November 05, 2010
Agenda for the 112th: Growing our way out of debt?
Posted by Gordon Smith

The United Nations recently published its 2010 Human Development Rankings. Introduced in 1980, the rankings represented "a new way of measuring development by combining indicators of life expectancy, educational attainment and income into a composite human development index." The those initial rankings, the US was first. In the new rankings, the US is fourth, trailing Norway (aka The Motherland), Australia, and New Zealand.

When you look at the component parts of the HDI, the US is fairly on GDP per capita. We cannot compete with Liechtenstein and Qatar, but we come in ninth on this measure, trailing mostly small countries with lots of oil. Where we lag significantly is life expectancy and years of schooling.

What may be more newsworthy is the fact that the US drops to 13th place when the rankings are filtered for inequality. According to the UN: "Under perfect equality the HDI and the IHDI are equal. When there is inequality in the distribution of health, education and income, the HDI of an average person in a society is less than the aggregate HDI; the lower the IHDI (and the greater the difference between it and the HDI), the greater the inequality."

What does all of this have to do with the 112th Congress? What we know is that House Republicans claim that they want to cut spending, but they have neither the power nor the courage to follow England's example. Cuts on that scale would touch Medicare, Medicaid, and Social Security, and that's not happening in the next two years. If Congress wants to attack the deficit when the required budget cuts are off the table, the only other option is growth. The problem is that strong incentives for short-term growth are likely to be found in tax reductions for businesses and investors, which will produce more inequality.

Eric Cantor is making his pitch to the American people by contrasting his growth agenda with "the Administration’s anti-employer agenda." Cantor mentions the possibility of tax reductions for small businesses ("give private-sector job creators an incentive to hire by exempting small businesses from 20 percent of their tax liability"). Otherwise, his big idea is not much of an idea at all:

Conduct an immediate and comprehensive review of existing and proposed government rules, regulations, and statutes that impose additional, unnecessary costs on employers and job creators.

If I had a nickel for every time I have heard this proposal.... If this happens at all, we won't see any results until after the next election, which is mighty convenient. And I suspect that it won't happen at all, which is probably just as well. 

The inconvenient truth is that government is playing on the margins when it attempts to promote entrepreneurship in the US. We already do very well in entrepreneurship compared to other countries, so new ideas for government action end up seeming a bit silly.

On the other hand, governments can do a fair amount of harm to entrepreneurship. It's hard to imagine an environment more destructive of entrepreneurial incentives than one in which the government is lurching from one major new policy initiative to the next. Robert Higgs coined the term "regime uncertainty" to describe the depressing effect of Roosevelt's New Deal on business investment, and the analogy to the Obama adminstration seems apt. Thus, I am very sympathetic to David Hoffman's suggestion that "nothing is good." It seems rather uninspiring, and I suspect that it won't appeal to many elected officials, but it may be Congress' best bet for a growth agenda.

UPDATE: We aren't the first to hop on the "do nothing" train or to peg regime uncertainty as a modern problem. For example, see here.

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