The State of the Union: My Take

In anticipating the President’s State of the Union speech, I asked myself what I consider it to be. I’m sorry to say that the first thing that came to mind was the Ogden Nash quote, “I find it very difficult to enthuse over the current news.”

In my decades of trying to keep track of our economy, I’ve been an optimist. My optimism was stoked by our transformation in the 1980’s, when, for a while, we worried about being left in the dust by Japan and joked that we would all have to learn to speak Japanese. That turned out to be a false alarm, and not entirely because of Japanese missteps.

My optimism was reinforced in the 1990’s, particularly in the second half of the decade, which we dubbed the new economy or the new paradigm economy. A multi-year surge of productivity growth, boosted largely by a computer-technology-internet revolution, stimulated growth in output and employment and depressed inflation while putting our fiscal house in order. From this period, I know what our economy is capable of and what we are now missing out on.

The financial crisis was so tragic in part because is was so unnecessary. It was a self-inflicted wound. But, once the policymakers woke up, they were aggressive enough to prevent it turning a second great depression, even though we did have the worse recession since the 1930s. The recovery, which “officially” began in mid-2009, is now more than three and a half years old, and we are a long way from recovered. Not only is the unemployment rate stuck several percentage points above where it should be, but the percentage of the labor force and the population has also declined by several percentage points. Fewer and fewer people are working, and we can’t get together to do something meaningful about it.

An aging population is accelerating the bankruptcy of our entitlement programs while our President and the majority in the Senate pretend the problem doesn’t exist. We are focused only on short-run fiscal problems and are in gridlock there as well. The politics of the problems are becoming impossible because more and more people (who vote) are living off fewer and fewer income earners (who vote too, but are increasingly in the minority).

Even low hanging fruit is being ignored, I suppose, because one side or the other needs it for future bargaining chips. By low-hanging fruit, I mean things like a reduction in the corporate income tax rate that would immediately bring home profits and jobs. Also, the construction of pipelines and other infrastructure to accelerate the transition to greater energy independence while providing employment. The later would reduce imports, increase exports, and, by improving our balance of payments reduce our reliance on foreign saving to finance domestic investments. Another easy step with great consequences would be to encourage capable foreign students studying at our universities to stay here and work after graduation, and make it easy for them to become U.S. citizens.

Given the demonstration of what’s been happening to the Chinese economy as they have adopted elements of capitalism and what happened to the Soviet Union and its satellites both before the collapse of communism and after, I find it astounding that, while they are benefiting from our example of yesteryear, we are moving in the opposite direction. How can any serious and educated person believe that a larger, more intrusive government is what we need? Surely we don’t have to become a complete basket case before we wake up.

Speaking of educated people, I personally know of many top-flight public schools that are as good as or better than the better private schools. I live among many of them. However, the state of public schools in most of our large inner cities is so bad that I’m not sure they can be fixed. Why, then, have our politicians not adopted voucher systems that would offer an escape valve for students that don’t want to be afraid to go to school every day? If the dysfunctional schools can’t be fixed, then they can be replaced. What are we waiting for, permission from the teachers unions?

The United States of America in 2013 is a large complex country with large complex problems. Many of these problems are hard to solve. I don’t have all the answers. But, hey, we have 50 states, countless cities and towns, and many, many creative people. The concentration of responsibility and power in Washington should be reversed so that these other centers can develop local solutions and experiment. Let the market place for ideas work. No one is smart enough to solve all the problems. Let millions do it.

One last thought. Why has our politics become so dysfunctional? Why do smart people individually become so dumb when they get together in political parties and try to govern? One answer to that is gerrymandering which makes for safe districts for incumbents who toe the line and pose a danger for any Congressman who engages in compromise to get something done for the greater good. We need some diversity within districts as well as among them. We have to get rid of districts that look like snakes and spiders and have them look more like a layer cake. That would be a good start to improving the state of the union.

And I haven’t mentioned foreign policy, which isn’t going so well either.

 

 

Comments (6)

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  1. DNB says:

    Bob, is there any way you deem this time different from the 80’s or early 90’s from some meaningful perspective? Has been told by some folks around your age: this time sucks. As I know of, I am not alone here in texas by leaving the market and doing nothing but watching. The world is eyeing on how America responds to this global slowdown (try not to yet use the word recession, as many countries GDP still growing. But a growing GDP without improving life quality of most population, what is it measured for?). Do you agree?

    As for education, I personally feel our college education system is sort of trying to punish hardworking students in terms of its admission criteria. Let those smart, hardworking and talented kids go to ivy league regardless of their color, background and financial situation. Education is priced too much in America. Maybe next generation will complete their college overseas at a lower cost with more benefits.

    Just my 2 cents.

  2. Benjamin Cole says:

    You know, after the 1960s, I felt it would never be the same. Then came the 1990s.

    I also feel those two decades show what could be. But maybe they are the aberrations.

    As to politics–it is brutal. You know we spend $1 trillion a year on Defense, Homeland Security, the VA and Civilian Defense? And we have zero military enemies.

    Our Founding Fathers would not give President George Washington a single soldier. And that was scant days after we had Redcoats and Hessians in our nation, and nearly lost the Revolutionary War, and our leaders would have all been hung.

    But our Founding Fathers detested, loathed and reviled standing militaries.

    Now we spend $1 trillion a year and no one wants to stop it…..

  3. John B says:

    We are fast approaching “demographic winter” with aging “baby boomers” leading the way. Not sure there’s much the president and senate majority could do about that. Or perhaps you’re not one of those that would echo the recent comment by Japan’s minister of finance suggesting that the elderly “hurry-up and die.” I doubt it but guess that you would favor breaking a promise by raising the age limit for future Social Security beneficiaries. The best way to avoid the demographic problem is to open up the border to everyone on the planet and raise FICA taxes on the rich.

  4. Dick Gillette says:

    John B, life expectancy in 1933 when Social Security was passed was… 65, the same as the retirement age. Looks like they really didn’t expect to have to pay out much in the way of benefits. Now, life expectancy is more than 10 years greater, and the retirement age is 67. If you are referring to the promise of Social Security when passed – arguably the only valid point of comparison – you must agree the program is far more generous today than when it was enacted.

    As to demographic problems, our female fertility rate is still nearly 2 children per woman, while Japan’s and Germany’s are around 1.2. I’ll take our challenge any day.

  5. Kyle says:

    To your last questions.. I believe that is called Ecological Fallacy.

  6. Gabriel Odom says:

    John B, while SS is a “promise”, it’s not one that the government has to keep. See the Supreme Court case Flemming v. Nestor.