Monday, April 15, 2013

Possible economic fixes generate hope and optimism.

The economy is bad, but it’s good that the worldly-wise Economist understands why. The magazine writes:
there are good reasons for thinking that the 21st century’s innovative juices will flow fast. But there are also reasons to watch out for impediments. The biggest danger is government. . . officialdom tends to write far more rules than are necessary for the public good; and thickets of red tape strangle innovation. Even many regulations designed to help innovation are not working well. The West’s intellectual-property system, for instance, is a mess, because it grants too many patents of dubious merit.
The state has also notably failed to open itself up to innovation. Productivity is mostly stagnant in the public sector. Unions have often managed to prevent governments even publishing the performance indicators which, elsewhere, have encouraged managers to innovate. There is vast scope for IT to boost productivity in health care and education, if only those sectors were more open to change.
As for the private sector, one would expect Thomas Donohue, CEO of the U.S. Chamber of Commerce, to have a positive response to his somewhat-loaded “big question” of how to get stronger private sector growth that “will put Americans back to work?” And Donohue indeed has an answer:

First, we must attract global talent.

Second, we must responsibly develop our extraordinary natural resources.

Third, we need to sell more stuff to the 95% of the world’s customers who live outside of the United States[, and] welcome global investment—foreign capital directly or indirectly sustain[s] 21 million U.S. jobs.

Next, we must . . .stem the tide of the huge regulatory tsunami that the current administration is planning for the next four years.

And finally, [d]iscretionary, defense, and especially entitlement spending will have to be curbed.

A seemingly more objective expert, Harvard Business School professor Michael Porter, offered recommendations on CNBC’s “Closing Bell” that are remarkably similar to Donohue’s:

1.  Fix the corporate tax system, lowering corporate rate and closing loopholes.

2.  Arrive at a sustainable budget compromise.

3.  Take advantage of America’s energy windfall.

There is an alternative to Porter’s “closing tax loopholes” recommendation, if the Washington will to close loopholes isn’t there. Reihan Salam, who has a Reuters blog, reports that
Robert Pozen of the Brookings Institution and Harvard Business School and his research associate, Lucas Goodman, . . .call for cutting the corporate tax rate from 35% to 25%[, while capping at] 60% to 85%. . . the amount of interest companies can deduct from their tax bills, sharply reducing debt bias and keeping the proposal revenue-neutral. [S]tart-ups that don’t have the option of raising money by taking on . . . debt would find themselves at far less of a disadvantage[, possibly generating] an entrepreneurial renaissance, as lumbering corporate dinosaurs [currently using] cheap credit to scare off competitors [face] innovative new rivals.
Even within the context of a sharply divided Washington, these are recommendations that might work.

In the end, though, improved economic performance comes down--at least partly--to psychology, to attitude. We need belief in the future.

Here’s Emily Esfahani Smith, in the Atlantic:
having a positive outlook in difficult circumstances is not only an important predictor of resilience -- how quickly people recover from adversity -- but it is the most important predictor of it. . . people who find meaning in adversity are ultimately healthier in the long run than those who do not.
As Winston Churchill taught us, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

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