Shrinking Economies Deserve Gridlock

This will be very short.  Growth solves a multitude of economic sins.  So what prevents countries from encouraging growth?

  • Cronyism
  • A shrinking population, or something near that.
  • Too much regulation that affects production or hiring.
  • Cultural decay.

When economies stop growing, factions argue over their slice of the pie.  Gridlock ensues, and nothing good comes of it.

I wish I could be more optimistic here, but the world works better amid growth, but the policies of our governments suppress that.

A large part of this says don’t press your own agenda, it is not good for everyone else.  A freer economy creates more growth, freedom promotes opportunity.

But an economy where taxes are regular and predictable promotes growth also — corporations can plan for the longer-term, and not worry that current investments might earn less from higher future taxes.  Businessmen want predictable future taxes, which is one reason why a budget that is way out of balance concerns them.

Politicians do better with a rapidly growing economy because their revenue base allows them flexibility, because taxes received will rise without government action.  To them, the growing economy is magic — the gift that keeps on giving, but they have no idea what affects it.  They want to see the economy grow, aiding their efforts, but they engage in all manner of regulations that reduce growth.

The back-and-forth on issues like this produces gridlock, where deficits persist, amid growing needs elsewhere, and constrained taxes. I don’t see how 15% of the US states escape bankruptcy, even though they can’t do that.  There will be many significant fights over employee benefits in the states over the next 20+ years.  Only when we get past this black hole will growth revive.  (Add in normal monetary policy as well…)

 

1 Comment

  • Crocodile Chuck says:

    David,

    Growth will never ‘revive’ with oil @ $100 a barrel. And its not going to get cheaper.