There is no positive side to uncertainty.  The more matters are uncertain; the less willing are businesses to invest in changes, even when planned.  Most uncertainty is the result of what government is going to do.  Next in uncertainty is whether an economic theory works.

Economic Growth Reports:  Government produces large volumes of economic statistics, and one of great importance is quarterly and annual amount of Gross Domestic Product (GDP), the dollar value of all goods and services produced within a period of time.  The quantity of data and computations are enormous.  It is likely the most often cited economic report, because it is a proxy for evaluating the nation’s economic performance.  

Important Generalities:  Lower rather than higher interest rates are beneficial, as is stable value of money,  but these conditions are like taking the horse to water, but you can’t make it drink.   Increasing population always is a growth accelerator, and more so for live-births born in the U.S. than by immigration, but immigration is more immediately growth-positive because most new immigrants add to GDP soon after their arrival.  

Government’s Positive Role: The free market system in the U.S. is not absolutely free from fraud, coercion and unfairness, but compared to other countries – whether capitalist societies, or some other system – the U.S. ranks near the top of all nations for decades.  The role of government in establishing fairness of markets is substantial.  From the beginning in colonial America through the present time, governments of the states have generally favorable records of administering the rule of law and due process, and government’s adhering to non-interference in private contracts.  Abundant levels of courts are available for adjudication of commercial disputes; small claims and general courts at state and municipal levels and federal district courts abundantly located and numerous appellant courts.   Settlements of commercial disputes are now uncommon beyond district court jurisdictions, indicating the law is settled and respected. Commercial suits used to make up a majority of Supreme Court dockets in decades past; and now practically none. The United States ranks 6th in the world in economic freedom ahead of every country in the European Union as ranked by the Cato Institute and the Fraser Institute (Canada).  The Freedom Index is a collaboration between these two premier think tanks. Higher ranking are capitalist Asian nations plus Switzerland

Negatives of State Actions:   State legislatures have police power to regulate public health and safety.  Over the last fifty years, and growing at an increasing rate, states and municipal governments have gone beyond protecting health and safety to requiring licenses for a variety of occupations having no health or safety component.  Their purpose is to reduce competition for these businesses already established; in other words to establish monopolies.  Licenses cover more than 1,000 occupations within the 50 states and include individual businesses, such as hair-cutting, automobile repair and horseshoeing.  Starting one’s own business has been an American “institution” since colonial days, and for immigrants too.  License requirements now cover nearly twenty-five percent of the total labor market.  Unnecessary licensing barriers to free enterprise are an important reason the U.S. no longer ranks as the freest nation in world rankings of economic freedom; the cost to start a new business is very important in the criteria, and is my candidate for the largest impediment to employment growth today.  

Negatives of Federal Actions:  The powers of federal agencies have outstripped the limits assigned by the U.S. Constitution.  Regulation now extends to the conduct of nearly every person, from the age for child care until death.  In spite of such extensive regulatory help, America still has too many under-educated adults and even illiterates (14% of adults), high-cost housing and homeless people, agricultural poverty, welfare relief still ineffective after more than fifty years and trillions of dollars of spending.  And the costs of all these inefficiencies in the market have staggering results.  The General Accounting Office (GAO), the management consulting arm of Congress, estimates in 2018 the annual cost of agency regulation borne by the economy is more than two trillion dollars.  I interpreted the GAO’s work as honest, but understated.  This on top of perhaps an equal annual payment of taxes is a huge amount with inadequate payback.  There is no doubt these costs are growing, notwithstanding efforts by the Trump administration to require that any new regulation must eliminate two existing regulations.  Lastly, “crony capitalism” wastes America’s resources on politically inspired propositions.  Their failures are known by such names as The Jones Act and Solyndra Energy. Finally, the government should allow bankruptcy laws to play out without interfering with the judiciary.  These propped-up zombie companies consume resources and negligibly contribute to GDP.   

Encouraging Entrepreneurs in America:  The causes of GDP growth were established in a separate One-page Essay.  “Entrepreneurs” are the source of much sustained economic growth. These uncommon people, entrepreneurs, see how to make the economy work better, and causing old-way competitors to be replaced.   A vibrant economy is a stair-step process of two-steps up and one-down.  It is how growth works; Joseph Schumpeter, Nobel Prize economist called it “creative destruction.” Yet, what the government does – but without being obliged to do — is to discourage opportunities, and what the government does not inhibit, unions, where applicable; and environmental furies will begin legal harassment such as happens for infrastructure initiatives.  The best the government can do to create growth is to stay out of the way or alternatively to reduce the capital gains tax, a disincentivising tax.  

To the socialists, I say the possibility of socialism out-performing American capitalism is impossible.  I find it quite impressive the economy performs as well as it does carrying so much unnecessary baggage.  It is a testament to American business leadership in every sector.                                                                                  December 4, 2020