By emphasizing the local business environment instead of natural resources, Schumpeter’s theory suggested that nations made their own destinies. Government that wished to see their citizens prosper should give up territorial ambitions and focus on fostering a favorable business climate- strong property rights, stable prices, free trade, moderate taxes, and consistent regulation- for entrepreneurs at home. There were no intrinsic limits to growth. Human wants were infinite. Rising incomes and new desires provided just as much opportunity for profitable ventures as opening up new territories. As long as trade was possible, innovation could offset the constraints of population, territory and resources. It was a beguiling, romantic, even a heroic narrative. His was an equal opportunity, optimistic, and not coincidentally, unwarlike formula for economic success.
From Grand Pursuit- The Story of Economic Genius by Sylvia Nasar
Strong economies promote peaceful relations. It is to our benefit that other nations also promote strong and stable economies. Strong economies are growing economies. We can not make an economy stronger by modifying the distribution of wealth if in the process we impede the creation of wealth.
This economic downturn has reduced the number of the wealthy. So did the criminal antics of Bernie Madoff. Are we any better off as a result?
In his blog Economics One, Reassessing the Recovery (Feb 6, 2012) , John Taylor uses two charts to describe why this recovery is so unsatisfying.
A normal recovery regresses to the mean like this:
This recovery looks like this:
We can not tax our way out of our debt any more than we can spend our way out of debt. We must realize a program of more substantial growth. This administration seems clueless in this endeavor.
There is much more at stake than dollars and cents, jobs and profits. Economic instability creates an environment fertile for political and global instability.