Thus Does the Economy Grow
From the November 29, 2010, issue of NR.


The American people did not give power to congressional Republicans; they took it away from congressional Democrats. Republicans now have an opportunity to prove that they deserve majority status — that they can operate not just as an opposition party, but as responsible leaders who are willing to make hard choices and solve problems.

The goals of an ideal economic-growth agenda are simple and well known: a large and thriving private sector and a small government; reduced government spending, which means lower taxes (or at least not higher ones) and smaller deficits; open trade and investment; taxes and regulations that don’t distort decisions, discourage capital formation or work, or provide rents to the politically powerful; deep and flexible labor markets; a reformed financial sector that channels savings to where they can do the most good; a society in which education and innovation flourish, and the most talented people in the world want to become Americans; a stable, low-regulation legal environment, in which monetary policy is sound and business decisions issue from customers and competitors rather than regulators and judges.

Practical policymaking is about moving incrementally in the right direction rather than trying to achieve the ideal all at once. It’s easy for elected officials to distract themselves with simplistic partisan fights that are politically advantageous but either make little headway toward the goal or distract from more important underlying problems. Progress on a practical growth agenda requires recognizing the limits of policy and taking political risks.

Here, then, are ten practical tips for elected Republican officials, who are torn between trying to govern as a majority party and trying to oppose President Obama’s agenda as a minority party.

One. Prioritize medium-term problems caused by the government rather than trying to push businesses to expand more rapidly. The economic-deleveraging process is painful, slow, and necessary. Tools to mitigate the pain or accelerate the recovery have failed. So, refocus: Stop trying to mess with the economy’s natural process of rebalancing. You’re only making it worse with unintended consequences. Don’t restore the homebuyer tax credit or try to put a floor on housing prices. Instead of stimulating particular types of investment, or encouraging businesses to hire, or searching for chimerical shovel-ready projects, spend your time fixing the medium-term problems caused by flawed policies. It takes political courage to admit that the short-term economic-adjustment process will be slow and painful, but additional policy distortions will only make things worse.

The government needs to worry less about the private sector and get its own house in order. There is plenty of work to be done: cutting government spending; preventing tax increases; replacing the failed Fannie Mae and Freddie Mac with a competitive private market; enacting free-trade agreements with Colombia, Panama, and South Korea; and undoing the worst regulatory excesses of the past two years.

Two. Set the right goal: creating the conditions for growth rather than trying to create growth. Policymakers need to get the policies right and let business leaders decide how to run their firms. Corporate leaders are sitting on unprecedented piles of cash, waiting to see what Washington will foul up next. Take Washington out of their decision-making by creating a stable, predictable, low-cost business environment. They will then decide how best to hire, invest, and expand. Your job as an elected official is not to create economic growth or jobs, it is to create the conditions under which the private sector creates growth and jobs. Stick to your lane and let business leaders stick to theirs.