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The Secret to American Prosperity- Schramm's Law

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Schramm’s Law reveals key to restoring America’s economic growth
By: Ralph Benko

Ralph Benko on the secret to restoring the American economy

OpEd Contributor
November 10, 2010Economist Dr. Arthur Laffer’s famous curve provided an earlier era with the recipe for prosperity. It was a simple, irrefutable, axiom, showing that too high tax rates, by throttling economic activity, would stifle government revenue. (President Kennedy made the identical point.)
The Laffer Curve powered America out of the horrible stagflation of the 1970’s—an economy even worse than today’s.
We now enter a new political epoch. It demands a fresh axiom, Schramm’s Law: “The single most important contributor to a nation’s economic growth is the number of startups that grow to a billion dollars in revenue within 20 years.”
We seek to emerge from the Great Recession while the incumbent administration flounders about with ineffectual and counterproductive remedies.  President Obama squandered so much political capital that the voters gave his entire party a “shellacking” (his word).Voters gave the Republicans a new and massive majority in the House — the constitutional source of taxing and spending.
We voted Republican notwithstanding serious concerns about whether the Republicans have a formula for economic growth.  Well, to the extent our concern was well-founded, the Republicans are in luck because the solution to their dilemma arrives in the nick of time.
One of the brightest stars in the economic growth universe has presented a fresh axiom, recited above as Schramm’s Law.  It readily can be used as a compass to guide the economy back onto a strong growth path.
The most concentrated center of expertise on entrepreneurship in the world is the Ewing Marion Kauffman Foundation in Kansas city.  Its president, Carl Schramm offered in a recent interview with Forbes’ publisher Rich Karlgaard an astute observation about how flourishing startups create jobs and prosperity.  It is so succinct, elegant and empirically grounded as to deserve to be termed a “law.”
As Karlgaard astutely notes in his October 20 Forbes’ column, America’s historic average growth rate is 3.3%.  That or more will generate jobs and prosperity. China’s economy, under the loving guidance of Supply Side guru and Nobel Prize winner Robert Mundell, by the way, has been growing at or near double-digit rates for 30 years. Four or five percent growth here, while ambitious, certainly is attainable.
Karlgaard observes:  “Schramm says the U.S. economy, given its large size, needs to spawn something like 75 to 125 billion-dollar babies per year to feed the country’s post- World War II rate of growth.  Faster growth requires even more successful startups.”
Karlgaard continues: “None of our problems—deficits, debts, unemployment, mortgage defaults, malaise—will improve with no growth or low growth.  We need average growth of 3.3% or better.  And now, thanks to Kaufman’s Carl Schramm, we have an important clue about how to get that done.”
Schramm’s Law may be all that our new leaders need to develop a formula to create a social and economic climate where 100 ambitious strivers a year — 100 people, out of a population of 300 million  — can flourish.
This formula is not quite so straightforward as Laffer’s prescription to cut marginal tax rates and strengthen the dollar (tax-rate cutting and a strong dollar surely will be part of the recipe).  Yet it doesn’t take a “rocket scientist” to imagine what is required to nurture and encourage creation of 100 successful mid-sized companies each year.
But to the extent that our policy makers desire guidance, they may look to the heartland of America, Kansas City.  There they will discover Carl Schramm, head of one of America’s most respected philanthropies, who surely would clearly explain the precise steps for America to be restored to full employment, healthy housing, and prosperity.
Ralph Benko, author of “The Websters’ Dictionary: How to Use the Web to Transform the World,” is a senior economics advisor to The American Principles Project.
http://www.washingtonexaminer.com/opinion/columns/OpEd-Contributor/Schramms-Law-reveals-key-to-restoring-Americas-economic-growth-107034974.html#ixzz14teBqeoG