Why does Mitt Romney want to be president? What is the big problem that President Fix-It would try to fix? Glenn Hubbard, a Romney economic adviser (and AEI visiting scholar) comes quite close to hitting the nail on the head in a recent Financial Times op-ed:
President Barack Obama said in his State of the Union that the US needs an economy “built to last”. Unfortunately, in his populist rhetoric, Mr Obama missed an opportunity to tee up the conversation the US must have during this election season: How do we restart dynamism in our economy, delivering productivity growth and raising living standards?
Hubbard, shorter: Faster, please!
And he’s right. The problem with the U.S. economy over the past decade has been anemic growth. From 2000 through 2010, average GDP growth was just 1.6 percent. Even if you toss out the Great Recession and the collapse of the Internet Bubble, growth was still below 3 percent. By contrast, from 1950-1999 the U.S. economy grew at an average pace of 3.5 percent a year. To the extent that people care about income inequality, it’s because the pie is barely growing. Inequality surged during the late 1990s, but it wasn’t a big issue because of strong income growth across the board. The pie was growing, so no Occupy Silicon Valley.
Hubbard says there are three keys to faster growth: innovation (“the development of entirely new products and business models”), investment (ensuring “that both domestic and foreign capital go to productive use”), and inclusion (supporting “Americans caught in the change that is a byproduct of our dynamism”).
And here are some of his policy ideas:
– strong federal backing for basic research.
– financial sector regulation that considers incentives to lend as well as financial stability.
– low capital gains tax rates make it cheaper to sell assets, thereby helping capital flow more smoothly to its most productive use for the economy.
– reduction of marginal tax rates on corporate and individual incomes, broadening the tax base.
– cutting back on double taxation of corporate equity returns, which are taxed once at the corporate level and again at the investor level via taxes on dividends and capital gains.
– a progressive consumption tax, equalising the tax treatment of debt and equity, and drastically lowering tax rates on dividends and capital gains.
– replacement of outmoded federal training assistance with personal re-employment accounts.
– tax subsidies and education reforms that increase the affordability of community college, technical training, and university.
– tax and insurance market reforms in healthcare to reduce cost growth and increase take-home pay.
Hubbard was speaking for himself in the op-ed and gets out in front of his candidate, particularly by calling for a progressive consumption tax and slashing investment taxes. But both are great ideas.
More importantly, Hubbard suggests a unifying theme for the Romney campaign: prosperity. The U.S. economy may be growing and adding jobs, but it’s not prosperous—and it hasn’t been for awhile. Consider: According to Gallup, 77 percent of Americans are dissatisfied with “the way things are going” in the United States today. That number hasn’t been consistently above 50 percent in a decade. What we are seeing now in the polls is what stock market strategists would call a “relief rally”—as in relief the economy isn’t headed back into recession.
But that is not the same thing as a bull market. That requires real, sustainable growth. And that’s what 2012 should, in large part, be about.
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