Top 10 Ways To Grow The US Economy
Have you ever heard of the 80-20 principle?
It’s a memorable phrase that boils down the lessons of nonlinear relationships—also known as the Pareto principle, or the law of the vital few—into something easily digestible.
The idea is simple: basically, 80% of the output is caused by 20% of the input, and vice versa.
In short, most of the work (80%) is done by relatively few people (20%), while the rest are relative slackers.
And to be clear, it’s not always 80-20, sometimes it’s 90-10, or 99-01: it all depends on the circumstances.
For example, the distribution of wealth in America follows this pattern: the top 20% of households own 77% of the wealth. Likewise, the top 20% of the top 20% own roughly 80% of the wealth, and so on and so forth—until you get to the top 1% and beyond that everyone’s complaining about.
Ownership of wealth follows a nonlinear (fat-tailed) distribution.
And this relationship doesn’t just apply to wealth, but to all sorts of things: 90% of crime is caused by 10% of criminals (the really bad ones), and the same goes for automobile emissions.
Power laws are everywhere.
Why am I telling you this?
Because America’s economy is broken, and it needs to be fixed. And although most people agree on this point, they can’t ever agree on a specific policy—they’re spoiled for choice. There are thousands of things we could do, so we do nothing.
The 80-20 principle simplifies this choice—we don’t need a thousand solutions, we just need the top few, since those will do most of the legwork anyways.
In this article, I’ll tell you the top 3 things that Donald Trump needs to do to fix the economy—if he did them, most of our economic problems would dissipate. Then, I’ll give you 7 more that I think are worth putting in my “wishlist”.
The Top 3 Ways To Fix America’s Economy
1. Put America First When it Comes to Trade—Stop Economic Globalization & Offshoring
I’ve written before that the Cold War left America with the intellectual hangover to end all hangovers, and it’s poisoned our economic and political thought accordingly—whatever the Soviets did, we did the opposite.
The reasons why economic globalization hasn’t worked are myriad, and it’s not worth going into detail here.
But I will give you a brief outline of what a nationalistic, America-first trade policy would look like.
First, we need to recognize that long run economic growth is caused by technological advancement—in the end, better technology is really all that separates us (economically) from our Victorian, and Medieval ancestors.
Once you understand this, you realize that in order to grow the economy, we need to increase the likelihood that our domestic economy will invent new technology—if we invent it, we reap the lion-share of the profits.
How do we do that?
By maximizing the size of its cutting-edge industries.
And how can we do that? The best way is to expand their markets: bigger markets means bigger, and more diverse, and likely creative industries. To do this, we should ensure that our advanced industries aren’t offshored to foreign countries, and remain profitable.
Once that’s taken care of, we should look to expand into foreign markets: America shouldn’t just supply its own software, it should supply the world’s software.
This means tariffs on advanced products, investments in the necessary infrastructure, and pursuing trade deals that asymmetrically benefit America’s advanced industries.
If we do only this, it should be enough to get our economy back on track—it worked for us historically, it will work again.
2. Fix America’s Immigration System & Stop Illegal Immigration
Our immigration system is archaic, and it’s not working: we’re bringing in too many people, and too few of them have useful skills—and that’s just the legal ones.
And yet at the same time, we’re turning down highly qualified specialists (not necessarily university-educated people, but also those who possess key trades skills) who could help grow the economy.
Basically, it needs an overhaul.
Although there are problems with our legal immigration system, the real issue here is illegal immigration: if we solved that, the majority of our immigration problems would go away, or at least seem like small potatoes (Pareto’s at work again).
Illegal immigration hurts America’s economy in a few different ways.
First, illegal immigrants drain the economy of a net $150 billion every year. That’s a lot of money that could, and should, be going to rebuilding America’s infrastructure, or educating our kids etc.
Second, illegal immigrants increase competition in the labor market, particularly for America’s poor, and the working class.
This means lower wages (it’s basic supply and demand here people, not complicated), and a lower quality of life for millions of Americans—all so that the rich can hire slightly cheaper gardeners.
And it’s also led to social problems, like Americans feeling like strangers in their own country—which is also bad, but beyond the scope of this article.
Anyways, no illegal immigrants means higher wages, and more job opportunities for American citizens. Period.
Fix immigration: fix the economy.
3. America Should Invest In Physical & Informational Infrastructure
If you imagine the economy as a body, infrastructure would be the circulatory system and neural network.
Roads, canals, and airports act like blood vessels, taking products where they need to go. Likewise, fiber optic lines, and electricity cables work like neurons, allowing different places to communicate.
Both types of infrastructure, physical and informational, are critical to an efficient economy.
Sadly, America’s infrastructure’s in rough shape.
It’s so bad, in fact, that the American Society of Civil Engineers gave the US a D+ on their 2013 infrastructure “report card”.
They also said it would cost us $3.6 trillion to bring it up to snuff.
And this is to say nothing of America’s communications infrastructure.
We need to make massive investments in infrastructure to improve our economic efficiency, and ensure our economy doesn’t fall behind the times.
Luckily, this is one of the things Trump’s planning on doing. If he does, this will go a long way to fixing America’s broken economy.
7 More Ways To Rebuild The Economy
4. Stop Quantitative Easing & End The Federal Reserve Bank
In all honesty, this should probably be in the top 3, but I have relegated to the bottom half because I don’t think it’s politically viable, and it’s more of a wish than an actionable policy—there are just too many special interests involved to change the system without major economic turmoil.
