Whole Foods CEO John Mackey has an op-ed in the Wall Street Journal in which he proposes an alternative business model for economic growth consisting, essentially, of three components.
Reduce the cost of government:
Most importantly, we need to radically cut the size and cost of government. One hundred years ago the total cost of government at all levels in the U.S.—local, state and federal—was only 8% of our GDP. In 2010, it was 40%. Government is gobbling up trillions of dollars from our economy to feed itself through high taxes and unprecedented deficit spending—money that could instead be used by individuals to improve their lives and by entrepreneurs to create jobs. Government debt is growing at such a rapid rate that the Congressional Budget Office projects that in the next 70 years public money spent on interest annually will grow to almost 41.4% of GDP ($27.2 trillion) from 1.4% of GDP ($204 billion) in 2010. Today interest on our debt represents about a third of the cost of Social Security; in only 20 years it is estimated that it will exceed the cost of that program.
In practice that means cutting defense, healthcare, and education spending.
Second, tax reform:
In addition, tax reform is essential to jobs and prosperity. Most tax deductions and loopholes should be eliminated, combined with significant tax rate reductions. A top tax rate of 15% to 20% with no deductions would be fairer, greatly stimulate economic growth and job creation, and would reduce deficits by increasing total taxes paid to the federal government.
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Corporate taxes also need to be reformed. According to the Organization for Economic Cooperation and Development, the U.S.’s combined state and federal corporate tax rate of 39.2% became the highest in the world after Japan cut its rates this April. A reduction to 26% would equal the average corporate tax rate in the 15 largest industrialized countries. That would help our companies to use their capital more productively to grow and create jobs in the U.S
That’s accompanied by a supply side argument that reduced marginal rates would produce increased revenues which I won’t include here. Suffice it to say that I don’t think that we’re currently at the part of the Laffer Curve that Mr. Mackey does.
Third, decrease regulation:
Government regulations definitely need to be reformed. According to the Small Business Administration, total regulatory costs amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes collected last year. While some regulations create important safeguards for public health and the environment, far too many simply protect existing business interests and discourage entrepreneurship. Specifically, many government regulations in education, health care and energy prevent entrepreneurship and innovation from revolutionizing and re-energizing these very important parts of our economy.
A simple reform that would make a monumental difference would be to require all federal regulations to have a sunset provision. All regulations should automatically expire after 10 years unless a mandatory cost-benefit analysis has been completed that proves the regulations have created significantly more societal benefit than harm. Currently thousands of new regulations are added each year and virtually none ever disappear.
Although I agree with the broad outlines of his proposals, I’m becoming decreasingly hopeful that any of the measures that Mr. Mackey proposes will ever come to pass. For the constituencies that depend on out-size government spending, continuing that spending is a matter of life and death. Those constituencies are too powerful and too entrenched to allow reform without putting up a major fight and the cards are stacked in their favor. Regulation is the mechanism by which a chief executive effects his will in the absence of Congressional support. I strongly suspect we’ll see more regulation rather than less for the foreseeable future.
Additionally, I think there’s a vital need not simply to do less but to accomplish our objectives more prudently. We can provide ample defense of our country and its vital interests for a fraction of what we’re spending. We can aid the elderly, poor, and sick without devoting an unaffordably increasing fraction of the national income to those tasks. We can ensure that workers are treated fairly, our air, water, and soil are not polluted, and that businesses operate honestly without an ever-increasing thicket of regulations.
Unfortunately, politicians are rarely elected to office for prudence and undertaking ever greater risks is likely to remain the order of the day. Stick with the one that brung you.
