WASHINGTON – New Jersey Governor Chris Christie, a likely Republican White House contender, laid out his fiscal and economic reforms plan in a speech in New Hampshire and in a WSJ op-ed piece. (My Plan to Raise Growth and Incomes, May 12, 2015).
What is remarkable in the list produced by Christie is that the common sense solutions he proposes are not already operational. And, even more remarkable, how can this list be controversial, here in the United States of America, the most successful capitalistic economy the world has ever known?
Well, what does Christie say? Enact tax reform. First of all, drastically simplify the federal tax code, now a 70,000 pages long monster that most people will never read, let alone understand. Reduce the tax rates, with the maximum at 28%, and eliminate most deductions normally inserted into the tax code through the pressure of lobbyists hired by special interest groups. Make it easy for the average American to file his/her taxes. By the same token, reduce corporate tax rates from 35% to 25%, so that we are at least in line with what our major international competitors charge.
And, while we are at it, reduce suffocating regulations so that they ensure safety and public health, without trying to dictate every single component of any business activity. Hyper regulation delivers no benefits. In fact it effectively kills some existing businesses, while discouraging the creation of new ones.
Another major component of the Christie strategy is energy. Favor domestic production by eliminating the obsolete ban on crude oil exports, a legacy of the 1973 OPEC oil embargo. And also have Uncle Sam promote more energy supplies from North America. Therefore approve the Keystone XL pipeline that will allow more Canadian oil to reach the Texas refineries. Yes, better to buy oil from Canada, an old ally, than to rely on supplies from OPEC countries.
And, finally, encourage new investments in R&D, because basic research has been and should continue be at the foundation of the American “Innovation Machine”.
Historically we have been ahead of other countries in innovation because we used to invest more in research. Therefore we often are the first to break barriers, invent new things. Besides, America developed an effective patent protection system and a network of venture capitalists that allows inventors to plug into financing opportunities, develop their products and benefit financially from their intellectual efforts.
Now all this is becoming less effective, in part at least because the federal government ceased to be the main driver of basic R&D, that is important research not tied to immediate commercial applications.
A simple recipe
So, there you have it. Modernize and simplify the federal tax system. Reduce out of control regulations to a sensible minimum. Enhance domestic and hemispheric energy production, and boost research.
Revolutionary ideas from yet another fringe politician? Well, no. This is pretty elementary stuff. In fact, this is“Capitalism 101”. This is about creating and sustaining the basic building blocks of the “enabling environment” in which private sector-led growth can take place.
This is what teach in emerging markets
The irony here is that what Christie outlined in his speech and in his WSJ piece is precisely what armies of Western economic development consultants go teaching around the world to the governments of emerging countries eager to join the main stream of the developed world.
Now, if low taxes and minimal regulations constitute sound policy advice for Ghana or Cambodia, how can any of this be even remotely controversial in America –the country that used to be the land of pure capitalism? Once again, consider that what Christie suggested is truly basic stuff. The bare minimum –I would add– that we need to have in place in order to have a performing, competitive economy.
We no longer believe in capitalism
And yet, sadly, and all this is controversial in America because there has been a profound cultural shift. This is no longer the land of pure capitalism. This has become the land of government administered programs whose major goal is to correct the iniquities of capitalism.
Now the focus is no longer on ways to grow the pie. Now politicians get elected by promising that they will push for redistribution policies that will make sure that the existing pie is more equally divided. And when the President does not have the votes in Congress that will pass the legislation he wants, he will instruct the bureaucracy to implement his policies aimed at promoting equality and social justice through more regulations.
Look, it is alright to discuss increased inequality. But the smart way to address it would be to focus on ways to increase access to real opportunity for those who do not have it. The focus on redistribution, while government bureaucrats regulate everything to death is not at all smart. In fact, it is suicidal, as the decline of most of Western Europe shows us.
…does not work
And we also have evidence right here, at home. The US economy is anemic. Productivity is low, and average middle class incomes have been stagnating for decades. Besides, 50 years of supposedly well-crafted anti-poverty programs produced negligible results.
And yet, a common sense, pro-growth agenda like the one proposed by Chris Christie these days makes the headlines, while it is considered radical by many.
Unfortunately, too many Americans have forgotten that, whatever its shortcomings, capitalism is the only economic system that delivers growth. Everything else, and I mean this literally, failed.