What isn't being discussed about economic growth?

In my previous post I asked why we can't get our elected politicians (and those aspiring to be elected) to present a coherent story of how the U. S. economy can recover from the Great Recession.  Of course, it would be a fair question for someone to ask me what that story might sound like.  Fortunately, Bruce Bartlett has a very timely essay on the issue of economic growth (June 10).  Mr. Bartlett (a lifelong Republican who served as an adviser to President Ronald Reagan and a Treasury official under President George H. W. Bush) begins his essay as follows:

The truth is that economists know a lot about what causes growth and what policies will raise the growth rate, and tax rates have a far smaller role than most people and all Republicans believe.

The essay continues by reviewing some of the basic things about economic growth that economists have learned (even if political parties haven't).  For example, economic growth is primarily a function of productivity (which is driven by capital - physical and human, the availability of natural resources, and technological innovation).  Interestingly, as Bartlett points out, taxes aren't in that list.  As he says,

What is holding back business investment is not taxes, but poor economic prospects. For some time, members of the National Federation of Independent Business have listed “poor sales” as their number one problem. Businesses are not going to invest, no matter how low the tax rate is, if there is no demand for their output.

The essay proceeds to point out that the Republican argument that taxes are the primary driver of economic improvement just isn't supported by the data.  Now, lest you jump to conclusions here, the Democrats appear no more enlightened here.  By the way, there are people in both parties who understand this, but for whatever reasons, they can't get any traction within their own parties.


So I strongly encourage you to read Mr. Bartlett's essay and to begin asking your local, state, and national leaders to "show you the data" when they put forth their claims about how to improve the U. S. economy.  You might be surprised at how little response you get; and that should tell you much about the quality of their opinions.