POLICY RECOMMENDATIONS
Economic prosperity is essential for the health and well-being of the American people. Therefore, an effective government promotes economic growth and development by:
1. Supporting the production of goods and services according to the following priorities:
a. By free-market enterprises, which have proven to be the most efficient and effective, given the proper conditions.
b. By not-for-profit organizations, when incentives are lacking for free-market production.
c. By government, when incentives are lacking for private production or the public well-being is best served by the government provision of a good or service.
2. Promoting competition between producers/sellers and, where such competition is not economically feasible, regulating non-competitive production to promote the public interest.
3. Allowing the free market to establish the prices of goods and services, which maximizes production.
4. Supporting the development and dissemination of scientific knowledge through government grants and programs.
5. Supporting the education, training, productive capacity, mobility and employment of current and future American workers.
6. Providing legal protections for patents that strike a balance between encouraging the invention of new products and services and encouraging competition and the dissemination of new knowledge and technology.
7. Ensuring the effectiveness and efficiency of the financial system through the managerial functions of the Federal Reserve system and appropriate regulatory measures.
8. Improving the American health care system, whose effectiveness and efficiency lags far behind that of other developed nations, thereby impairing the productivity of the American economy.
9. Prohibiting the degradation of the environment by commercial activities whenever the harm from those activities outweighs the benefits they provide to the public as a whole.
10. Supplying the infrastructure that is necessary for economic activities and that private initiative will not supply. This includes things such as highways, bridges, airports and port facilities, to name just a few.
BACKGROUND AND CONTEXT
What is economic development?
An economy is comprised of the activities that the people living in a nation, state or community engage in to produce, sell, buy and consume goods and services. We measure the size of an economy in monetary terms, adding up all of the financial transactions associated with these activities that have occurred in a given period of time. The term economists use to refer to the size of an economy is gross domestic product (GDP).
Economic development is simply the growth of an economy, i.e. growth in the amount of goods and services that people produce, sell, buy and consume. If prices increase without a corresponding increase in production and consumption, this is inflation, not economic growth. Therefore, economists distinguish between nominal GDP and real GDP. “Nominal GDP” means the dollar amount of an economy, while “real GDP” is nominal GDP adjusted for inflation.
Why is economic development important?
When the economy grows, most people are better off. Jobs are easier to find. Workers, businesses and governments see their income go up. People have more of everything. Businesses can expand. Governments can provide more services and infrastructure. Everyone can pay down their debts. As the saying goes, a rising tide lifts all boats.
The opposite of economic growth is recession, defined as a decline in GDP that last at least six months. During a recession, unemployment rises, business profits fall, standards of living decline and governments cut services. The longer a recession lasts, the more people it hurts.
We see the importance of economic development reflected in politics. When he was devising a strategy to win the presidency, Bill Clinton reportedly said to himself, “It’s the economy, stupid!” Nearly every political candidate tries to win votes by promising to make the economy stronger. Why? Because economic development is a top priority for most people who vote.
How do we achieve economic development?
Economists overwhelmingly agree that free-market economies produce far greater levels of wealth and human well-being than socialist economies have. In a free-market economy, private individuals and corporations own the means of production and the individual decisions of producers and consumers determine what will be produced and at what price.
Why do free-market economies outproduce socialist economies? The main reason is that in a free-market economy, producers have much stronger motivation to work hard and to satisfy the needs of consumers. Furthermore, like democracy in the political realm, the free market places ultimate control over the economy in the hands of the people, both as producers and as consumers.
A key aspect of a well-functioning market economy is competition between the companies that produce and sell goods and services. Without competition, producers and sellers can charge higher prices and earn greater profits, but they produce less and society as a whole suffers. Therefore, competition is a key to economic development.
Free-market economies can falter and fall into recessions and even depressions, as history has shown us repeatedly. Government has a key role to play both in preventing or curing such mishaps, and in promoting economic growth. Only government can provide a legal system that builds a high degree of social trust. Similarly, we need government to ensure a healthy financial system, one that encourages saving and investment and allows responsible borrowing by individuals and corporations, without fueling excessive speculation or inflation. Equally important is government’s stewardship and development of the factors of production, including our natural resources, our public infrastructure such as roads and bridges, the growth of scientific knowledge and technology and, above all, the education and training of the people – our current and future workers and citizens.
What problems can economic development cause?
Economic growth and prosperity are essential to our well-being, but they can also harm us. The activities of production, which provide us with the goods and services we need and want, can sometimes cause injuries to workers, consumers and third parties. Pollution from industry can poison our rivers, lakes and oceans and the air we breathe. These side effects from commercial activities, which economists call “negative externalities,” can damage our health and destroy the beauty of our natural surroundings and now, through global warming, they even threaten the continuation of life on our planet.
In the pursuit of wealth, individuals and corporations sometimes engage in unwise, unethical and even illegal actions that can cause much human (and animal) suffering. Therefore, while economic development is a good we must strive for, its pursuit must never lead us to ignore or accept the unnecessary degradation of our common life together.
Policy adoption date: 12/26/2017