How Will America Solve Its Biggest Problems?


As I repeat over and over again, our two biggest national problems, in my opinion, are slow economic growth (only 2.1% annual increases in GDP for the past seven years) and massive public debt (now 74% of GDP, the highest it has been since right after WWII).
Capture11Are these problems being addressed by our political system?

  • Our 2016 presidential race is clearly touching on them to some extent. The “Sandernistas” think that the Obama economic policies are not progressive enough and need to be doubled down on. Middle-income “Trumpsters” are revolting against the stagnant and falling wage growth of the past fifteen years.
  • The political scientist James Piereson thinks that the Democratic-welfare regime, in place since 1932, has now run its course and will necessarily be superseded by America’s Fourth Revolution which is imminent.
  • The social scientist Yuval Levin thinks that our “Fractured Republic” can heal itself peacefully if the left is willing to accept a less centralized, more federalist, governmental approach to solving economic and fiscal problems and the right is willing to accept that modern America is highly diverse and individualistic and where a significant degree of cultural fracturing, family breakdown and estrangement from tradition are inevitable.

My own opinion is that our huge and rapidly growing public debt (on which we pay interest) is unsustainable and will lead to another crisis much worse than the Great Recession of 2008-2009 unless it is curtailed. Without an adequate response in the meantime, the new crisis will occur when interest rates inevitably rise significantly and therefore lead to huge increases in interest payments on our larger and larger accumulated debt.
To avoid such a calamity we need to do a much better job of controlling federal spending.  It would also help to speed up economic growth in order to increase tax revenue.  Furthermore, faster growth would create more jobs and better paying jobs.  This would take much of the steam out of the appeal of populist candidates such as Bernie Sanders and Donald Trump.
I can’t foresee exactly how we will be forced to change course but it’s going to happen fairly soon.

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The Fractured Republic


As readers of this blog will recognize, most of the time I write about what I consider to be America’s two major fiscal and economic problems at the present time: the slow growth of our economy (only 2.1% per year for the past seven years) and our massive and rapidly growing national debt (the public debt, on which we pay interest, is now 74% of GDP, highest since the end of WWII).
Every once in a while, I step back and take a broader view.  For example, last summer I reported on a new book by James Piereson, “Shattered Consensus: the Rise and Decline of America’s Postwar Political Order” which makes a strong case that only a new revolution, the fourth in our history, will suffice to turn our troubling fiscal and economic situation around.
Capture11Today I report on a book by Yuval Levin, of the Ethics and Public Policy Center, “The Fractured Republic,” which sees our current political paralysis as a result of nostalgia for the cohesive and unified America which emerged from the Great Depression and WWII.
Partisans on both sides of the political wars, both conservatives and progressives, want a reversal of some portion of the great changes in American life which have defined the postwar years, perhaps because American society has now achieved such a “perilous mix of over-centralization and hyper-individualism.”
“Progressives treasure the social liberation, cultural diversification, and expressive individualism of our time, but lament the economic dislocation and the rise of inequality and fragmentation. … Conservatives celebrate the economic liberalization, dynamism and prosperity, but lament the social instability, moral disorder, cultural breakdown and weakening of fundamental institutions and traditions.”
Mr. Levin sees a possible way out of our current conundrum which need not involve the revolution which Mr. Piereson foresees.  Basically he argues for a modernized politics of “subsidiarity,” a movement towards decentralization in our public affairs.
Stay tuned for more details!

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The Big Picture on America’s Fiscal Crisis


The political scientist, James Piereson, categorizes U.S. history, after the founding years, into three primary periods:

  • A Democratic-expansionist regime from 1800 to 1860 which dissolved in the midst of the slavery and secession crisis.
  • A Republican-capitalist regime 1860 to 1930, which was ended by the Great Depression.
  • A Democratic-welfare regime from 1932 until the present, although with faltering support after 1980.

Mr. Piereson makes a persuasive argument that America’s current third regime is in the process of collapsing for three major reasons:

  • Debt. Our public (on which we pay interest) debt today is $13 trillion or 74% of GDP, the highest since right after the end of WWII, and is continuing to climb.
  • Demographics. There are over 46 million Americans aged 65 and older today and this number is growing much faster than the overall population. The same for the number of people on Medicare (48 million) and Social Security (58 million). There will soon be only two workers for each retiree. How are we going to pay for the rapidly increasing costs of old age in the U.S.?
  • Slowing Economic Growth. We know that economic growth has averaged only 2.1% a year since the end of the Great Recession in 2009. The economist Robert Gordon makes a strong argument, here and here, that the rate of economic growth is declining for fundamental reasons which will be very hard to counteract.

There are lots of proposals to reform entitlement programs or to rewrite the tax code to stimulate more economic growth. As Mr. Piereson says, such proposals make sense on paper but they are unlikely to be adopted.  “The clearest obstacle to any preemptive solution is the polarization of the two major political parties.”  Democrats have moved leftward and Republicans have moved rightward.  “Polarization is characteristic of regimes as they begin to tear themselves apart in conflicts which defy resolution within the existing structure of politics.”
Any number of events or developments could throw the system into a terminal crisis which would make it difficult for the U.S. to pay off the many commitments it has made.  Such an upheaval would amount to the “fourth revolution” in our nation’s history.  A serious prospect indeed!

