Competitiveness and the Policy Mix

Fred Smith, the CEO of FedEx, made some excellent comments on how best to raise workers’ incomes, which is to make the corporate tax code less punitive (he was explaining why he intends to vote for John McCain, when he feels that U.S. income disparity is a concern). The video clip is available on CNBC’s website, and the relevant comments start at the 8 minute, 30 seconds mark.

Less encouraging were Sen. Sam Brownback’s comments and questions to Fed Chairman Bernanke, who is currently giving testimony. Brownback, a Republican, essentially claimed that lower interest rates would ensure competitiveness of the U.S. economy, and expressed his desire that the Fed not focus on inflation. That’s just plain wrong, and it’s a recipe for a 1970s style stagflation. Competitiveness is best addressed through Congressional policies, not monetary policy, and the proper role of the Fed is to maintain a stable value for the US dollar. Brownback’s errors demonstrate that neither party is immune to economic and policy errors, or to repeating the mistakes of the past.

UDATE (Senate): Sen. Jim DeMint just laid out some good questions and arguments about regulation, capital investment, and competitiveness.

UPDATE #2 (House): Secretary Paulson and Chairman Bernanke deserve credit for the effort they’re putting into resolving this crisis, but…they’ve fielded several questions on competitiveness and economic growth, and they are completely overlooking the non-financial and non-monetary aspects, that we believe are the critical lever in resolving this process. Essentially, they claim that by unlocking credit markets, they will restore the means to consumption. That objective sits on a one legged stool. First, credit markets have problems, but are still assumed to be rational in the long run–aren’t they signalling (among other things) that the capacity to support consumer debt in the US has been maxed out? Second, credit markets can only expand to the extent that debtors are able to repay, something that tax, trade, and regulatory policies have an enormous and direct impact on! Paulson is missing a huge opportunity to demonstrate leadership on the policy directions that need to be taken to improve US competitiveness in the global economy. Perhaps he feels he would risk too much by doing so, given how much he is asking for. But this crisis will not be resolved expediently unless expectations of future income improve. Rep. Tom Feeney of Florida is hitting on those points as I type this, citing the trade and tax errors made by President Hoover that, in combination with severe monetary errors, brought on the Great Depression. He’s also laying blame on the Federal Reserve for easy money, and roping in government policy errors for its share of the blame. Good stuff.

URLs:

http://www.cnbc.com/id/15840232?video=866167097

http://www.cnbc.com/id/15840232?video=866240817