Paperback Writer

What Makes Our Country Grow?

I just finished reading a book with a unique point of view point on how policy impacts economic growth.  Obviously the most important and watched measure of our countries economic success is Gross Domestic Product, which is measured by summing all of the spending in the economy:

consumer spending + business investment + government spending + trade balance (exports - imports).

The book is called Seeds of Destruction (real optimisms, huh), and I like this book because it evaluates policy on its effectiveness in maximizing GDP growth, and since GDP growth has the dual affect of increasing employment and reducing dependency on government, it truly is the rising tide that lifts all boats. 


(Now before you go running to the bookstore and find that this book is from 2010, please note that I like to read books that are a few years old because if their theories could not hold up over that short amount of time then I can just quit reading them, also, I'm cheap and the public library is my main source of material).

Here are some of the high level themes:

Consumers Spending (70% of GDP):
Personal consumption has moved higher from its historic and optimal point at 66% (you'll have to trust me on this, read the book if you want to know why).  The reason it has gone higher is monetary and fiscal policies that encourage spending over savings.  Ultimately the way to bring this back into balance is to have monetary policy that is less inflationary and strengthens the dollar (higher interest rates).

Further, eliminating tax deductions on heavy spending like homes, and reducing the tax burden on investment would create more incentive to save, which is better for long term sustainable growth.

Business Investment (15% of GDP):
Business investment is the driving force of the economy and as such needs to be encouraged in as many ways as possible.  Reducing taxes on corporations and investors while limiting regulation are very simple and easy paths to higher levels of investment.

Government spending (20% of GDP):
The key concept to government spending is how it crowds out productive investment.  Limiting spending and balancing budgets provide a path to sustainable growth.  Health care is singled out as one of the driving factors needing addressed, and the book is critical of Obama's health care mandate because it does not address exploding care costs.

Trade Balance (-5% of GDP):
The vast majority of our trade deficit is comprised of 2 factors:  Dependence on foreign oil and Chinese trade practices.  Reducing foreign oil dependence and pushing for fair trade practices with China (currency manipulation, technology piracy, tariffs, etc...) will eliminate imbalances and provide net growth for the economy.

Below is a good blog comparing two very different recoveries from deep recessions in terms of GDP growth (Reagan v. Obama):

http://www.bizzyblog.com/2012/01/28/pethokoukis-of-course-its-fair-to-compare-the-obama-and-reagan-economic-recoveries/

Reagan path:
Strengthen Dollar
Reduce Tax Burden
Reduce Regulation Burden
Strong foreign policy

Obama Path:
Weak Dollar
Increase Tax Burden
Increase Regulation
Increase Spending
Weak foreign policy

Bottom line is that this is a contrast of how government policy matched up with growth coming out of a recession.  We had a strong blueprint for recovering very rapidly and have chosen to go down a different path.  The result has been a very weak to non-existent recovery. 

This book illustrates in what ways we could be doing it better to improve economic growth.  I am not saying I would endorse all of the ideas for fixing GDP from this book, but at least they propose tangible actions to be considered.  If you truly want to see improvement in ALL AREAS of society, the singular path is thru economic growth.  This is a book that shows ways to get there (and how to screw it up).  Again, a rising tide lifts all boats.