Policymakers concerned with entrepreneurship should understand that a tradeoff exists between entrepreneurial growth and taxes. The benefits of additional government programs funded through taxation must be weighed against the costs of reduced economic growth and entrepreneurial activities.

Government should concentrate on providing the fundamental legal and security infrastructure necessary for a democratic society to function, and should avoid detailed regulation of business practices and market structures. As much as possible, we should rely on competitive forces rather than government forces to constrain private power.

A passive policy environment that is friendly to entrepreneurs, and to all businesses, is one that balances the use of regulations and taxes against the burdens that they impose...A good rule might be to never impose a new regulation or establish a new agency without disbanding an old one.

I would contend that remarkably aggressive policy action was a defining characteristic of this business cycle. Indeed, monetary and fiscal policy worked together particularly well this time around to provide ample and rapid stimulus during the economic downturn.

The National Bureau of Economic Research has determined that the U.S. economy fell into recession in March 2001...On the fiscal policy side, the Bush administration's first round of tax cuts was enacted in the spring of 2001, and the first tax rebate checks were in the mail by July. With the benefit of hindsight, the timing of this fiscal stimulus was quite fortuitous.

Fiscal policy also played a key role in the dynamic of this cycle. Well-timed tax cuts and tax rebates helped sustain consumer spending during the recession and the early stages of the recovery. However, the application of fiscal stimulus is notoriously hard to time properly. The tax cuts enacted in this cycle had been proposed not as counter-cyclical measures but as part of a long-term shift in tax policy. Their timing was fortuitous.

The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome, but that is certainly not the case for our fiscal deficit, which...will rise significantly as the baby boomers start to retire in 2008. Our fiscal prospects are, in my judgment, a significant obstacle to long-term stability because the budget deficit is not readily subject to correction by market forces that stabilize other imbalances.

This transition from an expansion supported by accommodative fiscal and monetary policy to one broader-based is essential for the expansion to be self-sustaining.

The fundamental fiscal issue is the need to make difficult choices among budget priorities, and this need is becoming ever more pressing in light of the unprecedented number of individuals approaching retirement age.

So long as health-care costs continue to grow faster than the economy as a whole, the additional resources needed for such programs will exert pressure on the federal budget that seems increasingly likely to make current fiscal policy unsustainable. The likelihood of escalating unified budget deficits is of especially great concern because they would drain an inexorably growing volume of real resources away from private capital formation over time and cast an ever-larger shadow over the growth of living standards.

The uncertainty about future medical spending is daunting. We know very little about how rapidly medical technology will continue to advance and how those innovations will translate into future spending.

Programs can always be expanded in the future should the resources for them become available, but they cannot be easily curtailed if resources later fall short of commitments.

Tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but, in my judgment, they are sufficiently worrisome to warrant aiming, if at all possible, to close the fiscal gap primarily, if not wholly, from the outlay side.

Crafting a budget strategy that meets the nation's longer-run needs will become ever more difficult the more we delay.

[The US] could raise national saving with some combination of fiscal tightening and measures to raise private saving, coupled with other measures, here and abroad, to increase demand throughout the world economy.