Compounding Errors: Why Heightened Regulation and Taxation Are Bad Antidotes for Recessions and Income Inequality

Abstract

The current concerns with laggard growth and income inequality have led to a widespread set of demands for more regulation and higher taxation to reverse the trend. These two approaches move matters exactly in the wrong direction. The correct response is to find ways to reduce tax burdens and barriers to entry, and to reduce the political uncertainty associated with new government measures. It may well be too late, worldwide, for a substantial rollback in the welfare state. But the current proposals will only prolong the dismal results on both fronts in any arena in which they are tried.