So what do we know right now? Well, we know that Keynesian “pump priming” by the government with its last massive stimulus package didn’t work very well. Nick Gillespie yesterday had an interesting piece on Reason.com, One Reason Why Keynesian Stimuli Aren't Working: They Aren't Keynesian, that argues that Keynes himself would have been appalled at how his theory is being applied (or rather, misapplied) today.
We also know that the current academic economic models don’t fit the real world very well. We have had the nation’s leading academic economists using their models over the past two decades to project the results of various policies, and more often than not these models have failed. As I noted in a post a few days ago, these models didn’t predict the current recession (in fact most of them projected continued strong growth through this period), they didn’t correctly predict the result (or lack of result) of the first stimulus package, they didn’t correctly predict the real risks in all the fancy new risk derivatives swamping Wall Street, they didn’t predict the 2006-2007 housing bubble, nor for that matter the 1999-2000 “dot.com” bubble.
We also know that increasingly the American workforce is not adequately prepared for the jobs of tomorrow. We still have an infrastructure and educational system and regulatory environment suited to the agricultural and manufacturing nation we were decades ago, but blue-collar manufacturing (and to a certain extent agriculture as well) provide less and less US jobs every year, while the growing number of high-tech technical, engineering and innovation jobs in the US are increasingly filled with bright foreigners because there are not enough American citizens trained to take those jobs. The three-yearly OECD Program for International Student Assessment (PISA) report, which compares the knowledge and skills of 15-year-olds in 70 countries around the world, ranked the United States 14th out of 34 OECD countries for reading skills, 17th for science and a below-average 25th for mathematics.
We know that the federal government, in the form of Congress and the Presidency, have become thoroughly dysfunctional, so polarized ideologically as to be hardly able to function at all. For example, this administration has been funding the government for over two years now on continuing resolutions, because it can’t get a budget passed at all, let alone by the end of the preceding fiscal year. This sharply limits what can reasonably be expected from federal government action. Nor is this likely to change as long as both parties have gerrymandered their House districts to make them safe seats for one party or the other – which has produced the undesirable side effect of eliminating moderates of either party from the House.
We know that the current federal government funding, in which we borrow almost half the federal budget every year, is unsustainable, and that major entitlement programs like Social Security and Medicare will have to sharply curtail their benefits soon, because there simply won’t be enough money to cover these obligations in the near future as they are currently constituted. Economist Lawrence Kotlikoff has recently estimated the total unfunded liabilities of current federal programs, largely Social Security, Medicare and Medicaid, at $70 trillion.
We know that we have too many regulations in this nation, promulgated by too many federal agencies which often have overlapping authority and conflicting agendas. Certainly regulations are necessary in a large nation like ours, but like the Sorcerer’s Apprentice, things have long since gotten way out of hand in the regulatory sphere. Of course, this is to be expected – once an agency is established and given some authority, it will naturally work to perpetuate itself and expand and defend its area of authority, its legitimate “tuft”. That is simply human nature – or at least the nature of bureaucracy.
Regulations are estimated to cost US businesses somewhere between $2 trillion and $2.8 trillion per year. According to the Office of the Federal Register, in 2007, the Code of Federal Regulations (CFR), the official listing of all regulations in effect, contained a total of 145,816 pages that claimed 21 feet of shelf space. In 2011 alone, 50,000 pages of new regulations have been added thus far to the Federal Register. Clearly something is wildly amiss.
We know that the federal tax code has become unwieldy and ineffective. The Federal Tax Code weighs in at 71,684 pages as of 2010! We have one of the highest corporate tax rates in the world (and then double tax the dividends as well), but offset it with trillions of dollars of special interest exemptions and rebates, so that some US companies that report billions in profits pay no federal tax at all.
We also know that we have put off maintenance and improvement of our national infrastructure too long. Bridges, roads, rail lines, power transmission lines, power plants, dams, etc etc are all aging and in need of repairs or replacement, but we haven’t been doing it at either the federal or the local government level, preferring to put funds into social programs, entitlements, public employee pension funds, and unfunded wars in the Middle East. We are the inventors of the internet, yet US average internet service speed, at 4.8mbps, ranks 15th in the world (Japan, at 61mbps, is the leader, with South Korea close behind).
This is what we know. Part 2 will deal with what, if anything, the government could do about these issues.
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