Daniel Henninger has an excellent column in today’s Wall Street Journal that seeks to answer that question.
Here’s the letter I just sent to the editor:
Professor Lucas’ explanation for our anemic economy is good as far as it goes, but the pictures clears up a lot more if we consider how much the US has changed in ways that affect the ability of people to make more productive use of resources.
Conventional Washington thinking sees “the economy” as an entity that can be made to grow by application of the right kinds of macro policy. The truth is that “the economy” is just an abstraction. Whether or not a nation experiences economic growth depends on many individual decisions by entrepreneurs, investors, and workers. If those decisions generally move resources from less productive uses to more productive ones, we get prosperity (and not just for the successful decision-makers).
What has changed over the last few generations so that we now get fewer of those productivity-enhancing decisions? Thanks to the growth of government, those people now face greatly increased regulatory burdens, higher taxes, and uncertainty. Moreover, fewer people are looking for profitable opportunities due to the vast expansion of government employment, transfer payments, and the huge rent-seeking industry. A century ago, all those intelligent lobbyists, tax accountants, and regulatory lawyers would have been doing productive work. Now they devote their efforts to manipulating a complex system of wealth extraction.
The US cannot get back to strong economic growth as long as resources as squandered and incentives distorted by our Leviathan state.
