Wednesday, January 26, 2011

WSJ.com - The Great Misallocators

WSJ.com - Opinion: The Great Misallocators

 

Step back for a minute from the day to day policy fights and consider how an economy can grow faster. One way is to get people to work harder or longer. The government can contribute here with policies that reward work and investment, such as lower taxes.

A second route to faster growth is innovation, which means inventions or new processes that increase productivity.

The third way is through the more efficient use of capital, both human and monetary. These resources are scarce in any economy, and growth will be fastest if they are allowed to find their highest return. If resources are allocated to less productive uses or create asset bubbles due to bad policy, then overall growth will be slower than it should be.

Government "investments"—Mr. Obama's favorite word last night—are by definition made for political purposes, rather than for their highest potential return. They are allocated by politics rather than by prices.

The path back to faster growth, more jobs and a more competitive U.S. economy does not travel through more political mediation. Nor does it lie in endlessly easy Fed policy in a misguided attempt to refloat the housing bubble or revive the financial boom. A better economy requires policies that reward work and innovation, while letting capital flow to the companies and individuals with the best ideas.

 

 

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