What’s a Pro-Growth Policy?

Over at Bloomberg economists Francesco Giavazzi and Anil K. Kashyap present their proposal for containing the European debt crisis. I see it as a kinder, gentler version of Lawrence Summers’s proposals that I’ve been complaining about all week, i.e. prop up the banks at all costs, IMO a sure formula for an even greater disaster somewhere down the road.

I see one enormous clunker in their proposal:

Finally, as a condition for banks to receive the support, their national governments would have to lay out a credible plan for growth. Critical elements of such a blueprint would be measures to deregulate labor, goods and service markets. Governments would have six months to enact legislation, corresponding to the period before the stability fund’s money is converted into shares.

What is a “pro-growth policy”? I recognize that such policies will vary depending on the circumstances of each individual country but is it possible for a country that participates in the euro to implement an effective pro-growth policy without active cooperation its fellow eurozone trading partners? I’m thinking specifically of Germany. Or is it the case that as long as Germany maintains mercantilist (or “imperialist&#148: as was suggested in comments here) export-driven policies there’s very little that Greece, for example, can do to make its economy grow.

I’m asking questions here. I’d genuinely like to know the answers.

For that matter what is a pro-growth policy for the United States? It’s easier for me to answer that question in the negative than in the positive: subsidizing failing (auto production) or over-built (housing construction) industries is not pro-growth. Increasing the subsidies to the healthcare sector and financial sector, each of which employs fewer workers for each marginal dollar of revenue than other sectors, isn’t pro-growth, either, at least not in a jobs-creation sense which is rather clearly an issue for the American economy.

2 comments… add one
  • steve

    Well, we tried cutting taxes, including capital gains and dividends taxes, and that did not work. I would propose that a real growth policy would be long term, realizing that there is no great govt solution in the long term. Supporting basic research, maintaining a strong university system, regulating the hell out of banks so that they do not crash us (everyone should have to read Reinhart and Rogoff’s book), deregulating small business and solving the problem of rising health care costs. Oh, fix the infrastructure, especially the electric grid.

    Steve

  • Abraham

    In my opinion, the economy is a massive monster that moves in one direction, which is growth. Pro-growth is leaving that monster alone to do its thing. Sure the monster tramples, many things along the way, mostly those who aren’t too smart to get out of the way. Modern liberal governments are more focused in trying to stop the monster so that it doesn’t trample those who don’t want to get out of the way. They do this by creating artificial economies, that are easily crushed. Today, artificially, the global economy is larger than it has ever been. There is a greater risk of collapse.

Leave a Comment