Post on 26-Jan-2015
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transcript
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The Tale of Two Mental Models of Economic
Growth
WILLIAM W. BEACHTHE HERITAGE FOUNDATION
February, 2010
Two Policy Models
The Mental Model of 1933 Government leads or supports economic growth by
boosting income and consumption through its spending.
The Mental Model of 1981 Government supports the growth of entrepreneurship
by reducing tax and regulatory burdens.
What is the Record of 1933
A More Recent Example of the Model of 1933
The Model of 1981 has a Better Record
What Starts Recessions?
Recessions start in part because of public policy errors. Policy can re-enforce bad economic behavior or create
incentives that undermine innovation
Non-productive assets (labor and capital) must be rearranged to create value
Thus, many assets must be “liquidated” or given new economic assignments.
What Ends Recessions?
Economic evidence shows that two factors are important: Appropriate, timely actions by the monetary
authorities to support transition in the financial sector.
Reductions in the cost of capital and labor and the business costs associated with regulation.
Entrepreneurs lead the way out of recessions because they discover how to reconfigure the productive assets of the economy.
What Can Congress Do?
Example: Sen. Jim DeMint’s American Option tax plan. Reduces business taxes from 35 to 25 percent Simplifies tax rates to three: 10, 15, and 25 Reduces the death tax rate to 15 percent & $5 million
exemption per person Makes the tax relief of 2001 and 2003 permanent
Toe-to-Toe Who Wins? 1933 or 1981
P.S. How Big is Obama Plan
The most fundamental effect of this reckless spending are the mountains of debt