Boosting the Economy

by Dave Schuler on May 4, 2014

Diana Furchtgott-Roth proposes some measures that could produce more economic growth:

  • Fix the Affordable Care Act.
  • Allow exports of natural gas.
  • Reform taxes.
  • Overhaul immigration.

She characterizes these reforms as “easy”, presumably meaning that they need not require federal spending. Quite to the contrary, I think these problems are extraordinarily difficult. If they weren’t, they’d’ve already been done by now.

Clearly, her priorities are different from mine. Allowing more flexibility in the plans offered under the PPACA might make sense but it’s probably politically quite difficult and, frankly, it will do almost nothing to spur economic growth. Her most convincing argument is for allowing exports of natural gas:

Most non-marketed natural gas is wasted, flared into the atmosphere like an open burner on a gas stove. Flaring gas releases CO2 as a byproduct of combustion, so it would be environmentally preferable for the gas to be sold. A third of North Dakota’s total production is flared, or burned. North Dakota’s goal is to reduce its percentage of non-marketed gas to 10% by the fourth quarter of 2020. Allowing more exports would help North Dakota’s economy as well as increase U.S. GDP.

As I’ve mentioned before, I’m neutral on increasing GDP. Under present circumstances I see too much daylight between increasing GDP and improving the fortunes of most Americans for me to get very exercised about it. I think what we really need to do is not to sell more of what’s already being produced but produce more. To whatever extent selling more natural gas incentivizes additional production of natural gas I’m in favor of it. Otherwise, I’m indifferent to it.

I agree that tax reform would be helpful. However, I think reform should be more narrowly tailored than this

A better solution would be to lower taxes on capital to encourage more investment. Spending on equipment declined by 5.5% in the first quarter, the largest one-quarter decline since the second quarter of 2009.

The portion of immigration she emphasizes is probably the smallest component:

Immigrants have a higher propensity to start businesses than do native-born Americans, according to a 2012 study by the Kauffman Foundation , which champions entrepreneurship. The author, Duke University professor Vivek Wadhwa, reported that immigrant founders of engineering and technology companies started between 2006 and 2012 employed approximately 560,000 workers and generated $63 billion in sales in 2012. In California’s high-tech Silicon Valley, 44% of businesses had at least one immigrant founder.

I suspect that 90% or more of our immigration consists of unskilled workers from Mexico, other parts of Latin America, and the Caribbean. Offhand I doubt that many of them are coming here to start engineering and technology companies. A more direct way of spurring growth in the number of engineering and technology companies would be federal spending that encouraged engineering and technology companies. The epitome of that kind of spending was the space program which not only caused more money to be devoted to engineering and technology but did so in an area of technology that wasn’t already filled with giant companies that were mobilized to suck up every available dollar as is the case now. I’m not sure what kind of federal spending would encourage that today.

IMO the most immediate effect of expanding the number of H-1B visas would be to push wages down for the engineering and technology workers already here.

As the old wisecrack has it “Lord, send us a cure! The disease is already here.” We need more economic growth now rather in five or ten years and the growth we need will cause more investment and business spending in the United States. I don’t think that any of Ms. Furchtgott-Roth’s proposals would have those effects.

{ 4 comments… read them below or add one }

PD Shaw May 4, 2014 at 9:30 am

Why is natural gas being flared? Is it to keep prices up?

... May 4, 2014 at 11:39 am

Why is natural gas being flared?

Oh Lord, this is going to keep Drew busy all day when he gets back from the golf course….

jan May 4, 2014 at 12:25 pm

According to a Motley Fool piece, ND flares $100 million of natural gas a month! I had no idea it was that much!

Also, in the same article is reasons that:

Such large volumes of gas are flared because the infrastructure doesn’t exist to make use of it, and it hasn’t been developed due to the fact that gas is worth so little. The North Dakota Industrial Commission estimated that the crude oil to natural gas price ratio was 30 to 1 for 2013.

When you follow the money, you usually find some answers.

PD Shaw May 4, 2014 at 12:40 pm

Thanks for the link, Jan. Sounds like the problem will take care of itself in time as the natural gas infrastructure is developed.

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