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9 of 10 people found the following review helpful:
4.0 out of 5 stars
Finally!, September 26, 2010
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Finally, we have a book that provides a good guide for the rebuilding of the American Economy. Most books focusing on economic growth assume that economy will recover as long as we have four conditions:
Republicans stress
1. Low tax rates to stimulate investment.
2. Little or no regulation of business activity.
Democrats focus on
1. Government spending to boost consumer confidence and thereby encourage consumers to spend money.
2. Increase business regulation either to increase opportunity and fairness or to increase the power of Washington D.C.
Are either of these prescriptions accurate?
The turbulent last decade has been in a way a great laboratory to test economic theories. Early in the decade Republicans received their chance to prove that low tax rates and reduced business regulations would lead to superior economic growth. Democrats now have had two years to prove that massive government spending would increase economic growth. Sadly, it appears that neither one of these theories is the answer. Currently, unemployment levels are near twenty percent if you count those who have been unemployed for more than six months. Unemployment levels were around twenty five percent during the great depression. Clearly neither strategy has been working very well over the last decade. During the last decade we have had two major stock market crashes, two rounds of fraudulent accounting scandals, and two unsustainable economic bubbles and a negative return on the S&P 500.
The Seeds of Destruction takes a different take on economic growth. Authors Glenn Hubbard and Peter Navarro prescription aligns closely with historical evidence on how economies grow.
Hubbard and Navarro's prescription is:
1. Free markets Free of corruption and Monopoly. "A free market free of monopoly elements - Adam Smith, Wealth Of Nations" According to Adam Smith you need laws to control corruption and monopolies. Lack of trust leads to economic freeze ups because no one wants to take the risk that they might lose their entire investment. This is true in investment markets and the grocery market. Who would shop at a grocery store if there was risk that they would not deliver the groceries over to you.
2. Free and Fair Trade Helps all countries grow. Free trade between two nations will never lead to stronger economic growth for both countries unless both play by the same rules. In short, you cannot have one country protecting its market while the other does not. Nor can one country manipulate its currency while the other does not. Page 32 of this book.
3. Entrepreneurship - Historically what has led America to the top was new inventions in machinery and operations. Innovators looking for easier, safer and more efficient methods in order to reduce waste and increase profits. Joseph Schumpeter observed this in his 1942 treatise Capitalism, Socialism and Democracy.
4. Without savings there can be no investment and growth.
5. Stable banking system. The Glass Steagall Act of the 1930's was implemented to reduce banking instability that contributed to the great depression. After its passage America had one of the most stable if not the most stable banking systems in the world. Ten years after its repeal the United States has had two stock market crashes, two large scale fraudulent accounting scandals and a huge government bailout to save the banking system which is going to cost tax payers billions.
6. Technological change matters more than machines and workers.
7. Workers matter as much as physical capital. Workers create technological innovation with new designs and operational techniques. Second, studies have found that companies that treat their workers well tend to have greater labor stability, higher profits and greater innovation. See The Human Equation: Building Profits by Putting People First
8. Energy dependence stunts economic growth. Oil accounts for 40% of the United States trade deficit in goods. Second, the high price of oil is in effect a tax that is paid to overseas nations such as Iran. In addition, when the Federal Reserve lowers interest rates to stimulate the economy this action is undone by a decline in the dollar which increases the price of oil which slows the economy. So by being energy dependent, you lose some ability to control the economy to foreign nations which may not favor the U.S.
9. A healthy nation is a productive and prosperous nation. University of Chicago Professor Robert Fogel has pointed out that there is a close connection between economic growth and improvements in human physiology. Currently, the US health care system is a reactive system not a proactive system. Why not try to head off problems before they occur. See Diet and Health Live 10 Healthy Years Longer The Blue Zones: Lessons for Living Longer From the People Who've Lived the Longest
10. A solid manufacturing base makes for a strong economy. Manufacturing jobs create more growth in other economic sectors. For every dollar of manufacturing output America creates almost a dollar and a half in related services. Finally, as Andrew Grove (Intel) pointed out in a recent Business Week article (July, 1, 2010) a huge amount of technical and operational innovation is learned on the manufacturing floor. Without manufacturing, a significant amount of innovation disappears from the U.S. economy and moves the the manufacturing country.
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10 of 12 people found the following review helpful:
4.0 out of 5 stars
An informative, mostly non-partisan approach to describe how Washington is fouling up the economy for (almost) everyone., September 27, 2010
Customer review from the Amazon Vine™ Program (What's this?)
There can be no doubt that this nation is going through a period of genuflecting about how to deal with the economic crisis that began hitting our shores in 2007. Certainly, most observers would state that this economic turn-down is not merely just a recession, but perhaps something ominous and more complex than the end of the business cycle.
In this vein, I was interested in reading what arguments these two authors had in resolving the question as to whether Washington is doing the types of things to resolve this crisis in a meaningful way or not. This book takes a breif survey of the American economy through the prism of the Washington blender and argues that the resulting `mash-up' is not only disgusting looking, but even more awful to drink.
