Obsession With Fed Distracting U.S. Policymakers From Real Priorities for Economic Growth, Says ITIF

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New Report Proposes 4-Point Investment Strategy to Boost Productivity, Wages, Living Standards

The United States is relying too much on monetary policy to spur economic growth and not focusing enough on needed investments in foundational assets that drive productivity and increase wages, according to a new report released today by the Information Technology and Innovation Foundation (ITIF).

The report, titled “Why the U.S. Needs a New, Tech-Driven Growth Strategy,” outlines a four-point program to raise productivity, wages, and standards of living by increasing investments in technology, physical and digital capital, human capital, and domestic industry structure along with supporting technical and institutional infrastructure.

“If you want to increase people’s incomes and standards of living, the first thing you have to do is invest in the fundamentals that drive productivity growth,” said ITIF President Robert D. Atkinson. “Unfortunately, what passes for economic growth policy in the United States is far from investment-oriented. Policymakers rely too much on macro-stabilization tools, especially monetary policy, because they are wedded to simplistic and incomplete economic models that underestimate the importance of technological innovation.”

The report’s author, Gregory Tassey, a research fellow at the University of Washington’s Economic Policy Research Center, said: “Policymakers and pundits are obsessed with the day-to-day actions of the Federal Reserve even though it has a focused, short-term role of stabilizing the business cycle to ensure that the economy’s actual growth rate is not too far out of line with its real growth potential. It is true that stabilizing the economic environment has a positive effect on near-term investment and consumption, but monetary policy and fiscal stabilization tools, which are for managing demand, for the most part cannot change long-term rates of economic growth. In an intensely competitive global economy, policymakers should instead adopt a new, technology-driven strategy that supports faster wage growth by investing more aggressively in the foundation areas of productivity growth. This strategy requires partnership between industry and government.”

Tassey’s analysis finds that virtually all U.S. economic growth problems today can be traced to secular underinvestment in the four major categories of economic assets:

-Technology innovation: the long-term driver of productivity growth;

-Technology-based capital investment: in particular, hardware and software that embody most new technology and thereby enable its productive use;

-Human capital: skilled labor capable of using the new hardware and software and associated techniques; and

-Infrastructure, including physical and digital: necessary to efficiently develop and use modern complex technology systems.

Read the report.

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