Monday, August 16, 2004

Revitalizing the Economy


In an unsigned editorial (and who would want to sign it), the Washington Post presents a rather peculiar essay on economic growth.
What could President Bush do to boost growth? His officials argue that tax cuts will contribute, but this seems unlikely. Lower tax rates on wages do boost the labor supply; lower tax rates on investment may boost savings; more labor and more capital mean more economic output. But Mr. Bush's tax cuts also have an offsetting consequence. Because they have not been accompanied by spending cuts, government borrowing has gone up, nudging everybody's cost of borrowing higher than it would be otherwise.
Wait - you mean, interest rates have been higher for the past few years than they were in previous years, such that the cost of borrowing has increased? How did I miss that.... If only those darned interest rates had come down, we could have had a true economic miracle, like back in the 90's when interest rates were, um, higher.

Needless to say, I also liked this:
Another option is to tackle the absurd tort system, which claims a far higher share of GDP than in any other advanced country. Reform, if it ever could pass Congress, would boost growth by reducing litigation costs, freeing money that might fund innovation and research, and -- by reducing companies' propensity to withhold products from the market -- eliminate the needs to order unnecessary safety tests and waste time on defensive strategies that are more about reducing legal exposure than about safety. But how much extra growth would this yield? Robert E. Litan of the Brookings Institution puts the answer at just 0.1 percent of GDP per year.
Our "absurd" tort system is based on the common law tort system, which exists in other nations including England and Canada. The biggest difference is not that the system is "absurd" here and somehow not "absurd" in those other nations - it is that those other nations have national health care plans, and thus verdicts and settlements don't include large sums to cover future medical care. As for this pretended reluctance of companies to release products to the U.S. market... what, exactly, is available in Canada and England that manufacturers are afraid to sell in the U.S.? And as much as some people like to whine about it, I don't think that the pressure that the tort system places on companies to make sure that their products are safe is a bad thing - it seems to be a pretty good cost shift: from people who would otherwise be injured by inferior products, to those capable of producing safer products and preventing the injuries. Typical of this type of "tort reform" rant, there is no substance provided to back up the claims made.

And then we are told that regulatory agencies - you know, like the FDA, OSHA and the CPSC, which impose safety rules on business, industry, pharmaceutical products and consumer goods - have a negligible impact on economic growth. I'm sure Daisy Manufacturing would like to know how exactly they are more at peril from tort lawyers than from regulatory agencies. Microsoft might ask that question as well. But either way, despite its anti-tort, anti-regulatory harping, the essay concedes that neither "tort reform" nor "regulatory reform" would have any appreciable impact on economic growth.

Other suggestions? Maybe increased worker education would help. Maybe government funded research would help. Maybe "fully liberalized global trade" would help - albeit through what the author proposes to be a one-time boost in the GDP....

Sometimes it is painfully obvious why editorials are unsigned - because nobody (but the paper itself) wants to be associated with such mind-numbing mendacity.

1 comment:

  1. The nit you pick regarding interest rates misses a point often missed in non-experimental settings - the editorialist isn't arguing that interest rates are higher than in some earlier period, but that they are higher than otherwise would have been the case. Still hard to see how rates could be enough lower to have much impact on growth.

    Regarding torts, ya, pretty much. If the US system is so bad for competitiveness, how come the US gets such good grades on productivity and in global competitiveness ratings?

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