Three crisis policy principles:
- Consider no policy during recession that would not be equally useful during prosperity.
- Consider no policy whose intention is to evade or cushion the crisis.
- Consider no policy that is not intended to be permanent.
These principles have implications-in-common:
- Use crisis to implement policies that should have been introduced during prosperity
- Exit crisis and enter prosperity with policies for market-led innovation-led growth
- Confront known problems with known solutions head-on as a first priority
- Do not postpone structural adjustment in the expectation of easier days to follow
- Growth achieved by political monetary and fiscal levers alone will not create prosperity
Boundary rules by living authors:
- James Buchanan leads in provocative ideas for constitutional reform.
- Hernando de Soto leads in ideas about minimalist rules for information disclosure.
- Nassim Taleb leads in ideas about minimalist rules for systemic risk avoidance.
- John Taylor leads in ideas for non-partisan doable rules-based monetary policy.
Random selections from a newish “I Agree” file:
- Do not do bail outs (Balcerowicz)
- Do not obsess about firewalls (Zoellick FT)
- Obsess about investment (Zoellick FT again)
- Keep “stupid” stimulus to a minimum (Barro)
- Austerity is okay… really (Mitchell, Neumann, Gros)
- Lower business tax burden (Barro NYT)
- Index and cap welfare entitlements (Barro NYT again)
- Compromise on backloading and inflation as best-of-worst (Romer NYT, Rogoff)
- Prioritize central-government-law in Europe (Rogoff and me here)
- Prioritize the business perspective (Johnson here, here, here)
Other well-known priorities for which I haven’t got internet references to hand:
- Raise retirement ages automatically in line with life expectancy
- Mandatory private retirement and medical insurance (or emulate Australia)
- Tax simplification (flat tax or elimination of differentiation/deductions)
- Public money on Schumpeterian technological/scientific R&D
- Public money on the few natural monopoly areas of economic infrastructure
- Reinstate structural adjustment (orthodox) conditionality for IMF rescues
- Deregulate labour markets
- First, do no harm
The lists lose differences between countries and the nuance in policy, and leave many factors out. But you get the idea. Growth is endogenous to economies, not a product of government spending. Choose policies that will be equally useful now (to restore dynamism) and later (to sustain growth), which won’t need to be reversed later, and which send clear signals about permanent commitments of government to balanced budgets and market freedom.
The most important list is “the principles”. So here it is again:
1. Consider no policy during recession that would not be equally useful during prosperity.
2. Consider no policy whose intention is to evade or cushion the crisis.
3. Consider no policy that is not intended to be permanent.
Addendum: A useful post today by David Henderson about the regulatory burden on small business in the U.S.A. Imagine how much worse in most of Europe. Don't know why I forgot to even mention the word 'regulation' given it's such a crucial factor in recession entry and exit. Luke Johnson's business perspective was the intended substitute I hasten to add!