Thursday, May 13, 2010

Growth and Equity

Daniel Henninger's article in today's WSJ was primarily about the Republican party capitalizing on billing themselves as the We're Not Europe Party.  Whether this strategy is optimal, Henninger brings up a good point.  Faust is a character who sells his soul to the devil in exchange for a comfortable, successful life.

As mentioned in a previous blog, Greg Mankiw outlines the tradeoff between economic efficiency and economic equity.  If you want more equity, you must sacrifice efficiency.  Put simply, fairness comes at the expense of growth.  Members of the European Union have long favored equity over efficiency, and the bill must now be paid (paraphrasing Henninger, here).

A great paragraph from Henninger's article:
Barack Obama would never say it is his intention to make the U.S. go stagnant by suppressing wealth creation in return for a Faustian deal on social equity.  But his health system required an astonishing array of new taxes on growth industries.  He is raising taxes on incomes, dividends, capital gains and interest.  His energy reform requires massive taxes.  His government revels in "keeping a boot on the neck" of a struggling private firm.  Wall Street's business is being criminalized.
  I suppose one way to look at what we want our future outlook to be here in the U.S. is to ask a question.  Do we want the future rhetoric regarding U.S. economic output to sound like today's rhetoric about Europe?  Or, do we want it to sound like the rhetoric surrounding Asian growth?

I favor the latter.

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