what government policies ACTUALLY increase economic growth?

Wishful thinking and “starve the beast” ideology do not increase the growth rate of a national economy. There are some things that do, according to people who study the evidence (known as economists, although to be fair, some of them are also influenced by ideology if not wishful thinking). According to this Planet Money episode, policies that have been shown by evidence to increase economic growth include:

  • Building housing in cities with numerous and increasing jobs. I always thought of housing as more of a quality of life issue and not something that actually constrains growth, but this makes logical sense. Urban areas (central cities and their suburbs) are where most of the national economy’s growth happens, because they are where most of the workers and innovative ideas are. Available jobs attract people who want jobs, and this can happen faster than the housing market can grow, pushing up prices. At some point, constraints on housing can actually become constraints on growth. People seem to be focusing mostly on the federal government tail trying to wag the municipal government dog in terms of zoning codes, but I have a couple more thoughts to add. First, excellent transportation infrastructure effectively enlarges the housing market that provides access to a given job market. If I could buy a fixer-upper row house in Baltimore and take a bullet train to Manhattan, I would effectively be part of the Manhattan housing market. Our country does not have this (although Baltimore and New York City are connected by some of the best rail our country has to offer, the time and expense of that commute would not be reasonable.) Excellent communication infrastructure also helps, since many professional jobs are now remote or hybrid. Finally, there are technological advances to be made in the construction industry, which has been dead in terms of productivity growth for decades. The big one being talked about is much more factory manufacturing of modular components. Get this figured out, and you can either move some U.S. construction workers to much more productive factory floors, or you can consider allowing immigrant workers in to do these jobs at lower wages, or you can invest in factories in Central and South American economies, thereby relieving some immigration pressure on our borders. Then move it all by electrified freight rail. These are different political choices, but all economic wins. Beyond this technology, I think there are huge gains to be made on construction sites in more efficient risk-based scheduling and logistics, technology-assisted inspections of progress (with drones and cameras), and project controls (AI watching videos of the progress and comparing exactly what is happening on the ground to exactly what was planned, then advising humans on real-time adjustments to the schedule and logistics to manage risk and keep the project on track).
  • Cutting taxes on corporations generally increases growth, because the corporations will invest at least some of the savings in capital goods, work force training, and research and development. But my thought is, why not give them the tax breaks ONLY if they invest the savings in these things, which are also investments in our national economy.
  • Similar to housing, I have always thought of health care as more of a quality of life service and basic human right a benevolent government overseeing a growing economy should be providing to its citizens. But the podcast points out hard evidence that health care investments, particularly for children and low income people, have an economic payoff in terms of reduced health care costs and increased earning (and tax-paying) potential later in life.
  • Allowing in highly skilled immigrants benefits the economy.
  • Investing in the electric grid yields a greater payout in terms of lower energy costs than whatever is invested.
  • Research and development, in things OTHER THAN weapons and war, yields a big return to the economy. Investing in weapons and war crowds out more productive investments the government could be making.
  • The particular webpage covering the podcast doesn’t talk about education, but I know I have seen elsewhere that investments in childcare and education yield big benefits, particularly early childhood education.

So: housing and construction productivity; health care; childcare and education; research and development; incentives for corporate R&D, capital investment, and work force development; transportation and telecommunications infrastructure. Raise $1 in taxes, invest it in these areas, get back more than $1, and you could theoretically give the dividend back to the person who gave you the dollar, and everybody wins. Way too rational for our so-called political economy. And this doesn’t include rational risk management, like making sure those urban areas where most of the economic activity and housing are do not get destroyed by floods and fires.