I believe the best encapsulation of this book is the argument that good politics is triumphing over sound economic principles. Beyond the blather of political party campaigns are the principles of sound economics that the authors argue this nation is distorting. To wit:
1. Insane fiscal policies which only exacerbate the monetary policies put in place - the cheap dollar that ends up begetting an even cheaper dollar and actually is a chimera for Americans in that cheap interest rates distort savings and investment cycles, cause havoc with business signals and inevitably drive up the cost of living.
2. Questioning the mantra of `free-trade' that is not so `free,' particularly pertaining to China, which the authors describe as being mercantilist in a `free trade' world.
3. Perversion of signals to Americans in terms of driving the economy, from obnoxious taxation policies, to government spending causing `crowding out' and ultimately killing business growth. Also, how the 'entitlement dirty bomb' (my phrase, not theirs) is already here and ready to contaminate the American economy all over and burden all Americans going forward.
4. How oil and health care are adding a huge burden on future Americans, and how Washington policies are driving faulty signals to individuals when making choices causing more problems than are actually solved without Washington's political intervention - the theory of 'second choice.'
Essentially, the authors describe the environment of Washington trying to drive policies that are based on political expediency rather than sound economic policy. I believe the authors make a compelling case that seems to be based on `common sense' for anyone with an economics background,and for those without such background, a non-partisan explanation into how Washington is distorting the economy into making worse choices collectively that ultimately hurt (almost) everyone, not help.
The better parts of the book aren't just another bill of particulars about how fouled up Washington is, but rather some suggestions about how policymakers can make better choices. Many of these suggestions are rendered difficult because of political considerations, not whether the economic principles make for a better nation. Such arguments as sound monetary policy, reforming the housing markets and bank reforms are well argued. But unfortunately, it seems as these arguments are tilting at windmills unless the American people truly become aware at just how Washington truly is ruining the economic climate in a way the truly affects all Americans.
In short, I enjoyed reading this book. I have a background in economics, so much of the discussion of economic principles, signals and inefficiencies seemed like old hat to me. The good news is this book is written for the casual reader, not a Ph.D in economics. It is a short but powerful read, and I learned some new things about economic policy. Plus, the book, thankfully, is not a political rant about fault (everyone according to the authors has some blame apparently), but about providing some possible solutions to these problems.
This book deserves a wide audience, especially in Washington (and state capitals for that matter).
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24 of 33 people found the following review helpful:
3.0 out of 5 stars
Sowing Seeds of Stagnation - a critique and explanation of Obama's Economic Policies, October 20, 2010
Customer review from the Amazon Vine™ Program (What's this?)
Two Harvard educated economists explain why they don't like Obama's economic policies. The book also explains some basic economics. It starts by defining GDP and the levers of growth for the US Economy - free trade, entrepreneurship, savings, bank stability, innovation, human capital, independence from oil, healthy populace, manufacturing. Whereas manufacturing is a lever, I'm not convinced it's an essential lever in a knowledge-based, services-based economy. Whereas manufacturing CEOs are well-paid, the thesis that manufacturing jobs enjoy a "wage premium" may have been true in the past, but in the future knowledge-based jobs may generate higher salaries.
The book has a clear description of problems with the Fed's easy money policies and a critique of government stimulus programs. The book claims that short term stimulus programs make long term structural economic problems, but if the situation is dire, a quick fix can help people - although I agree with the authors that financing an increasing deficit is not good for the economy.
In chapter 5, the authors cry for a simplified taxation scheme and lower taxes. What the authors fail to realize is that taxes applied to the right government programs can enrich the country. They take the popular view that taxes are bad for the economy - without a serious analysis of which taxes are applied. There is a good analysis of the types of tax people might pay, but no analysis of where the government might levy taxes.
Chapter 6 discusses China, reflecting the fashionable beef of US policy makers - it has an undervalued currency and doesn't abide by World Trade Organization rules because it sells at marginal prices. It then goes on to discuss pollution and piracy - behaviors contrary to US business conduct.
The authors admonish US policy makers to find the optimal amount of oil to import, rather than aiming for zero dependence on foreign oil, which would be too costly for the economy. They propose a flexible tariff on imported oil - so weaken their free trade stance.
In looking at ways to reduce Social Security and entitlement program costs, the authors take a purely economic approach. They advocate raising the retirement age. They rightfully point out that the cost of ObamaCare is not well thought out and advocate a more market-driven health system.
This book lacks moral arguments, it is purely focused on economics. There are policies that might be right, but politically abhorrent. A moral society will care for its poor, regardless of economic arguments.
In summary, this book provides a general introduction to current government policies and suggests alternative ways to grow the economy. It is not a detailed book that discusses the details of how you stimulate economic growth through vision, charisma and moral imperatives. Given the authors' Washington experience it is also US centric.
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