America In Decline?

Niall Ferguson subtitles his most recent book The Great Degeneration, “How Institutions Decay and Economies Die.” It is a short treatise on the way in which well-intentioned political leaders can cause the failure of that which they have been charged with preserving. On the last page, Mr. Ferguson quotes from Mr. Obama’s “You Did Not Build This” speech. He writes, “It is not that the implied interdependence of the private sector and the economy is wrong. It is the overstatement of the case that is disquieting, as if it took government to build every small business or, indeed, to ‘create the middle class.’”

America, if it is failing, is not doing so because it is too poor. It is doing so because it became too rich. And, in being rich, it has become too complacent. It is not failing because it does not care about its people. It is doing so because when the state assumes too much responsibility for the welfare of its citizens, it causes dependency and destroys self-reliance and aspiration.

The United States has been lucky in many regards. Geographically we are bound by two oceans. We have friendly neighbors to the north and south. We have an abundance of natural resources, virtually unparalleled. Our population is diverse, as the country has been occupied by immigrants since its discovery. Our government was founded by an exceptional group of wise men who wrote a Constitution based on English common law, which respected property rights and which emphasized our God-given rights. As a nation, we grew rich and our people selfless. Americans have done more to help those in other parts of the world than any other nation in history, including the giving of their lives.

But, in our wealth and our caring we have become complacent, expecting the economic growth that has carried this nation to persist, but apparently forgetting the basic principals of thrift, hard work, the rule of law and self-reliance that helped forge success over two centuries. Most discouragingly, we have grown increasingly dependent on government, rather than on ourselves, our neighbors and local groups and institutions.

History is replete with nations and empires that have sputtered out – from the Inca and Aztec Empires to the Greek and Roman, to China and the sun-setting of the British Empire in the past century. The challenges facing a mature and wealthy nation are many, especially when that country is essential to peace in the world. Japan and Germany, the world’s third and fourth largest economies, have had the benefit of the U.S. providing for their defense for the past sixty-eight years, allowing them to spend money in more productive ways. 

For five hundred years, today’s second largest economy (China) wallowed in the backwaters, as their society did not provide a legal system that would protect property rights, or the economic incentives necessary for growth. There are many sober and substantive commentators who see the U.S., and in fact much of the West, failing in a world grown globally more competitive. Instead, they look upon statism as a new and favored path to economic success. That certainly seems to be the trend. The question is, has it become too late for us to reverse course? In the meantime, there are developments that should raise cautionary flags.

For one, our high school students rank poorly when compared to their foreign counterparts. The Programme for International Student Assessment (PISA) ranks fifteen-year olds in mathematics, science and reading across thirty-three countries. For 2009, the last year available, the United States ranked 18th in math. It was 13th in science and 7th in reading. Why are we not one or two?

For another, experts ranging from the Harvard Business School to the World Economic Forum to the Heritage Foundation have quantified a growing loss of business competitiveness in the United States. The problems include excessive and expensive regulation, a complex tax code, the inefficiency of the legal framework and corruption tied to cronyism between government, big unions and big business. Again, according to surveys conducted by those organizations and the IMF, the U.S. compares poorly and is declining.

Abraham Lincoln, in his “Gettysburg Address” called ours a government of the people, by the people, for the people. That seems no longer to be true. America was always divided into three distinct groups – the wealthy, the middle class and the poor, but we were fluid, with people, over generations, moving up and down the scale. Sadly, over the past couple of decades it has become easy to move down, but increasingly difficult to move upward. And we now have a new class, a “government class.” Government jobs are seen as sinecures. Too often we see sons and daughters “inheriting” Congressional seats. 

Nancy Pelosi, when asked last Thursday if she would be willing, given our sizable debt, to take a pay cut, responded “it would diminish the dignity of lawmakers.” For this daughter of a political family who is wealthy in her own right to make such an offensive statement when unemployment remains high and millions of people have had to take pay cuts is supercilious and shows contempt for the electorate. Our system of government was founded on the precept of the rule of law. It is becoming one of a rule by lawyers – lawyers who in earlier generations facilitated government, but who since have become parasites living off government.

But it is debt which is the biggest challenge facing the United States, and it is a general lack of preparedness for retirement that is facing most middle class people. The Federal Reserve has been able, thus far, to mask the onerous expense of our debt by keeping interest rates low. But in so doing, they tripled the size of their balance sheet; that cannot go on forever. At some point our creditors will demand higher rates in return for the increasing risk they assume. Higher interest rates on expanding debt will exacerbate both deficits and debt. Keep in mind as well that inflation is friend to the debtor. Apart from default, the biggest risk to creditors is inflation. 

Retirement is another looming problem, which will divert scarce resources from more productive uses. State pension plans are underfunded by about $3.5 trillion. Medicare and Social Security are on paths to bankruptcy. The Center for Retirement Research, using Federal Reserve Data, estimates that 53% of Americans thirty and older are on a track that will leave them unprepared for retirement. That percentage is up from 38% in 2001 and 30% in 1989.

It is generally assumed today that younger baby-boomers will be the first generation to live less well in retirement than their parents. That should send a signal that all is not well in middle class America and, despite words to the contrary, nothing the President has proposed will make it better. We need economic growth, and to get it the government must step out of the way and unleash capital markets, entrepreneurship and free markets. Economic liberty and property rights are no longer accorded the same importance or respect as civil rights. This is not to belittle the importance of civil rights, but without property rights the latter become meaningless, as their absence implies a stronger central government – and less personal freedom.

President Obama talks glibly and feelingly about the middle class, but his policies have not served their needs. Mobility between classes is more difficult than ever. Education serves the wealthy well, but too-powerful unions have harmed the lower and middle classes. There are fewer people working today than four years ago, while the numbers of people on food stamps and disability have increased. The nation’s tax code encourages consumption and discourages investment. Regulation has made it more difficult than ever for small businesses to start and to grow. Obamacare has raised costs for these same businesses. Cronyism between Washington, big business and unions provide a disincentive to small business. An expanding “government class” further distances leaders from the people. And the piling on of debt, while satisfying those in need of instant gratification, worsens the prospects for our children and grandchildren.

None of these concerns suggest the path toward decline or decay is irreversible. In my opinion, they could all be corrected reasonably quickly with the right policy changes – a balanced budget, deregulation, a simplified tax code and term limits for those in Congress, providing us once again a government of the people, by the people, for the people – a people more self-reliant and less dependent. Unfortunately that doesn’t seem likely with this Administration.

 


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