Jewish World Review December 16, 2013 / 13 Teves, 5774
'Recovery'? What 'recovery? There's an even bigger cloud over our future --- and it's moving quickly
By Mort Zuckerman
http://www.JewishWorldReview.com | We are 50 months into a miserable misnomer – the "recovery." The American economy is still stuck in low gear, in its worst post-recession performance since World War II. Our real GDP growth, at around 1.7 percent, is roughly half what has been normal in previous years. And that is despite unprecedented monetary and fiscal stimulus.
Almost all the numbers suck. Private-sector capital stock such as plant, machinery and equipment has shrunk from 6 percent average annual growth to 2.7 percent today. It's the weakest five-year growth period in the past six decades. Nonfarm labor productivity is down to a growth level of only about 0.7 percent annually, according to a J.P. Morgan study, compared to the decade ending in 2005 when it was growing at 2.9 percent.
Consumer sentiment? No "animal spirits" there either, a reflection in part of the destruction of wealth by the 2008 global financial crisis. That single year destroyed some 20 percent of all accumulated wealth. Seven years later, we are still an estimated 8 percent below the 2006 peak.
In short, we are living through an unprecedented period of uncertainty, in a perennial state of near-stall speed in an economy marked by high unemployment. Yes, a modest improvement in job growth has reaped headlines. But labor force participation has fallen to the lowest rate in 35 years. Some 90 million Americans over the age of 16 are not working, an all-time high, with 10 million of them added since President Obama took office, according to The Wall Street Journal. "For every three Americans over the age of 16 earning a paycheck, there are two who aren't even looking for a job." And many newly created jobs pay less than those lost during the Great Recession. Real wages are stagnant.
There may now be as many as 27 million people getting by with part-time jobs. That amounts to roughly one-fifth of all employees. And this is before Obamacare's mandate that large employers must pay health insurance for anyone in a full-time job (defined as more than 30 hours). That's an incentive for employers to limit hours, and who can blame them? In short, we seem to have come to the end of a long upward cycle in the U.S. employment market, and it isn't going to get better anytime soon.
All glum enough for now, but there's an even bigger cloud over our future, captured in two words: debts and deficits. The nonpartisan Congressional Budget Office has looked at where we will be in 25 years and, though that may seem a long way ahead, it will come rushing at us as we fail to deal each year with excessive government spending. Millions of retiring baby boomers will bring along with them increased Social Security obligations as well as soaring Medicaid and Medicare costs – not to mention another possible huge burden from Obamacare.
The only cuts to the budget so far have been to discretionary spending, with virtually no cuts to the long-term expenses of the big social safety-net programs. This means that by 2025, tax revenues will be sufficient to finance only interest on our national debt, leaving no room for anything else at all. Everything from national defense to homeland security to education and research will have to be paid for with borrowed money.
Our recent presidents have failed to tackle the looming baby-boom budget crisis. As a recent article in Barron's noted, the one exception was Bill Clinton, who in his January 1999 State of the Union message "urged Congress to seize 'an unsurpassed opportunity to address a remarkable new challenge, the aging of America,' " and "declared that 'now is the moment for this generation to meet our historic responsibility to the 21st century' " by getting our deficits under control. He knew then that we were running out of both time and luck.
Demographics are the key driver of future spending. Barron's cited a CBO estimate that by 2038 there will be 79.1 million residents at least age 65, compared to 44.7 million now. Meanwhile, "the working-age population, 18 to 64, will grow at a much slower rate, to 214.7 million from 197.8 million" so that the "dependency ratio" of working people to retirees "will plummet to 2.7 working-age people to support each senior in 2038, from 4.4 today."
We can be lulled into a false sense of security because entitlement costs will grow at a relatively slower pace in the next decade. The deficit will rise just eight points to 81 percent of GDP by 2023, Barron's reported. But in 2033, it will be 138 percent, and in 2038, 190 percent. Our national debt will quite simply be growing faster than the economy's ability to pay for it.
We cannot assume that a short-term improvement during the recent upswing in the business cycle is enough when measured against these dire long-term projections. We have no more than a decade or so to avoid a fiscal crisis that could only be eased by cuts so draconian they would inflict immense damage, especially on the elderly. At that point, lawmakers would either have to raise taxes or reduce benefits to prevent programs from running out of money.
We know that we need to cut trillions of dollars from the deficit caused by the unaffordable big safety-net programs. It is not rocket science. And we know where we must invest any savings painfully achieved in these areas: education, research, innovation and infrastructure. We cannot build the secure, prosperous America famously epitomized by Herbert Hoover's campaign in 1928 as "a chicken in every pot, and a car in every garage" – plus a job for every willing hand – unless we do so now. We say it, we know it, but do we have the financial discipline to afford it?
Nor can we count on growing fast enough. Most of the estimates seem to be too optimistic, for they are based on real GDP growth of around 2.3 percent per year over the next 25 years, when the annual growth since the year 2000 is only 1.7 percent. And interest rate assumptions on the national debt are generally too low, as the debt markets will become aware of how serious our fiscal crisis is. At that point, there is no telling where interest rates may go.
The warnings about where we need to invest come thick and fast. The Organisation for Economic Co-operation and Development's latest Programme for International Student Assessment (PISA) results highlighted our weak secondary education system by ranking our youngsters just 17th in reading, 26th in math, and 21st in science out of 34 countries. This will ultimately translate into impaired competitiveness of U.S. workers in a global economy. But even if we could get education right, the country will be creaking at the joints if we don't invest sensibly in the infrastructure we can see crumbling even without the reports of the civil engineers.
The key word there is "sensibly." We cannot continue a policy of allocating money to infrastructure projects based on politics rather than on need or the multiplier effect the investment would have on the economy. Our air traffic control system needs a $25 billion upgrade, for its cellular and broadband systems are outdated and slow compared with many other countries. A modern system would save time and money.
Add it all up, and the imperatives are as visible as the four presidential heads on Mount Rushmore. If only we had that kind of leadership. We only talk the talk, with our political system gridlocked. Republicans are unwilling to embrace tax increases; Democrats are unwilling to rein in the big entitlement programs.
Politics is how we govern ourselves. But no country can spend infinite amounts of money forever. No country can be without a serious commitment to an agenda dealing with rebuilding its economy and allocating resources to make that possible.
That is what the Obamacare fight was all about – trying to contain a brand new entitlement when the country is already committed to more entitlement spending than it can pay for.
We are taking huge risks with our future. There is an old saw that you never test the depth of the water with both feet. That is what we are about, and it is not sustainable.
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Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report.
Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report.
© 2009, Mortimer Zuckerman