In a recent column Larry Kudlow seemed totally clueless
about Alan Krueger's assertion that "problems
built up over decades" are the direct cause of our situation today. “For
nearly 25 years — during those bad old decades — the economy increased 3.3
percent annually. Unemployment dropped from 11 percent to 6 percent to 5
percent to below 4 percent,” Kudlow wrote.
Kudlow seems to think that just because economic growth was good during
that period then all was well and that no adverse effects could have been
accumulating.
While we did have economic growth and low unemployment,
debt was building up. In those 25 years
we have accumulated so much debt that we can’t even count it. We have gone from the world’s largest
creditor nation to the world’s largest debtor nation with over $15 trillion in
outstanding bonds and tens of trillions in unfunded Social Security and
Medicare obligations.
And a diminished workforce is going to be saddled with
those obligations. Not only does the
retirement of the baby boomers leave us with fewer workers per retiree, but
those remaining workers are less educated, less skilled and less productive. More degrees are awarded in the arts than for
STEM areas.
But it hasn't been "problems" that caused this,
but instead bad policy. The most obvious
cause is the buildup of debt, and, yes, Reagan is partially to blame. He taught
us that the government can have low taxes and high spending meanwhile borrowing
the difference with no consequences. Common sense tells us that this won't work
in the long run, but people like Kudlow came along and told us not to worry
about it. But it's not all Reagan's fault.
The government's financial position is but one factor.
The savings rate has plummeted over the past 30 years as consumers hoped for
Social Security, pensions and a windfall from selling appreciated homes and
investments would provide much of their retirement income. A stock market crash
and dismal recovery followed by a housing market crash and no recovery have
left consumers up to their yin-yangs in mortgage debt, credit card debt and
student loan debt. American consumers had been the engine of the world economy
for so long borrowing to finance the appearance of prosperity.
The real problem is that no one is doing anything about
it. Paul Ryan had the most radical
proposal, but even that his plan barely scratches the surface of what needs to
be done. People like Kudlow say that all
we need is a tax cut and reduced regulations and everything will go back to the
way it was before. We need to live
within our means, educate the next generation and invest in productivity
enhancing R&D with our eyes on a return on investment, not by the next
election cycle, but in the distant future.
Back in 2007 I predicted that it would take years to get
out of this. Now I predict that it's going to take decades. Many of us will
never live to see an economically healthy America. And it is very possible that this is it. It is very possible that our debt will result
in permanent lower standards of living for Americans today and in the future.
Thirty years of irresponsible behavior isn’t corrected
overnight or even by the next election cycle, and it isn’t painless. It is going to hurt. Some people are already feeling it. Many government workers have lost their jobs,
taken pay cuts or had their salary increases reduced or eliminated. People in the private sector have it even
worse. Many seniors are reducing their
lifestyles because the interest from their investments is next to nothing. And the pain will get worse. Putting it off will only make it worse. Social Security will either have to be
reduced or delayed. Medicare will
require higher premiums. Many pension
funds will not be able to pay.
Businesses that promised post-retirement benefits will not be able to
fulfill the obligations.
Kudlow's attempts to blame Obama for our plight are
ignorant. He should listen intently to those that argue that bad policy over
decades cause this (i.e. real economists) and try to understand it.
