Friday, November 9, 2012

A Basic Platform for American Growth

Republicans have tried this election to deflect some of their party members' medieval views on abortion and gay rights by trying to focus on the economy. "Who cares about gay marriage when we need jobs!!!" they say.

Well, these kinds of arguments miss the fact that social issues are economic issues, and vice versa. A party's backwardness on basic facts (like the on the planet and human sexuality) is also indicative of its inability to apply empirically-proven solutions to economic problems. Hence you have a GOP that believes that government spending can't create jobs, unless of course that spending is on programs that they like.

There's a reason why the democrats have a much better track record with improving citizens' economic well-being. It stems from the very limited Republican world-view that neglects that fact that gay marriage does encourage spending and economic growth. It stems from a limited world-view that neglects that inclusive societies, that are able to tap a broader talent pool, are inevitably more successful than that relying on a tiny elite. And it stems from a limited world-view that treats the mass, the true engine of economic growth, as some form of "the enemy."

But even if we're going to get to that point, we have to get some sort of consensus on what drives economic growth. Whether the right likes it or not, there is a clear foundation for liberal policies within neoclassical growth theory. It starts from the stance that income growth ultimately results from two factors: labor and capital.

Improving labor is the work of educational policy and job retraining. The latter was a key part of the America Jobs Act that was blocked last year by Republican Congressmen. Immigration policy also plays a key role. Free markets imply both the free movement of capital and the free movement of labor. We all tend to forget the second part. Attracting and retaining the world's best, brightest and hardest working (at all economic levels) will always remain key to economic strength. Hating on "illegals" is a huge impediment towards getting a better labor force.

On the other hand, improving the efficiency of capital depends on investment policy (like well-managed financial institutions and incentives to save, hence Dodd-Frank), as well as the state of American infrastructure and basic research. Both require government investment, because this sort of public good is never adequately supported by private interests.

At the same time, governing institutions play a key role in providing the proper incentives for people to work, save and invest (in capital and in themselves). This is where social policy comes in, as well-being in general is a key part of a society's general urge for development. Things like inequality, racism, corruption and inadequate health care all negatively effect institutions and place strong constraints on growth.

All of this is summed up in a report from the White House, which details the key investment projects that they believe should be focused on if America is going to keep its edge as the world's economic leader. All of this boils down to encouraging innovation. The internet boom wasn't anything more than America reaping the rewards of a variety of strategic investments (the same is true with the fracking gas boom too). This can happen again, as long as the country can continue to invest in its physical capital and its people.

But it requires effort and it requires the desire to try everything. The silliness of the anti-green energy argument is the lack of a realization that fossile fuels (hopefully in cleaner forms, global warming has its costs too), will always have a role to play. But an economy that is based on diversity, just like any other complex system, will always be stronger than one focused just on one thing (like oil in Saudia Arabia). We should hope for an energy grid that gets equal amounts of power from all sorts of inexpensive sources. But it requires ingenuity, open-mindedness and a strong preference for empirical results.

Take that model - try everything, use lots of technology, relentlessly innovate - and apply it to anything you want. An effective public-private partnership relies mostly on the frame set by the government (with key strategic investments). This includes all of the liberal clap trap I feed you: health care, education, infrastructure, etc. From there, the magic of markets will almost always do the rest.

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