President Bush will interrupt his vacation in Crawford, Texas, next week to hold a brainstorm session with his economic team about how to create jobs. Some Commerce officials have floated the idea of creating a new position of "manufacturing czar," while others are proposing a number of tax credit schemes to encourage companies to hire more workers. Newt Gingrich, sounding like John Maynard Keynes, suggests increased spending on roads and military contracts. All of these suggestions, though well intended, are profoundly misguided and not only would not help in the short-run, they would be counterproductive and economically harmful in the long-run.
This is no time to panic, but it is a time for action, and it is a time to avoid mistakes that would undo the economic progress already made. Gimmicks like "manufacturing czars" only invite the mischief of bureaucratic overreach into the economy. New tax credits simply distort market signals and further pollute a fetid tax code. Public-works spending projects on roads and corporate welfare for the military-industrial complex are a throwback to an earlier time of panic when we didn't know better and our fear of fear became palpable in outlandish government interventions and spending programs.
If I were in Crawford, I would encourage the president to adopt a four-pronged strategy for economic growth heading into the election year: 1) Rescind the steel tariffs and other harmful trade restrictions such as the ones on soft timber from Canada, which would increase manufacturing jobs as well as reduce costs for businesses and consumers. 2) Reduce agricultural subsidies. While it may not be politically possible to eliminate all agriculture subsidies, 80 percent of which go to large corporate farms, they should be sharply reduced to help our current budget situation, reduce prices for consumers and give developing countries a fighting chance to enter the global economy. 3) Urge Congress to allow businesses to deduct 100 percent of their investments in plants and equipment for the next three years, which would reinvigorate capital formation and business expansion. 4) Put at the top of the administration's agenda National Enterprise Zones of Choice, which would demonstrate the economic power and efficacy of getting the tax code right in economically depressed urban and rural districts, including U.S. territories, as well as areas in adversely affected by free-trade initiatives.