At what cost growth?

There has been some debate on my favorite economics blogs (Mankiw, econlog), about the old saw that the best way to reduce poverty is to grow the economy as fast as possible and let the rising tide lift all boats. A recent paper by Larry Summers suggests that the calculus may have changed. Lately, the benefits of the rising economy have gone disproportionately to those in the upper income brackets and those in the lower ones have stagnated or even fell.

So here is the policy issue. Conservatives/libertarians want to stick with the rising tide theory and focus only on maximizing growth. Unfortunately, without smart social policy, there are a lot of starving poor people out there who are drowning in the rising tide. Liberals are willing to sacrifice a bit of growth to protect these poor people. Unfortunately, they seem to have a knack for screwing it up and so they hurt growth more than expected and don't help as many poor people as intended.

What we need is a smart combination of economic/social policy that minimizes the limit on growth the get the maximum protection for those truly in need. The public emergency safety net needs to be efficient and effective (get some Industrial Engineers with expertise in Lean Six Sigma to implement it) and focused on those with no reasonable other options. Then put the bulk of the safety net into "teach them to fish" rather than "give them a fish" kinds of programs. Vocational training, child care subsidy, earned income tax credit, etc. And encourage the private sector to support microfinance and other programs that require selecting winners.

While I am on the subject, these are also my prescriptions for saving the health care mess, protecting the environment, and just about every other domestic policy.

government response to high gas prices

This article in Business Week really pissed me off. It lists five proposals that the US government is considering to address the high retail price of gas. They are all ridiculously naive about macroeconomics. What is wrong with our government these days? Are they really that ignorant, or are they pandering for votes - counting on the US population being ignorant? The problem with both of these, is that it encourages voters to remain ignorant, for the reasons described in earlier posts and in other places on the irrational voter.

There was also an article on North Korea that also showed the ignorance of US policy. With North Korea, there are justifiable competing objectives. We want to help their economy to prevent starvation and to encourage them to pursue an open economy. But we also don't want the hard currency to go to Kim Jong Il's nuclear weapons program or to his Swiss bank account. But the article says that South Korea has grown the Kaesong special economic development zone to provide jobs to 15000 N Korean workers but under the control of S Korean companies. This seems like a pretty good way to balance the objectives. But the US government places a 90% tariff and strict quotas on the products coming out.