Introduction

On George Bush's watch, the economy has reverted from the boom years of the Clinton administration to the doldrums of his father's administration, with higher unemployment, slower wage growth, and out-of-control deficits. While no president deserves complete credit or blame for the economy's performance, the Bush administration's policies have not only failed to bring about significant improvements, but in many ways have made things worse. Lacking real understanding of how a 21st century knowledge and technology-based economy works, the Bush administration has fallen back on their prescriptions of the past: tax cuts, deficit spending, and handing out favors to corporate friends. The continuing economic malaise is clear evidence that their approach is not working. But even the inevitable rebound in growth that is likely to occur this year or next should not be taken as proof of success. Under current policies, any improvement will come at a significant long-term cost in terms of both the budget and important government economic policy initiatives, and, as such, is not sustainable in the long run. Because of the Bush administration's misunderstanding of growing the economy, the nation is at risk of returning to the dismal productivity and wage growth rates we experienced in the 1980s.

It is incumbent upon progressives to present a bold, forward-looking, and optimistic alternative to the laissez faire, supply-side economic doctrine of this administration. The "growth economics" alternative presented here builds upon the successful model of growth implemented by the Clinton administration, but updates it for the new realities of the 21st century.

Supply-side economics and growth economics are based on fundamentally different underlying notions of how the economy works and lead to a set of fundamentally different choices for how to grow the economy. On one side, the Bush administration's anti-government, supply-side doctrine focuses on permanent tax cuts for the rich, huge deficits, and dramatically smaller government. On the other side, the new growth economics framework focuses on strategic public investments in skills and technology, fiscal discipline, and a dramatically reinvented government. While the Bush administration and its conservative supporters in Congress see an economy where wealth trickles down from the few, progressives embracing growth economics see one where wealth bubbles up from all Americans. While they want to bless select corporate clients with protections and turn a blind eye to misdeeds, growth economics strives for a level and competitive playing field that drives the private sector to innovate. While they want permanent tax cuts for the most well-off Americans, even if it means a massive national debt, growth economics is grounded in fiscal discipline that keeps interest rates low and drives investment. While they want to put money in people's pockets by socking the next generation with a huge national debt, growth economics wants to put money in people's hands the old fashioned way -- by helping them earn much more of it through more productive jobs. While they want to starve government, growth economics focuses on feeding knowledge and innovation. While they want to "get government off people's backs," growth economics sees government as a partner in helping all Americans achieve the American dream.

As we will see later, the bottom line is that conservative supply-side economics, with its unrelenting focus on tax cuts as the source of growth, is better suited to the economy of 1903 than 2003. In the knowledge and services-based economy of 2003, budget-busting tax cuts do not create jobs -- innovation does. As a result, our nation requires a fundamentally different approach to boosting growth than simply cutting taxes on the richest. This approach is grounded in an understanding that economic prosperity is principally driven not by a small set of Promethean investors seeking to maximize their portfolios, or by government seeking to redistribute a fixed pie from higher-income Americans to lower-income Americans, but rather by the creativity, inspiration, learning, and risk-taking of all Americans.

The choices facing our nation are clear, and it is critical that Americans understand them. This policy paper explains why the Bush approach has failed and lays out a progressive framework for growing the 21st century economy. Growth economics is an optimistic, forward-looking approach based on 15 years of leading-edge economic research that demonstrates the way to get back to the good economic times of the Clinton years is to recognize and support five building blocks for economic success: fiscal discipline, rapidly expanding knowledge and its use, robust competition, empowered workers, and network government.