Correction: An earlier version of this article omitted an acknowledgement of Stanford in Government’s role in organizing the event. The Daily regrets the error.
John Taylor, senior fellow and former director of the Stanford Institute for Economic Policy Research (SIEPR), spoke to a group of about twenty undergraduates Monday afternoon on how best to revive the American economy. The event was a policy lunch hosted by Stanford in Government (SIG).
In summarizing his recently published book, “First Principles: Five Keys to Restoring America’s Prosperity,” Taylor argued that the country’s best hope of economic revival lies in a return — from its current deviation — to its founding principles of economic freedom in fiscal, regulatory and monetary policy.
Taylor stressed the importance of abandoning temporary fixes for the ongoing recession to adopt more substantial free-market, non-interventionist economic policies sustainable in the long term.
Taylor previously served as an economic advisor in the administrations of President Gerald Ford and President George H.W. Bush, as well as the presidential campaigns of Bob Dole and George W. Bush.
Taylor began his informal half-hour address by describing the five key principles laid out in his book, citing a predictable policy framework, the rule of law, reliance on markets, strong incentives and limited government. Taylor asserted that, historically, economic growth in the United States has coincided with adherence to these principles, from which Taylor added that recent administrations have strayed.
Drawing the first of many comparisons to America’s economic history in the past half-century, Taylor noted that the current economic recovery has been slow in comparison to recovery from the 1981 recession.
“The gap, or the hole, is as deep as when we started,” he said, referring to the current economic situation. “In that case, the recovery was much better. The average growth rate in 10 quarters [then] was about 6 percent; in this case it’s about 2.5 percent.”
Taylor presented the country’s recent economic history in distinct phases, first faulting what he described as interventionist and unpredictable economic policies implemented in the mid-‘60s as contributing to economic instability in the 1960s and 1970s. By contrast, Taylor cited Reagan’s return to predictable free market policies in the early ‘80s as contributing to sustained growth and a model for future U.S. policymakers.
He then criticized the recent regression to unpredictable policies, characterizing the Federal Reserve’s lowering of the interest rate near the beginning of the recession, as well as the subsequent stimulus package and bailouts as improvised and spontaneous.
Taylor acknowledged the difficulty of assigning causality and correlation between these policies and the subsequent state of the economy.
“That’s still a big struggle,” he said. “Would things have been worse? I think it’s worse because they did those things.”
Taylor disputed the concept that economic policies are necessarily partisan, citing Nixon as an example of a Republican who “campaigned on free-market themes and for political reasons flipped,” and Clinton’s continuation of the free-market trend begun by Reagan.
Student questions focused on the economic recovery and future government policies, with Taylor expressing uncertainty about the direction of the next administration.
In addressing the effect of government policy — as opposed to natural business cycles — on unemployment levels in the current recession, Taylor stressed the importance of avoiding temporary and unpredictable policies enacted to generate short-term benefits.
“Incentives matter,” he said. “Business people talk about this great uncertainty which holds back hiring and therefore holds back demand.”
Taylor ended his talk by noting that developing countries have gone in the opposite direction from the United States, moving closer to these free-market principles even while America has been moving away.
“That’s why they’re doing well,” he concluded.