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How to Avoid a New, and Much Worse, Financial Crisis


Is it possible for the U.S. to effectively address its enormous debt problem in today’s contentious political environment? Two weeks ago I discussed in “America’s Fourth Revolution” why the political scientist James Piereson thinks this is impossible. He is very persuasive but I think he is too pessimistic.
CaptureSince then I have discussed several different things we should do to turn around this perilous situation:

  • If spending for just Medicare and Medicaid (two very expensive entitlement programs) alone fell by 25% over ten years, as a percentage of GDP, and then stayed in line with GDP after that, the U.S. would actually have a budget surplus in 2040.
  • Just recognizing the magnitude of our debt problem would do wonders in public awareness.
  • If the Tea Party were able to grow beyond a protest movement and unite the country behind a majoritarian agenda of work, mobility and opportunity, it would be much more effective in achieving its fiscally conservative goals.
  • Another significant way to save money, and get better results at the same time, is to turn over more and more programs to the states. A good way to do this is with block grants to the states for federal programs in such areas as welfare, education and Medicaid. This would give the states more flexibility to get the job done in an efficient and cost saving manner.

What we need to do to turn our debt situation around is to greatly shrink our annual deficits below their current level of about $450 billion per year. If the debt is growing slower than the economy, then it will shrink as a proportion of the economy. This is what happened after WWII (see above chart) and it needs to happen again now!

America’s Fourth Revolution


The Manhattan Institute’s James Piereson has written a fascinating new book, ”Shattered Consensus: The Rise and Decline of America’s Postwar Political Order” in which he argues that the New Deal liberal consensus has broken down and will soon be replaced by a new model containing several specific features. The coming new model will be the result of a Fourth Revolution of comparable scope to the first three:

  • A Democratic-expansionist regime from 1800 until 1860 which dissolved in the midst of the slavery and secession crisis.
  • A Republican-capitalist regime from 1860-1930, which was brought down by the Great Depression.
  • A Democratic-welfare regime from 1932 until the present, although with faltering support after 1980.

America’s third regime is in the process of fading out or collapsing for three reasons:

  • Debt. The national debt of $18 trillion today, at about 100% of GDP, is comparable to the debt at the end of WWII. But once the war ended the government cut spending and stopped borrowing and the U.S. economy grew at 4% for the next 20 years. Nothing comparable to this major debt reduction is in sight today.
  • Demography. Today there are about 160 million people in the U.S. workforce of whom 120 million have full time jobs. The workforce will grow by 1 million per year for the next ten years while the number of people turning 65 will grow at nearly twice that rate. The nation will soon reach a point where 150 million working people will be paying payroll taxes to support 80 million people on Social Security and Medicare. Political leaders are doing nothing to address this looming crisis.


  • Slowing Economic Growth. The chart above shows how the U.S. economy has been slowing since the 1960’s. Since the end of the Great Recession in 2009, GDP has grown at only 2.2% and is likely (CBO) to continue growing indefinitely at this slow rate under current policies. The second chart shows the enormous difference between 2% growth and, for example, even 3% growth over time.

    Capture6Why don’t Congress and the President deal with these problems now, before they reach the point of crisis?   It’s because Congress has become increasingly polarized, with Democrats having moved leftward and Republicans moving rightward. Polarization is characteristic of regimes as they begin to tear themselves apart in conflicts which defy resolution within the existing structure of politics.
    My approach on this blog is that these very severe problems can be solved by politicians working together in a cooperative way. Mr. Piereson makes a very persuasive case that this is not likely to happen and that it will take a huge new crisis, a revolution, to straighten things out.
    I hate to say so but he may be right.

Predicting the Future


The postwar liberal consensus, beginning with President Roosevelt’s New Deal and extending through President Johnson’s Great Society, has broken down. The Reagan Revolution did not undo it and politics in the new 21st century have now become highly contentious with neither the Democrats nor the Republicans able to push their agendas very far.
Capture1The Manhattan Institute’s James Piereson has written a book, “Shattered Consensus: The Rise and Decline of America’s Postwar Political Order,” describing how we have arrived at our current impasse. Most interestingly, he predicts that “the Democratic blue model is unlikely to succeed at restoring growth and dynamism to the American economy” and that a new system will necessarily look more like the red model than the blue model, i.e. more sympathetic to business and private sector growth than to public employee groups and beneficiaries of public spending.
There will likely be at least three central elements to the new synthesis that must eventually replace the postwar order. They are:

  • A focus on growth, and the fiscal and regulatory policies required to promote it, as an alternative to the emphasis on redistribution, public spending and regulation.
  • An emphasis on federalism both to encourage experimentation and innovation in the American system and to remove issues from the national agenda which contribute to division, stalemate and endless controversy.
  • A campaign to depoliticize the public sector by eliminating or strictly regulating public employee unions.

Mr. Piereson promotes these three new principles of political organization on their intrinsic merits. For me there is the added attraction that each one would also improve our perilous fiscal condition by significantly reducing budget deficits. Growing the economy faster will increase tax revenue. Strengthening federalism means transferring spending programs from the national government (which is highly wasteful) to state governments which are far more efficient because they have to balance their budgets. Public employee unions are especially costly to state governments because of their strong negotiating power.
In short, the cost of government simply must be brought under much tighter control and Mr. Piereson has proposed three organizing principles which would accomplish this.