Fixing the U.S. Economy
4. October 2012
So far this election season there have been a lot of promises made by the candidates in both parties concerning their plans to fix the US economy. Both parties recognize that the economy is the most important issue on voters’ minds this year. And both parties would like the electorate to believe that their respective plan for fixing the economy represents the best choice. Sadly, I must state that I am not impressed by either option. Both sides seem to have part of it right, but neither side has it enough right to convince me that it represents progress.
I believe that the ultimate goal of U.S. national policy should be long-term productivity growth. Neither party has the courage to say it explicitly, but it is our only hope of returning to prosperity. Every law, every program, and every proposal for every federal dollar spent should be put to a very simple question, “Will this improve the country's long term productivity growth?”
This will likely mean that large chunks of the Medicare, Social Security, and Defense Department budgets will be subjected to cuts. This also means that we will ultimately need to make large increases in the federal programs that successfully foster education, research and infrastructure. My rationale for making cuts to some programs while promoting increases to others is not so much political as it is economic. At our current levels of national productivity we simply cannot afford all of the government services we currently demand. If we want the current level of federal government services, then we must become more productive as a nation so that we can pay for them.
Increasing our manufacturing base is the best way to accomplish this. Historically, the manufacturing sector in the U.S. accounted for about 20% of our nations GDP. In recent years this percentage has dropped down to only about 12%. This decline in manufacturing started a generation ago, and the result has been a decrease in household incomes. Real median household income has declined in each of the past four years, and it is now at the same level it was at in 1990. It will not be easy to accomplish this prescribed increase in manufacturing activity, and it will take some time. This is all the more reason to start immediately.
Manufacturing creates wealth. It generates income for households, and this income can be used to purchase government services if that is what the citizens wish to do with it. At the present time we are finding our government with credit. That cannot last forever. We must replace all of our unproductive programs and policies with programs and policies that make us more productive in order to climb out of this enormous hole. I realize that some people will suffer as a result, but there simply is no other choice.