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Let's Keep Our Growth Policy
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14227 |
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Section : |
CURRENT ISSUES
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| Issue
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7 / 1988 |
2,382 Words |
| Author
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Alvin Rabushka
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A common misconception holds that an emphasis on economic growth comes at the expense of equality and social justice. The alleged growth benefits the rich disproportionately, thereby increasing the gap between them and the poor. Nothing could be further from the truth. In reality, policies that nurture high rates of economic growth improve real living standards for all and bring about a more equitable society than policies that emphasize distribution.
In the rush to achieve equality in the distribution of income, people often forget that wealth must be produced before it can be distributed. Such an emphasis often leads to public policies that reduce incentives to work, save, invest, and take risks, thereby suffocating the economy. Low taxes, a minimum of government intervention in business and private affairs, and government practice of responsible fiscal, economic, and social policies provide a climate conducive to economic growth. High rates of economic growth, in their turn, create jobs and raise living standards.
Between 1982 and 1987, the United States achieved the greatest peacetime expansion in its history, creating 15 million new jobs in the process. This period was characterized by major reductions in tax rates, the deregulation of business, the curtailment of inflation, and the creation of an environment conducive to profitable investment.
The Welfare State Rises
The 1980s had to overcome the effects of a half-century of increased government intervention in the economy. The New Deal marked a watershed in American economic life. Since Congress passed the Social Security Act in 1935, the government has increasingly borne the responsibility for full employment and a burgeoning network of human services. By 1980, a large, interventionist government had supplanted a minimalist state. "Collective responsibility," "public goods," and "government funding" had assumed an equal status in the American vocabulary with such traditional watchwords as "individual initiative," "individual responsibility," and the "free market economy." Since the New Deal, taxation and government spending has more than tripled as a share of GNP. Inflation has set in; runaway budget deficits have become the norm; and dozens of new federal regulatory agencies have been created as Congress has embarked on an unprecedented regulatory binge. Economists of all persuasions decried a declining savings rate, falling productivity, punitive tax rates, and rising inflation. The historical trade-off between unemployment and inflation evaporated, resulting in a semipermanent condition of stagflation.
Total government spending at all levels grew from 10 percent of GNP in 1929 to 33 percent in 1980. Moreover, a dramatic shift took place in the way public dollars were being spent. In the early 1950s, human resources (education, training, employment, social services, health, Medicare, income security, Social Security, and veterans benefits) made up about 20 percent of federal budget outlays, or 3 percent of GNP. Its share increased year in, year out, peaking in 1981, when it consumed 53 percent of all budget outlays, or 13 percent of GNP. But greatly increasing spending on human resources to achieve the Great Society objectives of fighting poverty and fostering social justice failed to meet these goals. The annual poverty report of the U.S. Department of the Census reports that the distribution of income by quintiles has steadily
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