I had promised a review of The Past and Future of America's Economy: Long Waves of Innovation that Power Cycles of Growth, by Robert D. Atkinson, which was on my summer reading list. The National Dialogue on Entrepreneurship had recommended Atkinson's book:
Atkinson argues that we are in the midst of a major technological shift that has only just begun. While economic change is all around us, our political systems and our policy ideas have not shifted in response. Atkinson recommends that policymakers embrace 'growth economics', a whole range of policies that nurture entrepreneurship and innovation.
The book correctly argues that our economy is best understood in terms of its long term evolution. We are now in an entrepreneurial economy that needs new models for public policy. "Growth economics" is an economic theory that some argue is what is now needed. According to Atkinson, this model is based on three fundamental principles:
1- Focus on the Real Economy, Not Prices. Atkinson argues that we miss what is really going on in the economy when we focus on monetary variables such as interest rates and inflation. Instead we should place our attention on real output. I agree with this. Most of Washington policy makers' attention seems stuck in the old economy, looking at what is best for the Fortune 500 rather than what is best for Main Street. Real growth in our economy over the past twenty years is coming from entrepreneurs, and that is best measured by the real output of goods and services.
2- Focus on Growth, Not Just the Business Cycle. Again, our old economy bias has us looking at the way the economy behaved in the 1960s -- four year economic cycles with slow and steady growth. The new economy is entrepreneurially based, and can support years and years of growth without the traditional ups and downs of the old "business cycle".
3- Focus on Productivity, Not GDP Growth. GDP is a function of productivity and hours worked. Improving productivity can improve our standard of living and quality of life, not just adding hours worked. Real productivity gains will not just increase incomes, but add more time for leisure. Fewer work hours has been the unmet promise in our economy for the past forty years.
So far, so good. Focus on what matters for real economic growth and quality of life. Entrepreneurship is creating our current growth and our culture could benefit for more time for true leisure. But Atkinson and other take a wrong turn when it comes to implementation in our public policy.
His solution is for government to pick the economic winners. Government agencies should be charged with identifying those economic sectors that they believe will offer the best chance for long term growth. We should then provide companies in these economic sectors with tax incentives. We should also focus our educational efforts to train people to support companies in those industries that are part of the planned areas of growth. However, "growth economics" as they define it is an old approach, and it will simply lead to more big government, more centralized control over our lives, and ultimately economic decline.
Governments have never been able to succeed at centralized economic planning over time. The Japanese thought they had it all figured out in the 1980s only to find their winners could not sustain the economy.
Entrepreneurs working within our free markets have been fueling amazing growth over the past twenty years. Let's get government out of their way and free up more capital for them to grow their businesses through lower and much simpler taxes. That will be "growth economics" done right.
