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FLEXIBLE LABOR AND CAPITAL MARKETS, LOW AND EFFICIENT TAXES, AND OPENNESS TO TRADE ARE ESSENTIAL
When significant government action is needed and sought, as in the current financial crisis and weak economy, it is easy to forget the underlying market principles that have made the U.S. economy the strongest in the world. Adherence to these principles is the surest path to continued economic growth and stability over the long run. Of particular importance are policies that allow flexibility in labor markets; free movement of capital, unimpeded by excessive regulation; tax rates that minimize disincentives for the development of human and physical capital; and liberalization of international flows of goods, services, and capital. Regarding the current credit crisis, its effect on the real economy has been amplified by falling asset prices and high oil prices. Policy will be continuously evolving, but the $700 billion stabilization package is an important step.
Good Morning. It is a pleasure to be able to ad- dress this group again, especially at this cru- cial point for the world economy. Given the events of the past few weeks, it is surely the expectation that I talk about the recent finan- cial turmoil, the steps that we have taken to address the problems, and what we can expect. I will do that. But since this will be my last opportunity to address this group in an official capacity, I would like to start with a somewhat longer run perspective. When significant government ac- tion is needed and sought, it is easy to forget the underlying market principles that have made our economy the strongest in the world. Despite the legislation passed last week to address the extraordinary circumstances that confront our economy, the president has not forgotten those principles and neither have I.
The key question is, "How do we ensure continued success and stability?" I believe that the two are related. The conditions that are positive for long-term economic growth also tend to reduce the influence of various shocks that would otherwise cause significant economic fluctuations. Some of my points will sound familiar to you, but I hope to provide some additional evidence, mostly based on the United States but generalized sometimes to the G-7 and OECD (Organization for...