The Cato Institute’s Brink Lindsey Is Running an Economic Growth Conference This Week: The Honest Broker for the Week of November 21, 2014

…of the long-run growth rate in the economy…. But it does offer one of the cheapest ways of boosting growth. Unlike fiscal programs such as infrastructure, there is virtually no cost to improving monetary policy…. Elsewhere (2014) I’ve argued that a policy of nominal GDP targeting would smooth out the business cycle and undercut many of the arguments for counterproductive policies…. We need to convince other economists that nominal GDP targeting is the way to go. Once we do so, the Fed will follow the consensus.

…is that real wages for male workers without a college degree have been stagnant or falling for decades. So my second policy suggestion is to expand the Earned Income Tax Credit (EITC) for childless workers, many of whom are low-income men. The EITC is a federal earnings subsidy: if you work, and if you earn less than a certain amount, then the government will supplement your earnings with a transfer payment. The EITC offers very little support for childless workers, with a maximum credit of only about five-hundred dollars. This amount should be significantly expanded, as both President Obama and Rep. Paul Ryan have suggested. Previous expansions of the EITC have lifted millions out of poverty, and are designed to incentivize nonparticipants to return to the workforce. When they do, everyone wins–the economy has more workers and can produce more goods and services, and the new participants can earn their own success in the labor market, leading flourishing lives that include the dignity only work can provide.

…implied by current health insurance subsidies. The bigger government approach is to impose more restrictive price and quantity controls in Medicare and Obamacare…. The smaller government approach is to scale back Medicare and Obamacare. The most aggressive ‘reform’ would eliminate any federal role in subsidizing health insurance, leaving such policies to the states. Since the federal tax burden would fall dramatically, states could more easily raise taxes to finance these programs…. A less aggressive ‘reform’ is higher deductibles and co-pays in Medicare and Obamacare…

…does not penalize saving. Replacing income taxation with consumption taxation would therefore be beneficial…. The greatest gains could be achieved by replacing the entire income tax system (the individual and corporate income taxes, the unearned income Medicare contribution, and the estate and gift tax) with a consumption tax. For distributional reasons, though, the consumption tax would need to be progressive, rather than a regressive tax like the VAT….Households would report their income on annual tax returns, but would then claim a full deduction for all saving and add back in any dissaving.

…would be to allow companies to write off the full cost of an investment in the year it incurred the expense, while scaling back the tax break for corporate interest payments…. Low-quality patents on software and business methods appear to have generated a lot of rent-seeking litigation…. The Fed [should] adopt–or be instructed by Congress to adopt–a target path for nominal spending…

…like any social insurance program, should be available to all workers, including small business employees and the self-employed. Excluding a certain group from taking leave only exacerbates the gap between those who provide care and those who do not. Second, eligibility should be tied to lifetime work history rather than current employment or job tenure. A paid leave program should follow the model of other social insurance programs, such as Social Security Disability Insurance, which bases eligibility on employment history and payment into the system. Third, a national paid leave program should provide a reasonable amount of leave to all workers. Policymakers can follow the lead of the Family and Medical Leave Act, which provides 12 weeks of leave, or 60 workdays, per year. Fourth, paid leave salaries need to be generous enough so workers, especially low-wage workers, won’t jeopardize their economic security by taking leave. We can follow what has worked at the state level. Policymakers can set benefit levels at two-thirds of a worker’s weekly average wage as in New Jersey, and cap them up to a certain amount, as in California.

…But the most important market rigidities that have been eliminated have been those that protected those from the middle class on down. In fact, the great paradox of the last third of a century is that we have actually had an explosion of regulation in this ‘supposedly deregulatory’ era… regulation that has the effect of redistributing, sometimes dramatically, upward…. Intellectual property… occupational licensing… the financial sector…. A focus on rent-seeking allows us to look at the American inequality problem with a different lens….

The image of the U.S. as a free-market paradise is hard to square with the presence in the top income strata of people like car dealers (protected by regulations against the consolidation of car sales), doctors (protected by medical licensing and extensive educational requirements), lawyers (with a limited supply of lawyers and a government that produces outsized demand for their services), government contractors (including private prison managers, defense contractors, for-profit colleges and others whose almost exclusive dependence on government revenue raises question about whether they are ‘private’ in any meaningful sense), and property developers (who in many urban areas can exploit government-constrained ability to build—which drives up prices — and political connections to generate oversized profits). Add in finance, licensed occupations, and sectors with lots of intellectual property, and you’re looking at a sizeable chunk of the 1 percent….

Putting a dent in rent seeking… requires that someone be willing to subsidize ‘third party’ political activity, and for good or ill that must start with deep-pocketed donors willing to use their money to compensate for the imbalance of organization and attention that is the lifeblood of rents…. It may be impossible to organize a broad, deeply mobilized grassroots coalition against upward-redistributing rent seeking. But in most cases, equaling the manpower and resources of the rent-seekers isn’t necessary–just making sure that there is someone on the other side can make a big difference…