Glenn Hubbard and Kevin Warsh wrote an article in which they
discuss: “How the U.S.
Can Return to 4% Growth,” which is the title of their piece. It also came under
the subtitle: “Short-term policy gimmicks need to be set aside in favor of
longer-term tax and regulatory reforms.” The article was published on June 22,
2015 in the Wall Street Journal.
You look through the document to see what new ideas the two
gentlemen brought to the discussion and find none. Mercifully, however, they
kept the politics at a minimum but analyzed the current state of the economy
through the one-sided prism of market forces. Doing so, they found the economy
to be under-performing, thus suggested remedies which are the familiar
offshoots of market-based economic theories.
The fact is that these theories have been around for more
than two centuries. They serve a world that is made of several nations inside
of which exist hundreds of economic jurisdictions called provinces or republics
or sovereign states. These, in turn, try one economic tool or another; and try
one combination or another at various times. The result is that the
jurisdictions experience success some of the time but not all of the time.
Why is that? Because different circumstances require
different tools or a combination whose potency does not seem obvious before you
try it. The jurisdiction that stumbles onto the tool or the combination that
suits the current circumstances, achieves success. Unfortunately, however, no
matter what the advanced economies choose to do, they no longer experience the
high rate of growth they used to enjoy in the past. At best, they experience a
two percent growth at a time when the emerging economies post a rate that can
be three or four times as high.
There are several explanations for that phenomenon, but like
everything economic, they explain some things some of the time but not all
things all of the time. There is, however, one explanation which everyone seems
to have overlooked. To understand it, we must recall the situation as it
existed when the advanced economies of today were beginning to industrialize.
We can then compare that situation with what we see today.
Even though such economies were “emerging” industrially at
the time, they were at the cutting edge of progress because no one else was
crowding them. Some jurisdictions relied on market forces, and managed to
achieve a high rate of growth. Other jurisdictions chose to intervene
physically in the economy – for whatever reason – and fell behind. Observing
these performances generated the inspirations that helped formulate the
economic theories which remain in effect to this day.
The trouble, however, is that something has changed between
then and now. While the advanced economies remain at the cutting edge of
progress – in the sense that they continue to grow by the organic method of
invention and innovation – they are prodded from behind by emerging economies
that do not need to reinvent the wheel, so to speak … though they do a modest
amount of research and development.
More importantly, these economies grow because they mimic
what was done by others in the past. They also benefit from the inventions and
the innovations of their contemporaries. They help themselves where and when
they can … whether or not they have prior permission. The thing, however, is
that even when they abide by the rules of the marketplace at the financial and
commercial levels, having replaced the organic growth with mimicry amounts to
intervening physical in the economy. That's what differentiates between the
present and the past.
Thus, in the competition between the two sides, the advanced
economies find themselves at a disadvantage. The way to level the playing field
is to counter the physical intervention of others with physical intervention of
their own. What must not happen, however, is the inadvertent triggering of a
trade war. To avoid it, a protocol must be negotiated by the nations of the
world, allowing the jurisdictions to protect key industries up to a negotiated
percentage of their local consumption in these industries