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1
 The Heritage Foundation
The Economy Hits Home: What Makes the Economy Grow? 
Everyone should want the economy togrow. A growing economy puts moremoney in amilies’ pocketbooks andcharities’ budgets, the poor and unem-ployed have an easier time nding jobs,and amilies saving or retirement ortheir children’s education can see theirnest eggs grow.
So what makes the economy grow? 
 You don’t need a degree in economicsto answer this. Common sense canhelp expose some popular but mistakenmyths about the economy.Many think o our economy as i it were a big apple pie with that faky criss-cross crust on top. You can slicethe pie this way or that. You can cuteight or 10 or 12 equal slices, or youcan cut some slices thinner than others.I you cut one o the slices really thick,though, you’ll have to cut the otherslices thinner. It’s a trade-o. So itseems unair that some should havemore than others. It seems airer toslice the pie into equal slices.But this idea is atally fawed. First, oureconomy isn’t like an apple pie sittingon the counter getting cold. With theright conditions, we can create more wealth: That is, we can make the piegrow. Some create more than othersand may end up with bigger slices;but in the long run, everyone can endup with a bigger slice than they hadbeore. That’s a win-win. The second problem with the apple pieidea is this: Who’s doing the slicing?Usually that task is assigned to theederal government, but the govern-ment didn’t bake the pie in the rstplace. American work and ingenuity did that. So when government tries toslice the pie into equal pieces, it’s sim-ply spreading
income 
around by takingrom some and giving it to others. Atbest, that’s win-lose. And by 
 picking 
  winners and losers, such a policy dis-torts the incentives that lead those whoproduce more to do their best, whichmeans they produce less, they earn less,and the pie shrinks. Trying to spread income around by 
 The Economy Hits Home:
What Makes the Economy Grow?
Contributors: Leslie Carbone, author,
Slaying Leviathan: The Moral Case for Tax Reform
(Potomac, June 2009). Jay Richards, author,
Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem
(HarperOne, May 2009).
 
2
 The Heritage Foundation
The Economy Hits Home: What Makes the Economy Grow? 
redistributing what people have earnedthrough their own eorts actually hin-ders the creation o new income. Andcreating more income—growing thepie—is the only known way to increaseoverall prosperity.Fortunately, we know how to grow theeconomy—how to make the pie bigger:by individuals working and tradingand creating reely, not by governmenttaxing away our income, restricting oureconomic reedom, and spending ourmoney supposedly on our behal butreally on its own priorities. (To see thelink between economic reedom andprosperity, see the Heritage/Wall Street Journal
 Index of Economic Freedom
.) Think o a dozen engineers at AppleComputer who invent an easier way to nd inormation on the Web, which Apple then includes on its new, wildly popular iPhone. Thousandso people buy and enjoy the new iPhones, providing jobs or Appleemployees and money or utureresearch at Apple. New income and wealth has been created.Similarly, when a armer tends an appleorchard and then sells the apples, hegets money to buy what he needs orhis own use and to sustain his applebusiness, while customers get theapples, which they preer to the money they give the armer. Income hasbeen created by developing productsthat consumers want. I the armersaves rather than spends some o theproceeds, he can invest the money andcreate even more income in the uture. This isn’t rocket science. It’s commonsense, and it’s been true or thousandso years. But in Washington, unor-tunately, it’s not very common. In aneconomic downturn, it becomes down-right rare. Many lawmakers use tempo-rary downturns to increase their powerpermanently by taxing, spending, andborrowing rather than supporting poli-cies to grow the economy.O course, some o the ederal govern-ment’s work—such as administeringthe judicial system and maintainingnational security—is vital to society and the economy. But income redistri-bution and other orms o governmentmeddling oten shrink the pie or keepit rom growing. They take incomeaway rom those who earned it andgive it to those who didn’t. In theprocess, they divert resources to lessproductive uses and thus impede thecreation o new opportunities that would otherwise benet everyone inthe long run.For instance, when the governmentimposes a tax and takes income romApple Computer or the apple armerand hands it over to somebody else,it is merely redistributing—notcreating—income. Total income hasnot increased by one penny, and thegovernment has discouraged both
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