In assessing the growth path over the next five years, various assumptions have to be made. Tax rates, government spending, trade policies and the extent to which politicians abandon free markets are all factors that will affect productivity. In terms of tax rates, the odds of maintaining current rates through 2010 are encouraging. Only 41 Senators can filibuster any attempt to change legislation and raise tax rates. This suggests that for the next three years it will be difficult to pass any significant tax increase.

For the same reason that it will be difficult to raise tax rates during the next three years, it will be difficult to prevent tax rates from increasing in 2011. Since tax rates increase under existing legislation, it will likely take 60 Senators to vote to maintain current tax rates. All the Democrat Presidential contenders have promised to raise tax rates. Even among Republican Presidential aspirants, there are only three candidates that have consistently favored cutting tax rates—Rudy Giuliani, Fred Thompson and Ron Paul. Senator McCain and Mitt Romney both opposed the Bush tax cuts in 2003. Although he claims to be a tax cutter, Mike Huckabee worked hard to raise taxes while Governor of Arkansas. Governor Huckabee is also a leading proponent of keeping Mexican workers out of the US. From a seemingly overflowing number of Presidential aspirants, there are relatively few who seem to understand and vigorously advocate classical principles.

Even before the 2008 elections, government policy appears to be shifting in a troubling direction. A monumental energy bill dictates massive increases in ethanol production along with extensive mandates regarding fuel efficiency standards. These moves provide a significant departure from classical principles by substituting political dictates for market forces. In so doing, the legislation guarantees that resources will be misallocated and productivity will suffer. It’s difficult to quantify the extent to which this legislation will slow productivity. There would be no damage if markets respond to higher energy prices by matching or exceeding efficiency standards. In that case, dictates are superfluous. If the edicts are effective in shifting resources well beyond the pressures of market forces, the costs will be significant. Dictates regarding the massive expansion of ethanol production are so extensive that they will almost certainly damage future productivity.