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America's Four Growth Drivers Stall and Our Economy Stagnates
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Table of Contents
Foreword . . . xii
About the Authors . . . xviii
Introduction: The White House Plants Its Seeds of Destruction . . . 1
Part I Getting from Seeds of Destruction to Seeds of Prosperity . . . 7
Chapter 1 America’s Four Growth Drivers Stall and Our Economy Stagnates . . . 9
The GDP Growth Drivers Equation . . . 11
GDP Growth Has Been Well Below Potential Growth . . . 12
The American Consumer’s Roller Coaster . . . 15
Where Has All the Business Investment Gone?. . . 19
There’s Too Much Government Spending . . . 21
Net Exports Are a Net Negative . . . 25
Conclusion . . . 27
Chapter 2 How to Lift the American Economy with the Ten Levers of Growth . . . 29
Lever One: Free Markets Free of Corruption and Monopoly Best Promote Growth . . . 29
Lever Two: Free and Fair Trade Helps All Countries Grow . . . 31
Lever Three: Entrepreneurship Is the Linchpin of Long-Term Growth . . . 33
Lever Four: Without Savings, There Can Be No Investment and Growth . . . 34
Lever Five: Without a Stable Banking System and Strong Financial Markets, Savings Can’t Be Transformed into Investment . . . 35
Lever Six: Innovation and Technological Change Matter More Than Machines and Workers . . . 36
Lever Seven: “Human Capital” Matters as Much as Physical Capital . . . 38
Lever Eight: Oil Price Shocks Stunt the Growth of Oil-Import-Dependent Nations . . . 39
Lever Nine: A Healthy Nation Is a Productive and Prosperous Nation . . . 40
Lever Ten: A Solid Manufacturing Base Makes for a Strong Economy . . . 41
Part II Fixing America’s Destructive Duo: Monetary and Fiscal Policy . . . 47
Chapter 3 Why an Easy-Money Street Is a Dead End . . . 49
The Return of Fed Activism . . . 52
The Maestro or a Bubble Maker? . . . 53
President Obama Crosses the Activist Rubicon . . . 54
The Road to American Prosperity Cannot Be Paved with a Cheap Dollar . . . 57
Where Have You Gone, William McChesney Martin? . . . 60
Chapter 4 Why You Can’t Stimulate Your Way to Prosperity . . . 63
From John Maynard Keynes to the Kennedy Tax Cut Revolution . . . 66
Part III Getting the “Big Three” Right: Tax, Trade, and Energy Policy . . . 83
Chapter 5 Why Raising Taxes Lowers America’s Growth Rate . . . 85
Ideological Gridlock Over Broad-based Tax Reform . . . 88
From a “Class Tax” to a “Mass Tax” . . . 91
From Double Taxation to Double Whammies . . . 93
Income Tax Evolution or Consumption Tax Revolution? . . . 95
Meeting on the Middle Ground . . . 97
Chapter 6 Why the Best “Jobs Program” May Be Trade Reform . . . 101
The 2000s: A Decade of Large and Chronic Trade Deficits . . . 103
America’s Trade Deficits Cause Inflation and Loss of Political Sovereignty. . . 104
The World’s Poster Child for the Modern Protectionist-Mercantilist State . . . 104
China’s Great Wall of Protectionism . . . 106
China’s Eighteenth Century Mercantilism . . . 111
Chapter 7 Why America’s Foreign Oil Addiction Stunts Our Growth . . . 125
How Does America’s Oil Import Addiction Harm Our Economy? Let Us Count the Ways . . . 128
Risky Business . . . 130
Moving Toward Forging a Political Consensus on Reducing Oil Import Dependency. . . 132
The Smart Path Embraces Both Soft- and Hard-Path Options . . . 133
The Folly of Energy Independence Redux . . . 136
Achieving a Targeted Reduction in Oil Dependence . . . 137
Why This Proposal Has Economic and Political Merit . . . 140
The Thorny Politics of Oil Import Fees . . . 142
Part IV Good Politics Usually Makes for Bad Economics . . . 147
Chapter 8 Cutting the Gordian Knot of Entitlements . . . 149
The Imperative of an Economic Rather Than Accounting Solution . . . 151
Why Social Security Is Easier to Fix Than Medicare and Medicaid . . . 153
Saving Social Security in Two Easy Pieces . . . 154
Closing the Social Security Spending Gap: What Won’t Work . . . 158
Closing the Social Security Spending Gap: What Can Work . . . 161
Forging a Political Consensus . . . 165
Saving Medicare and Medicaid: Mission Impossible? . . . 167
A Flexible and Focused Way Forward . . . 168
Chapter 9 Why ObamaCare Makes Our Economy Sick . . . 173
The Big Health Care Picture . . . 174
Are We Getting What We Are Paying For? . . . 176
ObamaCare Puts the Coverage Cart Before the Cost Horse . . . 178
ObamaCare Provides a Far-Too-Sweet Entitlement . . . 180
Truth or Consequences . . . 181
ObamaCare and the Law of Unintended Consequences . . . 183
Toward a More Market-Driven Health Care System . . . 184
What Can Be Done? . . . 191
Conclusion. . . . 192
Part V The American Economy at a Crossroads . . . 197
Chapter 10 How to Prevent Another Financial Crisis–and Housing Bubble. . . 199
#1: Easy Money . . . 201
#2: Not Enough “Skin in the Game” for American Home Buyers . . . 202
#3: Not Enough “Skin in the Game” for Mortgage Lenders . . . 203
#4: Way-Too-Exotic Mortgages for Borrowers . . . 205
#5: The Mortgage-Backed Securities Meltdown . . . 208
#6: The Collateralized Debt Obligations Credit Rating Debacle . . . 211
#7: A Flawed Insurance Market: Credit Default Swaps . . . 213
#8: Inflexible Bank Capital . . . 216
#9: Too Big to Fail: Last Rites for Financial Dinosaurs . . . 218
#10: A Fragmented and Sectoral Model of Regulation . . . 219
#11: Subsidies for Nonproductive Investment, Taxes for Productive Investment . . . 221
The New Law as the End of the Beginning . . . 222
Chapter 11 How to Implement Our Seeds of Prosperity Policy Blueprint . . . 229
Our Seeds of Destruction Problem . . . 230
Our Seeds of Prosperity Solution . . . 231
Conclusion . . . 248
Index . . . 251
Additional Bonus Material for eVersion Only:
An Interview with Glenn Hubbard About His Time in the White House . . . 269