UNLEASHING THE ECONOMIC GROWTH

AMERICA NEEDS

Foreword by George W. Bush

Introduction by James K. Glassman
Edited by Brendan Miniter

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 Copyright © 2012 by the George W. Bush Foundation

All rights reserved.

Published in the United States by Crown Business, an imprint of the
Crown Publishing Group, a division of Random House, Inc., New York.
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First Edition

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 Contents

Authors vii
Foreword
George W. Bush xi
Introduction: We Can Do It
James K. Glassman xv

Chapter 1 Why We Grow

Brendan Miniter 1
Chapter 2 Incentives
W. Michael Cox and Richard Alm 8
Chapter 3 The History and Future of Economic Growth
Robert E. Lucas Jr. 27
Chapter 4 More Time on the Job
Edward C. Prescott 42
Chapter 5 At Home in the Great Recession
Steven Gjerstad and Vernon L. Smith 50
Chapter 6 Spending, Taxes, and Certainty: A Road Map to 4%
Kevin Hassett 80
Chapter 7 Sound Money, Sound Policy
David Malpass 94
Chapter 8 Not All Growth Is Good
Myron Scholes 108
Chapter 9 Entrepreneurs and Creative Destruction
Peter G. Klein 116
Chapter 10 Baseball’s Answer to Growth
Robert Litan 127
Chapter 11 The Role of Intangibles
Nick Schulz 144

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 vi Contents

Chapter 12 The Virtuous Cycle

Maria Minniti 159
Chapter 13 Growth Needs Trade
Carlos Gutierrez 174
Chapter 14 Market-Friendly Energy
Steven F. Hayward and Kenneth P. Green 189
Chapter 15 Social Security Reform and Economic Growth
Charles Blahous and Jason J. Fichtner 204
Chapter 16 Education Quality and Economic Growth
Eric A. Hanushek 226
Chapter 17 When Illegals Stop Crossing the Border
Gary S. Becker 240
Chapter 18 Immigration and Growth
Pia M. Orrenius and Madeline Zavodny 245
Chapter 19 How Technology Can Lead a Boom
Floyd Kvamme 261
Chapter 20 Growth Lessons from Calvin Coolidge
Amity Shlaes 279
Chapter 21 The Moral Imperative of a Free Economy
Michael Novak 287

Notes 301
Index 327

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 Foreword
By George W. Bush

The United States economy has long been characterized by periods of

strong and sustained growth, interrupted by brief, periodic recessions
that ultimately give way to renewed economic expansion. Between
1983 and 2008, America enjoyed twenty-five years of nearly continu-
ous and often explosive economic growth, interrupted only by brief
recessions. The downturn that followed the financial crisis in 2008 was
more sudden and severe than many recessions, but we have every rea-
son to believe that like every other economic disruption in our history,
it can be followed by a return to robust growth.
While the causes of the 2008 crisis will be debated by scholars for
decades to come, we can all agree that excessive risk-taking by finan-
cial institutions, irresponsible decisions by lenders and borrowers, and
market-distorting government policies all played a role. The question
now is which policies we should adopt to fix the problems, speed the
recovery, and lay the foundation for another long, steady expansion.
That is the topic of this book. In the pages that follow, leading eco-
nomic thinkers offer ideas on how to revive the economy. Guiding their
work is the belief that the solution to today’s problems is sustained and
significant economic growth and that the surest path to that growth is
free markets and free people.
To get ourselves on that path, we first need to recognize the power
and importance of free enterprise. Every economic system has its short-
comings, but free-market capitalism offers the most efficient and just
way to order an economy. At a fundamental level, such a system allows
individuals to decide the course of their own lives. By making deci-
sions about where to invest and what to purchase, they help drive our

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 xii Foreword

economy. And as they make decisions about what level of education to

attain, where to work, and the purpose of their lives, they earn the dig-
nity that comes from using their God-given talents and the pride that
comes from contributing to the productivity of our nation.
In a free-market system, individuals from humble beginnings can
rise to become leaders in their chosen fields. For an example, consider
Vernon Smith, one of the authors in this book. His family moved to
a farm when he was a boy during the Great Depression to ensure that
they would have enough food to eat. From there he worked hard, got
into college, and built a successful career. In 2002 he won the Nobel
Prize in Economics.
Looking over the course of history, we can see that free-market cap-
italism has done more than any other economic system to raise living
standards across the globe. Free-market capitalism rebuilt Japan and
Western Europe after World War II. It made Hong Kong into a global
economic competitor. And it built the United States into the strongest
economic power in world history.
At the other end of the spectrum, governments that try to control
their markets often face debilitating shortages, or worse. For example,
Iran is an oil-rich country. But under the rule of a theocratic govern-
ment, it struggles to provide refined gasoline to its people. Similarly,
Cuba is a fertile island that has historically been rich in sugar cane. Yet,
under the rule of the Castro brothers, food— even sugar—is rationed.
In North Korea, a country ruled by a backward Stalinist regime, mil-
lions starve while their neighbors living under a free-market system in
South Korea enjoy the fruits of a thriving, modern economy.
The most successful free-market economies trade freely with other
nations. And so the path back to prosperity also requires America to
keep its markets open and remain engaged with the world. Isolation-
ism is shortsighted and dangerous. We learned that lesson the hard way
during the Great Depression when policy makers imposed the Smoot-
Hawley tariffs. The result was that we weakened our economy at a time
when events were leading to a world war.
The record is clear. A nation’s prosperity depends on where it falls
on the spectrum of economic freedom. Capitalist countries have shown

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 Foreword xiii

that free markets are the surest path to economic growth, opportunity
for all, and a just system based on human dignity.
So part of the mission of the George W. Bush Institute, a new policy
center in Dallas, is to promote economic growth at home and freedom
abroad. All people desire to be free, to have a voice in picking their
political leaders, and to determine their own destiny. And when we
do well economically, we encourage others to adopt policies that will
lead to their own prosperity and enable them to become strong trading
partners.
One common theme of The 4% Solution is that with the right poli-
cies America can be robust again, and the United States can continue
to be the strongest economic power in the world. I thank the brilliant
economic thinkers who have contributed to this book for providing
key insights that policy makers can use to revive our economy. As they
spell out in the pages that follow, innovation is the heart of economic
growth. We’ve led the world in developing new technologies and new
ideas, and we can continue to do so. Our people are industrious and
creative, our universities are the best in the world, and our markets are
capable of supporting a resurgent economy. We’ve seen the resilience of
this country before, and we will see it again. Our brightest days reside
not in the fading light of past success, but on the horizon of our future.

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