If you wanted to boost economic growth, which of the following would you focus on?
- U.S. corporate taxes, which are the world’s highest and are driving businesses to relocate abroad
- A regulatory environment in which new regulations are being issued at a record pace; for 2015, the Federal Register contained a record 81,611 pages of new regulations
- Record government debt, which now exceeds $19 trillion
- Falling household income, with wages down an average of 5.9% since 2007
- Corporate profits, which fell 5.1% in 2015
- Low productivity growth, with the average growth rate less than a third of what it was during the previous period of 1995 to 2010
- The fact that, for the first time ever, more companies are failing in the U.S. than are launching
- The fact that, with a dearth of initial public offerings, there are half as many public companies as there were in the 1990s
- Low inflation
If you picked low inflation, congratulations. There is a place for you on the Federal Reserve Board.
The Fed’s focus on inflation is a result of its mandate to reduce or stabilize the unemployment rate and the rate of inflation. But its seeming obsession with a 2% rate of inflation is nonsensical. As we’ve pointed out, 2% appears to be an arbitrary number. Will the economy function better if the inflation rate is 2% instead of 2.5%? Why not 1.5%? (more…)