Which Is Worse: Republican Hypocrisy about Debt or Democratic Complacency about It?

 

My recent posts about the American Idea have argued that our country has a great future before it.  We have a strong and prosperous economy and are the world’s leading innovator.  Furthermore there are clear cut and effective ways to address the income inequality and poverty which hold back many Americans from fully sharing the benefits of our remarkably successful society.
But there is one huge problem our political system is ignoring which will lead to a major crisis if left unattended much longer.


I am referring, of course, to our gargantuan:

  • National Debt, now sitting at 77% of GDP (for the public part on which we pay interest), the largest it has been since the end of WWII. It is predicted by the Congressional Budget Office to keep steadily getting worse without major changes in current policy. Right now all of this debt is essentially “free money” because interest rates are so low.

Republicans are very good at deploring the debt but quick to forget about it, when it gets in the way of cutting taxes.  Note that:

  • Economic growth is created by tax cuts but only 10-20% of the lost revenue from tax cuts is offset by new growth.

Democrats, on the other hand, don’t take the debt seriously, except when arguing against Republican tax cuts. Debt deniers claim that the risk of government overspending is inflation, not bankruptcy. What they don’t understand is that

  • Interest rates will return to more normal (and much higher) historical levels eventually and, when this happens, interest payments on the debt will skyrocket by hundreds of billions of dollars every year. This will crowd out all sorts of spending on popular domestic programs. It is likely to lead to a new fiscal crisis, much worse than the Financial Crisis of 2008.

Conclusion. For all of our nation’s great strengths, we are in a very serious fiscal pickle, with no clear cut path of orderly resolution. Realistically our debt problem cannot be wound down without committed Presidential leadership and this is unlikely to happen anytime soon.

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Addressing Poverty in a Free and Dynamic Society

 

With an unemployment rate now down to 4.2% and the average wage rising 3.1% in the past year, the U.S. is finally recovering from the Great Recession which ended in June 2009. My last several posts have described an optimistic scenario for the U.S. economy going forward.

  • The American idea is thriving.  The U.S. is the world’s most competitive large economy. Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life, all over the world. Productivity growth in the digital industries has grown at the annual rate of 2.7%, much faster than for physical industries. Democracy is mostly flourishing around the world.
  • Ecommerce is one example of a thriving industry.   Fulfillment center weekly wages are 31% higher on average than for brick and mortar retail in the same area. Total ecommerce related jobs have increased much faster in the last two years than have traditional retail jobs been lost.
  • Income inequality can be addressed effectively by speeding up economic growth (with tax and regulatory reform), improving educational (especially with early childhood) opportunities and with better training programs for the unemployed and underemployed to qualify them for the millions of skilled jobs going begging for lack of qualified applicants.

One additional feature needed is “A balanced and sensible anti-poverty program,”  to help many of the down and out get back on their feet.


The way to accomplish this is with:

  • Work requirements as a condition of public assistance. The work first approach has been shown to have better outcomes with regard to attachment to the labor force (see above chart) than even approaches which focus on training and education.

Conclusion. The U.S. economy is basically sound. We lead the world in many industries and especially in digital technology.  There are lots of good jobs going begging for lack of qualified applicants.  The best anti-poverty program is job training.

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The American Idea Is Far from Doomed!

 

The Atlantic monthly magazine is celebrating its 160th anniversary this year.  In 1857 its founders envisioned that the magazine would “honestly endeavor to be the exponent of what its conductors believe to be the American idea.”  In the current issue one of its writers asks, “Is the American Idea Doomed?” and claims that it has few supporters on either the left or the right.  Well, I happen to be in the middle and I think the American idea is doing very well indeed.

Consider:

  • The World Economic Forum ranks the U.S. as the world’s most competitive large economy and, in fact, the U.S. is getting richer faster than anybody else.
  • Productivity growth in the digital industries has grown at the annual rate of 2.7% over the past 15 years compared with only an anemic .7% annual growth in productivity in the physical industries. The U.S. economy is becoming more digital all the time.
  • The four U.S. companies, Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life not only in America but all around the world.
  • According to the Kauffman Foundation  entrepreneurship is flourishing in the U.S. (see chart), and not just in Silicon Valley.

  • According to Freedom House  democracy has made much progress around the world in the last 30 years, even if further growth has stalled for the past ten years. Other democratic countries are our best friends and so we want more of them.
  • Granted Donald Trump is a wild card. So far his record is mixed but he hasn’t made any big mistakes (liking dragging us into war or hurting the economy). It is unlikely that he’ll slow our huge forward momentum whether or not he helps it.

Conclusion. “The democratic experiment is fragile” (perhaps!) but it’s also got a lot going for it right now. We can never afford to be complacent but we need not be pessimistic either.

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