Tags: economy | tax plan | employment | investment

Trifecta to Grow the Economy

By    |   Friday, 08 May 2015 05:06 AM

Labor productivity dipped roughly 2 percent in each of the last two quarters, relative to the previous quarter: an ominous sign, especially since it reaffirms a long-term trend that began in the early 1970s - after the U.S. left the gold standard.

Since 1971, the growth in output per hour declined substantially - from 5.5 percent to 0,5 percent in Japan; from 3.5 percent to minus 0.5 percent in the United Kingdom; and from 2.5 percent to 0.5 percent in the United States, according to the Total Economy Database of The Conference Board.

The increase in research and development investment in the U.S. during this time period also fell considerably, according to the U.S. Commerce Department and Deutsche Bank.

From 1987 through 2008, U.S. research and development grew a mere 0.3 percent per year, compared with 4.9 percent annually from 1953 through 1987, according to Information Technology & Innovation Foundation, a non-partisan research and educational institute.

A major contributor to low productivity growth has been insufficient capital investment, cites a report from the Aspen Institute and the Manufacturers Alliance for Productivity and Innovation.

During the 25 years from 1948 through 1973, labor productivity rose 3.5 percent each year. However, over the next 42 years, productivity increased a paltry 1.5 percent annually for 36 of those years, according to the San Francisco Federal Reserve, the Bureau of Economic Analysis and the Bureau of Labor Statistics. (For the remaining seven - from 1996 to 2003 - it grew at a 3.5 percent clip during the internet boom.)

Given the aging U.S. population, future productivity gains look bleak. This outlook is echoed by John Fernald and Bing Wang, researchers at the Federal Reserve Bank of San Francisco.

The key to our long term prosperity is the enactment of measures that drive direct investment in labor, materials and capital expenditures. The results will include more robust employment, productivity, income, economic growth, and purchasing power for the masses. (It’s important to note that financial speculation and arbitrage tend to extract and transfer equity, rather than create value.)

I recommend the following reform trifecta to achieve these objectives: monetary, fiscal and political.

Monetary policy that links increases in the money supply to the production of real assets will promote a strong and stable purchasing power for the masses over long periods of time.

My tax plan will increase investment and employment by reducing the cost of labor and capital. It will do so by replacing all federal taxes with a low and transparent tax rate on consumption and savings. This will expand the tax base by including much unreported income and minimizing tax deductible income; lower tax compliance costs substantially; balance the budget at current spending levels; and keep a lid on inflation.

Term limits will enable an effective enactment of prudent monetary and fiscal initiatives, since the political class would not be inoculated from the legislation they pass for very long.

Like a sturdy three legged stool, this public policy trifecta may be the key to our economic prosperity.

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My tax plan will increase investment and employment by reducing the cost of labor and capital. It will do so by replacing all federal taxes with a low and transparent tax rate on consumption and savings.
economy, tax plan, employment, investment
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2015-06-08
Friday, 08 May 2015 05:06 AM
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