Everyone agrees that we cannot get out of our fiscal difficulties unless we have robust economic growth. What causes such growth?
The answer is not complicated. Wealth is created and growth occurs when three things interact with each other — accumulated capital, risk-taking and good management. To illustrate how that works, look at the first business activity, farming.
Accumulated capital? The farmer must start with some seed corn, wealth left over from a previous crop which he "accumulated" by not eating it. Risk taking? There will be no new crop unless the farmer puts his accumulated seed corn in the field, where it is very much at risk. It could be washed away by a flood, killed by a pest, eaten by birds or wiped out in a premature frost.
Good Management? Even if no disaster befalls the farm, there will still be no new wealth if the farmer plants the seed too soon in the season or too deeply in the soil, doesn't keep the weeds under control or fails to get the harvest in at the right time. Bad management will produce failure even if he has the best of seed, the fairest of weather and the most fertile of soils.
What is true of the business of farming is true of every other effort to create wealth — someone must have access to accumulated capital, must be willing to risk it and then must have the capacity to manage the enterprise wisely. In the current crisis, we have forgotten that.
Our economic difficulties are the result of a number of bad management decisions by a wide range of people in many sectors of the economy, worldwide. (Britain's housing bubble and subsequent economic meltdown was just as big as ours.) There have also been significant unanticipated events, the equivalent of a flash flood on the farm, that have dramatically changed our course — 9/11 and its aftermath spring to mind.
However, the public reaction to our present troubles has been simply to demand that the government "do something" to fix it, and fast. It is one of the false concepts of our time that the government can easily and quickly repair the damage created by bad decisions or unexpected negative events. If that were so, if there were a governmental approach that always worked, we would have discovered and embraced it long ago.
If central planning were the answer to avoiding market booms and busts, the Soviet Union would still exist and be the world's richest country. If heavy spending on infrastructure could automatically cure a recession, Japan would not have had a "lost decade" of economic stagnation and a national debt roughly three times bigger than ours. If printing money when jobs dried up would create new ones, Zimbabwe would have more jobs than any other country in the world.
To grow, we need policies and actions that foster wealth accumulation and encourage risk taking, along with regulatory regimes that don't get in the way of good management. President Obama touched on this latter point in his State of the Union message when he talked about the conflicting federal agencies dealing with salmon, but every regulation should be examined to see if it helps wise management and then altered if it doesn't.
Government cannot create jobs and wealth; that only comes from private initiative. Government's role should be to create an environment where those who take that initiative can flourish. Then and only then will tax revenues rise to levels that will provide the funds for the other services that the government provides.
Robert Bennett, former U.S. Senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah's Hinckley Institute of Politics.