Had great fun guest-hosting on CNBC’s Squawk Box this AM. In one segment, we all whipped around talking about what it would take to move from 2% growth to 4% growth (and we may not even be at 2% right now; probably more like 1.5%). As expected, there were quite divergent views and as even more expected, a lot of inflating of elasticities associated with favored policies.
For example, corporate tax cuts and less regulation. There are surely changes we could make that would clear out brush in both of these areas. The corporate code is hugely complex—no other country has such a large gap between statutory and effective rates. And I don’t doubt that there are regs on the books that don’t belong there anymore. But the historical record just doesn’t support large growth effects from such tweaks. And if we’re talking supply-side tax cuts–cut taxes for those with high incomes and the trickle down will boost investment and growth–well, there the historical record is just plain dismal.
Trade was also raised as something that could help in the near term. I agree, in the sense of greater net exports would boost growth. But how do we get there? I invoked currency values as a key variable here, and there’s a known relationship between the decline in the dollar and more favorable trade flows. But some of my fellow panelists thought more free trade agreements were the answer.
Really?? Again, the elasticity there is small and I’m not even sure what sign it is (i.e., negative or positive). Also, that’s not a near-term proposition.
Basically, conservative economics has mostly beside-the-point answers to this question of what should we do to boost near term growth. Their advocates amp up the growth impacts, but the record doesn’t support them.
Infrastructure investment could help, in the spirit of Neil Irwin’s WaPo piece today, and I’m hoping the POTUS will go there in a serious way tonight.
But so could “do no harm.” Allow the recovery to continue taking hold, while households deleverage, housing wealth begins to build again, the jobless rate slowly—too slowly—ticks down, without setting freakin’ fiscal time bombs every few months.
My prescription would thus be a robust, temporary infrastructure program targeting a) retrofitting public schools and b) improving other key aspects of our public goods stock, and no more fiscal contraction until growth is solidly underway and the jobless rate is consistently falling.