The 4% Solution - Unleashing The Economic Growth America Needs by
The Bush Institute and Brendan Miniter is a treatise on growing the
economy beyond the 2.3% rate in recent years which is below the average
of the previous six decades. The authors look toward a 4% growth in
GDP on a sustained basis. The challenge is to grow economies at a
high level without high industrial pollution as a consequence.
The blueprint of the book unfolds by lowering the debt of the United
States and allowing hard workers to exploit opportunities. Past years
have shown that higher growth tends to reduce debt because higher
tax receipts are received in response to more people working. Economic
growth was greatest in the United States from 1950 - 2008. The highest
growth in GDP was in the United States, Great Britain, Germany, Italy
and Japan. Today, despite a host of challenges, prosperity in the
United States exceeds Europe by 40%.
The authors point toward the top professions as agents for boosting
the GDP. Along with the professions are highly educated people with
degrees; such as, PhD, Masters, Bachelors and Associates.
Computer related industries grew from $200 billion dollars
in 1977 to $1.6 trillion dollars by 2007. These industries
are telecommunications,systems design, data processing,
publishing, computer and electronic products and services.
According to the authors, the top United States exports are
operating leases, film, television, law, mining, engineering,
education, finance, medicine, equipment repair, industrial
engineering , consulting and travel. The book explains that
free markets encourage workers, companies and investors to
undertake productive activities. Free markets do require
some regulation to protect consumers and prevent too much
leveraging in the stock market, as well as risky practices
in derivative transactions.
The authors support the idea of a lower federal debt with
increments in property taxes for immovable property, higher
consumption taxes and a fairer collection scheme for personal
income taxes. The sum total of doing these things would equate
to a pro - growth policy implementation according to the authors.
The 4% Solution has some important contributions to make to
the ongoing debate on the economy.The discussion on free markets
is subject to the cooperation the United States gets with its
trading partners. The idea of lowering the federal debt will be
partially dependent upon the United States staying out of future
foreign entanglements and wars.
In addition, the population in the United States has been growing
by nearly a million people a year beyond the death rate in the USA.
Ultimately, government planners must examine whether or not
this growth rate in population is sustainable for the long term.
The authors don't have enough discussion on the need to upgrade
a failing infrastructure which has needed attention for decades.
Saving Medicare and Medicaid would be simpler to do by reducing
the cravings Americans have for junk food along with a tendency
to function without daily exercise.
Perhaps, the best way out of the junk food albatross is
to raise consumption taxes to fund the public health care.
To its credit, the Bush Institute left consumption taxes on
the table as a policy option. Otherwise, the book deserves
consideration on the merits with the inclusion of the
provisos listed above.
Article first published as[...]Book Review: The 4% Solution : Unleashing The Economic Growth America Needs by The Bush Institute and Brendan Miniter</a> on Blogcritics.
on August 24, 2012
The 4% Solution is a collection of articles written by more than two dozen contributors, including five Nobel Laureates in economics and a number of other people, some with vast administrative experience. The preface is written by former President George W. Bush.
Its premise is this: If the United States could achieve a growth rate of four percent, it could aggressively retire a significant portion of the mountainous debt burden. Moreover, this could be accomplished in a couple of decades. Now, the historical average growth rate of the US economy averages around three percent, so a skeptical reader might ask, what's the big deal of one more percent in growth? If the skeptic knew some economics, he or she might ask further, is a four percent annual growth rate even possible? If you read this book, you will see that we would get a very large return from that extra one percent if we could attain it. James Glassman, the author of the book's introduction, writes that a quarter of our $13 trillion debt could be eliminated, if the four percent growth rate took off in 2017, by 2021 (p. xx). As for the four percent growth rate, the US already achieved that (or better) in 23 of the last 60 years. So it is at least a mathematical possibility. Moreover, if this growth rate were attained, it wouldn't have to last forever: Once the US is out of the weeds, its economy could settle back to its historical, sustainable growth rate of about three percent, and our grandchildren could live as well as or better than we do.
