Encouraging Growth and Stability

Flexible Labor And Capital Markets, Low And Efficient Taxes, And Openess To Trade Are Essential

By Edward P. Lazear

Edward P. Lazear became chairman of the Council of Economic Advisers in February 2006. Previously, he was a member of President Bush’s Advisory Panel on Tax Reform. He is on leave of absence from Stanford University, where he is the Jack Steele Parker Professor of Human Resources Management and Economics and the Morris Arnold Cox Senior Fellow at the Hoover Institution. He taught previously at the University of Chicago’s Graduate School of Business. He is also an elected fellow of the American Academy of Arts and Sciences, the Econometric Society, and the Society of Labor Economists, where he was also first vice-president and president. He is on leave as a research associate of the National Bureau of Economic Research and was a member of the National Academy of Sciences Board on Testing and Assessment. He has written or edited nine books and more than 100 published papers, won many academic prizes and awards, advised many governments throughout the world, and was a member of Governor Arnold Schwarzenegger’s Council of Economic Advisers for the state of California. He received his A.B. and A. M. degrees from the University of California at Los Angeles and his Ph.D. in economics from Harvard University.

When significant government action is needed and sought, as in the current financial crisis and weak economy, it is easy to forget the underlying market principles that have made the U.S. economy the strongest in the world. Adherence to these principles is the surest path to continued economic growth and stability over the long run. Of particular importance are policies that allow flexibility in labor markets; free movement of capital, unimpeded by excessive regulation; tax rates that minimize disincentives for the development of human and physical capital; and liberalization of international flows of goods, services, and capital. Regarding the current credit crisis, its effect on the real economy has been amplified by falling asset prices and high oil prices. Policy will be continuously evolving, but the $700 billion stabilization package is an important step.

Presented at the National Association for Business Economics 50th Annual Meeting, Washington, D.C., October 7, 2008

Read the article