I really am tired of playing the part of the pessimist.  Like other economists, I want to talk about green shoots and better times for America and the rest of the world in 2010 and beyond.  But I remain deeply troubled by the direction of things.  Unlike other pessimists, I am not totally fixated on what government is doing – after all, government was invited to the party by the private sector and no one should have been surprised that such a hulking guest has come to dominate the festivities.  I’m actually quite tired of people who insist on blaming government for everything and don’t see the fact that virtually all of us are to blame in some way.

It remains my contention that much of our difficulty emerges from household behavior – we have within the course of three generations shifted from functioning extended families capable of investing substantial time and resources to the raising of young people to dysfunctional nuclear families that allow too many children to meander through streets and schools without focus and without hope.  In 1970, 40.3 percent of U.S. households were characterized as married couples with children (U.S. Census Bureau).  By 2005, this proportion stood at just 23.1 percent.  By contrast, the “other family households” category rose in proportion from 10.6 percent in 1970 to 16.7 percent more recently.  The proportion of households comprised of “men living alone” rose from 5.6 percent to 11.2 percent over the course of this 35-year period. 

Not surprisingly, because of the inefficiencies inherent in broken families (e.g., maintaining two residences rather than one), these families are often incapable of marshalling the resources necessary to properly invest in young Americans.  The response to this lackluster family/household performance has been to scapegoat schools for everything from juvenile crime to globally embarrassing academic achievement.  My sense is that many schools and educators have improved due to intense scrutiny, but the outcomes remain less than satisfactory because students spend only a small fraction of their time in school buildings and much of their behavior is shaped by the community itself.  Others view the lack of school quality as part of a broader conspiracy to perpetuate generational poverty – toward what end one scarcely knows.

Poor behavior is also apparent in the boardroom and all Americans should be shocked at just how poor corporate leadership has been in recent times, from Enron and WorldCom to GM and Chrysler.  Deficiency ranges from all-out corruption to a fixation on the next quarterly earnings statement and nothing else ever after.  To deflect attention from the inadequacy of their performance, many of America’s most visible business leaders blame government for excessive taxation and regulation with one hand even while taking bailout money (financed with current and future taxes) with the other.

At the same time, too many Americans have convinced themselves that we are stylishly post-industrial and can extend prosperity while producing nothing that anyone can physically consume. American agriculture remains a blessed exception, though even here there is excessive reliance on government subsidy and involvement.

The fact of the matter is that for things to be right in America again, Americans have to get things right.  Ultimately, that means that Americans must produce for Americans and for others.  This is not a protectionist rant – rather we have to get smarter.  Here’s how:

·         Insist on fair trade and a floating currency with the Chinese – if they sell our bonds and interest rates go up, so be it – the time to end financial dependence on China, etc. has arrived;

·         Reorient the stimulus package to put more money into basic federal and private research and development with the goal of massively accelerating American innovation;

·         Have a frank dialogue regarding the role of unions in the modern economy and the extent to which they can increase productivity rather than acting merely as agents of redistribution;

·         Put money into high-speed rail on the East and West coasts, fix the air traffic control system before tragedy forces us to, and create a 21^st century electrical grid;

·         Reform Social Security and Medicare right now – we know we can’t afford it, why are we trying?

·         Implement tort reform to drive down the cost of healthcare today and forever – preserve exceptions to damage caps for truly malicious behavior;

·         Implement a buy American campaign at every level of government and society – I’m tired of seeing American flags pasted to the rear of Hyundais;

·         Accept the fact that marriage is a good thing and that the rearing of children in the context of stable family situations is to be encouraged;

·         Embrace legal immigration, particularly for those who would bring to America scientific and mathematical skill sets – the face of America changed with the last election, let’s use that to call out to the world’s brightest to come to our shores, making us stronger and their  respective nations of origin competitively weaker (nothing personal, just capitalism); and

·         Increase household savings – this has already happened in recent months – it needs to be part of a broader, longer-term phenomenon that will allow America to finance (and profit from) her own investments.

-AB

Category: Economic Commentary by Sage