On July 18, the Hoover Institute released a paper by four prominent economists, John Coogan, Glenn Hubbard, John Taylor and Kevin Warsh entitled “On the Prospects for Higher Economic Growth.”
As you would expect, given the source, the paper outlines “conservative-minded” strategies advocated to produce economic growth: lower taxes, less regulation, rationalized entitlements and welfare, greater investment. The target indicated is 3 per cent annually versus current Congressional Budget Office projections of 1.8 per cent. With extensive statistics, the economists make the point that this combination of policy changes will promote economic growth by increasing employment, wages and productivity. You can find it here.
The caveat to all this is contained in this quotation from the paper: “It is important to keep in mind that attaining 3 per cent annual GDP growth rate is based upon enactment and implementation of a package containing significant tax reform, regulatory reform, budget reform and monetary reform,” all of which requires leadership from Congress and the Federal Reserve.
Given the current state of political division — pigheadedness? — the probability of all these things coming to pass is remote. Still, strong voices at the Fed advocating for them, as well as lightening banking regulation, should have an effect. There will be voluminous testimony before Congress and jawboning of its members. There will be pressure from business and financial groups, and, most of all, it will become clearer that these moves are necessary to boost the economy.
While Republicans in the past have produced policy papers like the one above, Democrats have successfully legislated multitudes of programs redistributing wealth and embedded them in the government and public psyche. We believe the economy has reached an inflection point, and not just because a Republican administration is in place. The current growth numbers don’t lie, and though there is plenty of debate about how to improve them, no one is satisfied with where they are.
The four economists make a cogent case for their recommendations, which describe an argument that goes beyond doctrinal conservatism. The discussion has become, not so much whether government should do many of the things it does, but whether it can do them competently.
These four authors are well-acquainted, similarly minded men. Their paper was written for presentation at the upcoming Jackson Hole Symposium in late August, which will serve as the unofficial start of the politicking season for Fed appointments next spring. And because each of these authors are likely to be considered for future key Fed positions, we consider this an open letter to the administration that their goals can be reached with the right policies led by the right leadership. One of these men is likely to be our next Fed Chairman. Stay tuned.