Federal Government's Role in Improving the U.S. Economy

Productivity and Monetary Policy as Drivers of Economic Growth

Productivity has been a key driving force behind the United States' rapid economic growth, especially in recent years, and a key to future economic growth rates (White 2001). Governor Laurence H. Meyer stated that maximum sustainable growth was achievable by promoting both full employment and price stability. The past few years have shown the positive effects of the employment–price stability combination. Productivity has helped the Federal Reserve maintain maximum sustainable growth levels. Michael H. Moskow, president of the Federal Reserve Board of Chicago, said that maximum sustainable growth could be determined by adding growth in the labor force to growth in productivity. Many macroeconomic factors influence the unemployment rate and inflation rate and their effects on maximum sustainable growth. These effects include monetary policy, fiscal policy, and business cycles. Unemployment and inflation, along with other factors, create an impact on the economy as a whole.

Chairman Alan Greenspan of the Federal Reserve and other economists observed a phenomenal acceleration of innovation in the American economy. This raised productivity, output, corporate profits, and stock prices to levels never seen before. Exceptional growth was highest in the late 1990s at 4.3%, compared to a fifty-year average of 3.6%. The three most prominent factors affecting labor productivity have been identified as capital deepening, labor quality and improvement, and multifactor productivity.

Over the following years, however, economic growth slowed and the threat of recession loomed. In his February 28, 2001 testimony to the U.S. House of Representatives, Greenspan said that the pace of spending had to slow down. He reported that labor markets were already quite tight and that a continuing disparity between growth in demand and potential supply would result in disruptive imbalances. Such imbalances would, in turn, create inflation as the economy attempted to balance supply and demand, ultimately negating price stability. An increase in productivity would raise the maximum sustainable growth rate. The Federal Reserve Board is tasked with helping the economy achieve that maximum sustainable growth through the control of monetary policy (White).

Human Creativity and the Creative Economy

Some sectors suggest that the real key to driving the economy forward does not consist only in offering financial incentives, but also in encouraging human creativity (Florida 2003). The lure of financial gain may encourage innovation in many ways, but can also stifle or waste it. This can and does often happen when creative energy is diverted to narrow channels — such as high-luxury goods — or when investor greed is allowed to reign. Money has been erroneously considered and overrated as a basic motivator of human creativity. Inventors and scientists like Thomas Edison, the Curies, and the Wright brothers were driven by creative competition rather than financial gain; they engaged in a race to be first.

These sectors thus believe that creative activity should receive priority preference and incentives. They argue that when more people do the work they truly enjoy, wealth will necessarily follow. Expanding opportunities for creative work and establishing a vision for it should be the direction and inspiration of the new century. Other countries have already assumed this direction. Ireland has become the world's second leading exporter of software. Finland has become a world leader in cell phone manufacturing with Nokia. Japan's auto firms were the first to produce hybrid and fuel-cell cars. India and Indonesia have been pursuing high-tech fields such as software and biomedicine. Studies show that creative activities in Toronto and Vancouver, Canada, have surpassed those in many U.S. cities.

A framework has been suggested that pursues bipartisan competition and creative dialogue in rethinking America's economic future. This framework lists four priority goals. The first is an educational system that develops and harnesses the creative talents of its people. The second is a guiding principle in the nation's economic policy to increase the number of creative jobs and opportunities. The third is the expansion of the role of the nonprofit sector in an envisioned creative economy, free from market pressures to maximize investor returns. The fourth is for the U.S. to remain an open society — especially to foreign-born talent and scientists — many of whom are being deterred by tight security policies. While such policies may be necessary, they can weaken competition when taken too far (Florida).

Innovation, Education, and Immigration Reform

Innovation is the single critical factor in economic growth and the source of U.S. economic leadership, as well as the foundation of its competitiveness in the global economy (Gates 2007). If the United States is to remain competitive, it must take two critical steps in creating and retaining a workforce of the world's brightest minds. One is to demand strong schools for Americans entering the workforce in the fields of math, science, and problem-solving. The second is to make it easier for foreign-born scientists and engineers to work for U.S. companies. Businesses must advocate for strong educational policies in science and mathematics relevant to the needs of business. Meanwhile, government should work with educators to reform schools and improve educational excellence (Gates).

American economic competitiveness also requires immigration reform to address the importance of highly skilled foreign-born employees (Gates 2007). The demand for specialized technical skills has long surpassed the supply of native-born workers with advanced degrees. Scientists and engineers from other countries can fill this gap. Computer science employment, for example, has been growing at nearly 100,000 jobs per year, yet the number of students graduating with a computer science degree has been declining. The government's allotment of 65,000 temporary H-1B visas annually has not been adequate to fill open technical positions.

Permanent residency regulations have made the problem worse. Temporary employees must wait five or more years to obtain a green card, and during that time they cannot change jobs. This limits their opportunities to contribute to their companies' success and to overall economic growth. Reforming the green card program to make it easier to retain highly skilled professionals is therefore a necessary step. These employees are essential to U.S. competitiveness and should be welcomed to contribute to U.S. economic growth. If the U.S. is to remain a global economic leader, it must create an environment where each new generation can dream up innovations, regardless of their places of birth (Gates).

Bibliography

Florida, Richard. "The New American Dream." The Washington Monthly. The Washington Monthly Company, March 2003.

Gates, Bill. "How to Keep America Competitive." The Washington Post. The Washington Post Company, February 25, 2007.

Hawkins, William R. "Uncoordinated Federal Technology Policies Put Nation at Risk." GAO Report. American Economic Alert: U.S. Business and Industry Council, March 4, 2007.

Koskinen, John. "The Freedom from Government Competition Act." Office of Management and Budget, June 18, 1997.

White, Glenn. "Productivity in the U.S. Economy." April 26, 2001.