So how can we do this? There are many very interesting and reasonable tactics proposed by the authors, which cannot be considered in their entirety here. But underlying all of them is the core philosophy of the book, which I will try to represent momentarily.
Most of the contributions to this book are premised on the belief that the real engine of technical and economic progress is entrepreneurship. Peter G. Klein ("Entrepreneurs and Creative Destruction," Chapter 9) provides a lucid analysis the entrepreneur from a social psychological perspective, though following an important strand of economic thought represented by the likes of Von Mises, Schumpeter, and Hayek. At the most general level, entrepreneurs are really society's change agents. They have existed in all societies and at all times in human history, not just in capitalistic societies. In capitalist societies in particular, entrepreneurs are the driving force behind product and technical innovation. Their successes cause society to redeploy its resources to more profitable and productive uses, creating economic growth, albeit in the wake of "creative destruction," in which obsolete products and assets disappear or are disposed of. It is because of the entrepreneur's desire for economic gain that these processes have generated consistent growth over the past century in spite of the ever-present threat of diminishing returns. The prospect of material gain is the prime mover here--without it, entrepreneurs wouldn't work the insane hours and take the financial risks associated with business start-ups. And while the potential rewards are great, the penalties can be devastating. Thus, in addition to the cognitive skills and knowledge the entrepreneurs may have--to wit, technical, industry-specific, and business competencies--a powerful emotional component galvanizes the entrepreneur's energies and capabilities. This focus impels the entrepreneur to be sensitive to his or her market, to be resourceful and innovative in the selection of production and distribution methods, and to keep a close watch on where the money is going and what it is buying. The incentives are immediate and tangible; the connection between them, the entrepreneur's actions, and his fate is clear.
On the other hand, government planners and administrators, in the eyes of most if not all the authors, have neither the detailed industry and product knowledge nor the skin in the game that entrepreneurs have. For this reason, they are less likely to be effective in leading technological growth and change than the millions of individual entrepreneurs out there who, each in their own ways, seek enrichment through the work of implementing innovations, of bringing them to market, of making them "real." Moreover, entrepreneurs only get paid if they are successful. Thus, the government should reduce (but not altogether eliminate) its role as director of society's investment in innovation and leave more room for the entrepreneurs to do what they do. It should make changes in the tax structure and reduce regulatory constraints in order to make it easier to start a business, increase the prospective yields and reduce the riskiness of start-ups. Thus unleashed, entrepreneurs will rise to the occasion, perform their socio-historical mission, and drive economic growth.
While there are a great number of actions the authors recommend to get the US back on track, and while not all of them specifically refer to the polarity of government involvement vis-à-vis the "unleashing" of the entrepreneurs, all of the suggestions either explicitly or implicitly invoke this historical dilemma as backdrop. Here is a partial listing of tactics suggested in The 4% Solution to accomplish its goal:
* Reduce the corporate tax rate
* Raise the threshold for firms to implement Sarbanes-Oxley requirements from its current level of $75 million to, say, $1 billion
* Exempt capital gains from taxation for the first few years of a new firm's existence
* Eliminate or streamline regulatory processes to reduce the time and expense it takes to start a business or to launch a project that has, for instance, environmental consequences
* Let the private sector handle targeted R&D, and let the government fund basic research, as the innovation process works best when it wells up from the bottom, not when it is directed from the top
* Loosen the restrictions imposed by university licenses on inventions (and allow inventors on university payrolls to team up with entrepreneurs who know how to bring their inventions to market)
There is much more to the book than these recommendations, which are obviously directed to making the world a more congenial place for entrepreneurs to perform their socio-historical mission. The tactics just listed are explained in more detail, obviously, than can be presented in a book review, and are bolstered by economic research (though knowledgeable readers may question their interpretations of the research data) The book's authors also address the problems and prospects of Social Security reform and education, and review US immigration policies based on human capital considerations. Their positions are clearly stated, well-explained, and stimulating of productive dialogue, even if one doesn't always agree with them.
