Framework for new economic policy
Proposed analytical framework for redesigning economic policy. Common sense, but apparently not discussed anywhere else.
1. Acknowledge history. Current policy was essentially all forged in the 1930s. Forget deck-chair-rearranging debates about later initiatives: the core assumptions — consumer-centrism, social safety net, regulatory structure, tax structure — were mostly crafted in the 30s.
2. Acknowledge changed circumstances. In the 1930s, the United States was the lowest-cost producer of manufactured goods, the largest exporter, the largest creditor, had one of the highest savings rates, the best education system, and imported no energy. Moreover, little was known about how to extend human life through medical technology or behavior. All of these conditions have changed.
3. Identify mismatched policies. We went to a consumer-centric orientation in the 1930s in an effort to reverse deflation by unlocking America’s vast savings. Today, there are no savings to unlock, so consumer-centrism has nothing to unlock. Securities regulation was designed around all securities that existed in the 1930s. Many securities have been invented since then, so the old policy is unnecessarily narrow. Medical insurance was developed piecemeal, in an era when there was very little that medicine could do.
4. Choose one metric to optimize for. I prefer median output per work hour, because it is simple, yet captures economic advancement and social equality at the same time. Median productive life span might be a nice-to-have as well.
5. Design new policies based on the above.
This leaves out some details, such as getting rid of policies that are bad under all circumstances (e.g. promoting consumer debt through tax subsidy), but the exercise will let almost anyone — even politicians — make smarter choices.