Copyright 2012 by John T. Reed

The big debate in the Euro Zone today is growth versus austerity. It is a false choice.

Everyone loves economic growth, but to the left, growth really just means stimulus.—another excuse to borrow money on the taxpayers’ credit card and use it to buy votes.

Good intentions = results

As I have noted on a number of times, liberals and the U.S. military believe good intentions and/or risking your life are a 100% substitute for results.

Stimulus did not produce results, but it manifest good intentions. Actually, they used taxpayers money to buy votes of union members, but I digress. The Democrats claim good intentions for the stimulus and that is their 100% substitute for results.

Stimulus ≠ results

But stimulus is not economic growth. There is a Keynesian argument that government spending on infrastructure and training and all that produces economic growth. It does not, but they say it does.

Economic growth is economic growth: a larger gross domestic product than before. If you want real growth rather than just actions that according to some theories should produce growth, you simply must move the nation closer to optimum conditions for economic growth. If we were already there, the government could not do anything to promote growth.

Fortunately—in terms of steps we can take—we are not anywhere near optimum conditions.

Most growth steps are free or even reduce government spending

The key point is that most of the steps we need to take to increase growth do not cost any money. So we can have both austerity and growth at the same time. Also, by preventing inflation and high interest rates, austerity itself promotes growth.

If you define growth as stimulus, as the left does, then growth and austerity are mutually exclusive.

But if you define growth as letting the animal spirits of entrepreneurship loose—a Keynesian phrase ironically—most growth-promoting measures cost the government nothing. So you can cut back on government spending while simultaneously eliminating laws and regulations and thereby increasing the size of the economy.

Miracle growth and jobs programs that cost taxpayers nothing

I have long had a miracle growth program at my Web site. I truly believe it would trigger a gold rush sort of explosion of economic activity. And hardly anything in the list would cost government money. Indeed, most things are getting government out of the way which would actually reduce the cost of government.

I also put up a miracle jobs program, which is largely also a free to the government just getting out of the way.

One example is getting rid of the minimum-wage law. This is not controversial among economists. Even liberal economists admit that minimum-wage laws lower employment—drastically for the young and inexperienced. The is a federal agency that enforces that law. Close it. That saves a lot of money, a.k.a. austerity. But the unemployment rate among young inexperienced people especially blacks and Latinos would plummet. Also, unpaid internships would come back which would help productivity and help young people become more employable as a result of exposure to the real world of adult work.

I am not going to discuss this at length. It is well accepted among economists, including leftists, as I said. If you are one of the morons who thinks the minimum-wage law is a good thing—like union members—go study it. I will not waste my time with you.

Most growth actions would be in the same nature: namely shutting down government operations that are interfering with the free market. Also, shutting down non-government operations, like ambulance chaser lawyers and discrimination lawyers and disability and patent troll lawyers would free the economy to grow. Those reforms would not save government spending other than lowering the work load of the courts.

The issue is optimization of both fiscal and growth policy.

There is an optimal fiscal policy—generally avoidance of deficit spending and keeping the national debt-to-GDP ratio at around 40% or below. We are not there now. Our deficit is 8.6% of our GDP—almost triple the maximum allowed in the Euro Zone. Our debt-to-GDP ratio is 104% and climbing as fast as the Democrats can make it climb. We need to move toward optimal fiscal policy. Given where the Democrats and Republicans have brought us, moving in that direction will be austerity, at least to those addicted to getting paid by the federal government for doing nothing, e.g., unemployment, food stamps, Social Security, Medicare, etc. For us taxpayers, it is anything but austerity. It is the lightening of our load.

There is also an optimal growth policy, namely:

• rule of law
• economic freedom (deregulation)
• property rights
• stable currency
• certainty as to rules governing long-term contracts and investments

We should be optimizing both fiscal and growth policies. Not only are they not mutually exclusive, as the left would have you believe, each helps accomplish the other. Growth produces more tax revenue, which lowers deficits and debt. And lower deficits and federal debt lower interest rates and inflation which facilitates more growth—a virtuous circle.

Did Romney also tell you this?

If not, why not?

John T. Reed