Editor’s Note: Let New Ideas Make America Great
IS THE ECONOMY UP OR IS IT DOWN? While pundits debate the business cycle and who gets the credit or blame, economists tend to agree that the American economy has a long-term productivity problem. Productivity growth has been falling for some time and has been stagnant since 2007.
That’s bad news because rising standards of living depend on productivity growth. Productivity is driven by innovation—finding new ways of doing and making things—and that depends on investment. Net non-residential investment was 5.5 percent of net domestic product in 2000. Then it fell steadily, collapsed in 2009, and recovered slightly. It has plateaued between 2.5 percent and 3 percent of NDP since 2012. Measuring entrepreneurship by the rate of business startups shows a steady decline since the late 1990s and a plateauing since the end of the recession in 2009.
One likely explanation for these developments is that the growth of regulation has made the barriers to starting new firms too high. The Government Accountability Office estimates that federal regulations written just since 2001 now cost the economy $176 billion per year.
Incremental increases in regulation are not likely to force successful firms to close up. They adjust their business models and keep going. And those that are really big may find that regulations keep potential competitors from threatening their business models.
And that is the problem. Most innovation comes from startup firms. If we want innovation, we need to ditch the idea that policy should aim to prevent companies from failing. Economies that can produce new things are economies that are able to stop producing old things, and that sometimes means letting existing companies fail. Repealing the Dodd-Frank Act, which explicitly makes preserving “systemically important financial institutions” its central goal, would be a good first step toward recovering a dynamic economy.
You’ll find that idea and more in these pages. Adapted from Post-Obama.com—for which William Gribbin, Jr., was the lead editor—these articles identify the key policy changes that will help America revive its prosperity, repair its civil society, and rebuild its national defense.