With that being said, the Fed is doing enormous damage to the US economy, and has been for decades? How? By destroying our purchasing power—especially through the recent practice of quantitative easing.
Here’s how it works:
The Federal Reserve (which although isn’t technically a branch of government, functions as one in terms of its integration) buys up securities, like government bonds, from banks, using newly created electronic money.
This new currency bolsters bank reserves and increases buying pressure on securities.
This has the twin effects of capitalizing banks so they make more loans, and inflating the securities markets.
Since 2007 (just before the 2008 Great Recession), the Fed has bought up $3 trillion in US assets.
Anyways, this is really just a Ponzi Scheme that hurts America in the long run because:
a. Quantitative easing causes inflation, which temporarily hides government ineptitude by creating the illusion of economic growth.
b. It erodes the dollar’s purchasing power by creating trillions of new dollars, without actually creating any new products.
c. It allows the government to borrow beyond its limits, which leads to more debt.
d. And finally, quantitative easing is basically just a sophisticated way for the rich to get richer: it artificially inflates the stock market by pouring new money into the economy through Wall Street, without actually stimulating economic growth.
It’s all just smoke and mirrors that makes us feel richer, without us actually being richer.
It would be a lot easier to fix America’s economy, if we weren’t busy ripping it down at the same time.
5. Reduce & Harmonize Government Regulations
Ideally, America’s legal landscape should be so easy to navigate, that lawyers should be collecting food stamps.
Excessive regulations, and the expanding bureaucracy created to enforce them, are killing the economy by reducing our intellectual and economic freedom.
Also, they make it impossible for small businesses to compete with multinationals, because they simply can’t afford armies of lawyers to avoid liability.
This is a no-brainer.
We also have to remember that different states often have very different laws, which can hamper cross-border businesses. These need to be done away with via a program of federal regulations harmonizing.
And just to be clear: the federal government should set a benchmark that can’t be exceeded, although states should be able to limbo under it—it’s fine to cut regulation further, but not over-regulate.
A competent harmonization system would ideally lower regulations in New York and California, but wouldn’t impact places like Texas whatsoever.
You’d think that this should be pretty easy to take care of, but its not. Nevertheless, cutting red tape would go a long way to fixing the economy.
6. Reform & Simplify The Tax Code
How simple should the tax code be? Accountants should be begging on the streets.
Now, I supported Donald Trump for president, but I’ll say this: I loved Ted Cruz’s tax plan.
He wanted to abolish the IRS, and simplify the code with a flat tax that would be easy enough to fill out on a single sheet of paper.
Is it too simple? Maybe, but that’s it’s beauty.
I think it’s a great start, and we could quibble over the rest of the details as we go.
7. America Needs To Be Energy Independent
No, I don’t mean we should invest trillions in “green energy”—I’m talking about fossil fuels.
America shouldn’t be beholden to the interests of oil-rich countries like Saudi Arabia or Venezuela—nor should we be giving them a dime of our money.
We have more than enough oil and coal to power America ad infinitum. We should take advantage of it.
To do is, we simply need to open up more public land for exploration, reduce the necessary environmental regulations, and build more pipelines from Canada.
This would be good politically, but also economically—a stable power supply can only be a good thing.
8. Revitalize America’s Aging Power Grid
Power underpins the modern economy: we need it for everything. Literally, everything.
With that in mind, power needs to be as cheap as humanly possible, because savings on power will benefit the entire economy—especially power-hungry sectors like manufacturing.
This means abandoning the false promises of wind and solar dominated power grids, and sticking with what works: natural gas, goal, hydro, and nuclear.
Not only will doing so dramatically decrease our power costs (and fix the economy in the process), but won’t have the negative environmental consequences we keep hearing about. Trust me.
9. Invest in Basic Research & Scientific Facilities
Like I said, improving technology is the key to long term economic growth.
Now, some people think that if you free up the market enough, it’ll take care of it.
No. There’s more to it than that.
The free market is great at taking ideas and perfecting them, but it’s pretty horrible at basic research—the type of boring stuff that universities do. Why?
Because there’s no money in it—sometimes not for decades, and sometimes never. Corporate scientists simply don’t have the intellectual latitude to pursue something that doesn’t look like it has applications.
But universities do. That’s why the bulk of basic research, and oddball discoveries have always come from universities, which historically haven’t followed a profit-driven model, at least not when it comes to research.
Therefore, for the good of the nation, the economy, and science as a whole, we should pump up funding for universities in STEM fields.
Likewise, NASA should drop the climate change agenda that Obama foisted upon them, and get back to discovering the universe.
Science is the key to growing the economy, and getting rich—let’s invest in it.
10. Stop Unnecessary Government Spending
This one’s going to be tough, and it will require the American people’s eternal vigilance.
But the bottom line is this: we need to stop wasting money.
We all know what this looks like, so I won’t get into detail. But if you’re curious, here’s a list of some of the dumbest things the government spends our money on—that needs to stop.
That’s How You Fix The US Economy
Like I said at the beginning of this article: we don’t need to do everything on this list in order to fix America’s economy. And frankly, we don’t even need to do any of it well.
We just have to do enough.
That’s the beauty of power laws: most of the benefits will come from a fraction of the work.
Let’s take the lazy way out, and fix America’s economy in record time.