As mentioned earlier, several of the contributors to this book are practical men and women of affairs. To cite only one of example, Carlos Gutierrez, former Secretary of Commerce (and former CEO of Kellogg) contributed the essay, "Growth Needs Trade." It is an appeal that the US be more aggressive in negotiating Free Trade Agreements than it has been to date. This would support an increase in US exports (and help assure that they don't decrease), greatly needed if it is to reduce its current trade deficits. Increased exports would generate increases in GDP and contribute, through increased tax revenues, to a reduction of the national debt. He also suggests the devaluation of US currency vis-à-vis that of China. This would make the prices of Chinese imports more reflective of the true costs of their production, cause the prices of Chinese imports to rise in the US, and (if I hear him correctly) make investment in US domestic manufacturing more appealing. Of course, this would be painful for millions of Walmart shoppers, many of whom would be among the hardest hit by the tax cuts implied by some of the proposals reviewed above. And this brings me to an important point that the book does not address.
Clearly, the tax reductions outlined earlier would reduce government revenue, at least initially, while the newly unleashed forces of innovation are busy redeploying society's factors of production. This process could take years. Meanwhile, there is a large portion of the population that is dependent on government assistance, i.e. recipients of welfare, long-term unemployment benefits, and possibly even SSI. For people living on the edge, six months, never mind a decade, is a very long time. Take away their safety net, and regardless of what you think they ought to do, they will probably react strongly, and probably negatively. Depending on the suddenness and severity of the withdrawal of government assistance, they may, when confronted with increased impoverishment, reach out for or be receptive to alternative ideologies, most likely ones that are uncongenial to capitalism and entrepreneurship. Such alternatives are afoot, and gaining ground as this is written. Let the history of the last hundred years be our teacher.
To say that the authors don't address the question of how to address the issue just raised is not to identify a flaw in this book. It is not a flaw. The authors did precisely what they set out to do, and in my opinion, did so effectively. But if the Bush Institute's team wrote a sequel to The 4% Solution that addressed this issue, I would be at the front of the line to buy a copy of it. I have little doubt that they could.
Whether or not you agree with its theses or its recommendations, The 4% Solution clearly presents the issues that underlay current political discourse in the US. It is well worth reading, if only for that.
on October 9, 2012
This book, published under the auspices of the George W. Bush Institute, comprises twenty-one chapters, each written by a noted economist, and more than a handful of them have won Nobel Prizes in their field. Basically, the book explains why the United States should have an annual goal of 4% increase in the Gross Domestic Product, which is the market value of all officially recognized final goods and services produced within a country. The book details the history of our GDPs, explains how close we are to that level now, how and why we have reached that level in the past, and what the government needs to do to reach this goal now. The various writers assure us that it is definitely obtainable, and tells us what benefits the country would reap once we reach that 4% level year after year, including higher employment and lower deficits. One point the book pushes hard is that a government policy of "job creation" as a goal is off-track as it encourages government to engage in counterproductive pursuits. The government needs to stand back and allow free capitalism to work its magic. Many historical examples of past successes and failures strengthen this argument. A solid education is an important factor in this. America has the best college system in the world, because colleges are very competitive among themselves. Yet, our high school equivalency rating is dropping below many other nations, namely for the lack of competition to drive individual schools to improve. Government in the way, again. Trade barriers, tax policies (which give this nation the highest corporate income tax in the world), useless or wasteful work regulations, these have led to our current economic woes. Much is said about how China is prospering, the US is faltering. The book exclaims how this is a myth made believable by the rabid growth in China. But, the average income per person in the United States is $32,000 while in China it is $6,700. And the US has the ability and resources to grown even stronger than this new industrial nation. I've just scratched the surface here. The book goes much deeper, often into depths I can't fathom. Now, if I were a financial smarty, I would get much more out of this book. Things like logarithm tables and charts and financial terminology would then be easily understood. Now, I find them difficult. But, after working my way through this book, I do have hope for the future if we can select the proper leaders to follow the sound advice in the pages of this stirring book.