Joseph Mason is the Moyse/LBA Chair of Banking at the Ourso School of Business at Louisiana State University and a senior fellow at the Wharton School of the University of Pennsylvania.
Politicians and talking heads dedicate countless hours to theorizing about the measures we can take to "fix" the economy. While this issue is infinitely complex, the pillars of generating economic growth can be broken down quite simply.
The cheapest way to achieve economic growth is to produce products at a lower cost than other countries. We hardly want to compete with China and other developing nations in this matter. We've witnessed the result of unrestrained labor markets most glaringly in recent months at China's Foxconn camps, where nets had to be installed between dormitories to prevent worker suicides. But we have other tools outside of poor working conditions to reduce the cost of manufacturing products.
America's most effective tool for keeping manufacturing jobs here is offering favorable tax treatments. In 2005, the section 199 manufacturer's deduction was instituted in the United States to reduce the corporate tax rate for these activities. Unfortunately, it is tenuous at best for some of the country's most prolific job creators like the oil and gas industry, which President Obama has continually tried to exclude from the benefits. Additionally, the extremely high 35 percent U.S. corporate tax rate (soon to be the highest once Japan lowers its rate in April) leaves even the most generous rate reductions uncompetitive against standard tax rates in other nations. As we continue to tax these jobs out of the United States, it becomes less and less likely that manufacturing will remain a pillar of the economy. But the United States has other inherent advantages we can leverage for economic growth.
America is rich in natural resources, from the early gold strikes in California to the more recent surge in natural gas production from shale. Developing these resources is an important tool for boosting the economy. Jobs are created extracting these resources, preparing them for market, delivering them to market, and selling them. Our newfound abundance in energy resources led to 9 percent of all job creation in 2011, and we weren't even taking full advantage of these opportunities.
The president has kept large portions of the Gulf, areas off both coasts, parts of Alaska, and large swaths of federal land off limits to any energy production. Utilizing these resources would offer a significant economic boost, generating wealth and jobs right now. But that isn't in the cards. However we still have good, old-fashion American ingenuity.
Innovation is a key component of America's economy. Companies like Apple invent a product like the iPad and generate huge amounts of wealth for the United States when this becomes coveted by people throughout the world (unfortunately these products are manufactured at Foxconn, but that returns us to manufacturing). Once would assume U.S. tax policy was encouraging investment in businesses and ideas to enable creative minds and driven people to become the next Steve Jobs.
Instead, start-up business owners whose companies net over a million dollars are being labeled "1 percenters" and now face significantly higher taxes from the White House. Progress is being stifled by taxes as the government pulls funds from innovators and places it in the hands of bureaucrats. Major American investors are tightening their belts in the face of these tax increases, limiting the monetary investments in the very innovation that the president has called for and applauded since taking office. And with the monetary policies we have seen, the few dollars being invested aren't going as far.
Under this administration, the Federal Reserve has printed billions of dollars under its "quantitative easing" policy, flooding the country with money. This policy, intended to keep interest rates near zero, will eventually force Americans to pay more for food, gasoline, clothes, and other essential commodities as the value of the dollar goes down. We are already starting to witness this phenomenon. Meanwhile, tax rates and wages are largely remaining the same. This effort is meant to increase spending, but only does so by forcing Americans to pay more for the goods and services they need with a weaker dollar. These policies don't create any real value and have led to the stagnation we are now witnessing.
High tax rates are chasing away the manufacturing jobs the United States once thrived on. Moratoriums are limiting resource development. And uncertainty and targeted tax hikes are limiting investments in innovation. To top it all off, monetary policies will force us to pay more for goods and services. If this continues, it appears President Obama's legacy may be one of economic stagnation and high inflation: a legacy that offers us little hope for the next four years.