MITT ROMNEY – UNEMPLOYMENT
The financial crisis we recently experienced and its economic aftermath in lost output, jobs, and wealth will be studied for decades by economists. Of course, economic policymakers must react more quickly, and in scope and costs the past few years have witnessed unparalleled policy activism. Much of this activity has misunderstood economic trends and how economic policy works. Entrepreneurs and business, and the innovation they produce, have transformed society through economic growth. At the end of the twentieth century, management thinker Peter Drucker looked back and wrote that underneath all the epochal events of that century were important social transformations linked to business. Business not only spurred transformations through innovation, it also created the material basis for social change. It created wealth that allowed society to adjust to the civil rights revolution of the 1960s, as it had during the profound changes of the 1760s and the 1860s. America needs to get its growth groove back. And getting it back is about not just incomes, but jobs as well. To bring the unemployment rate back to its pre-financial-crisis level by the end of the next president’s first term would require real GDP growth averaging 4 percent per year over that period. That is an aggressive goal, but great progress can be made.
But how? A growth agenda for the nation requires several parts: (1) an emphasis on productivity growth, with policies to support saving and investment, innovation and research, trade, education, and training; (2) a budget framework that does not threaten our fiscal health; (3) tax policy that enhances economic growth; (4) regulation that balances growth with concerns about safety and soundness; and (5) a healthy financial system that meets the needs of savers and borrowers.
These policy elements have three themes in common. First, they are unabashedly about long-term growth, not about papering over structural economic problems with “stimulus.” Second, they note that long-term policy uncertainty about runaway entitlement spending, or threats of higher tax rates, or increasing regulation, or failing to pursue global markets, constrains household and business spending today. Third, they are the key to shared prosperity.
Our problems transcend the 2012 presidential election. One can certainly make a compelling economic case that the Obama administration’s policies, taken together, have worsened prospects for economic growth. But it should not escape notice that they have accomplished this by deepening longer-term problems that have threatened the nation’s prosperity in earlier years. Economic shifts and economic policies that had encouraged consumption and government spending, and discouraged business investment and exports, diminished growth before the crisis.
Indeed, the crisis years of 2008 and 2009 pulled back the curtain on a problem: economic growth had been slowing. U.S. GDP growth has averaged 3.3 percent over the past 50 years. But in the 2002-07 period, before the crisis’s eye of the storm hit the financial system and the economy, that growth averaged just 2.6 percent. And many economists argue that we are in a growth downdraft, where deleveraging and an aging population limit growth. Some economists speak of a “new normal” of growth of at most 2 percent per year for an extended period of time. At that rate, joblessness will remain high.
But these are shadows that might be, not that must be. U.S. economic growth can be faster. All-important productivity growth can be lifted by better tax and regulatory policy. Changes in retirement ages, immigration policy, and support for employment can boost labor force growth.
These themes, likely to be front and center in 2012, will remain a critical part of economic policy debates in the coming years. From here, three policy...