Leaving aside the doom and gloom about America’s future in the global market place (due largely to refocused expectations of quality of life) Fareed Zakaria in Time is spot on as always:
??????????There are solutions, but they are hard and involve painful changes — in companies, government programs and personal lifestyles. For more than a generation, Americans have been unwilling to make these adjustments. Instead, we found an easier way to goose the economy: expand consumption. During the early 1950s, personal consumer expenditures made up 60% to 65% of the U.S.’s GDP. But starting in the early 1980s, facing slower growth, we increased our personal spending substantially, giving rise to new economic activity in the country. Consumption grew to 70% of GDP by 2001 and has stayed there ever since. Unfortunately, this rise in consumption was not triggered by a rise in income. Wages have been largely stagnant. It was facilitated, rather, by an increase in credit, so that now the average American family has no fewer than 13 credit cards. Household debt rose from $680 billion in 1974 to $14 trillion in 2008. This pattern repeated itself in government, except on a much larger scale. People everywhere — from California to New Jersey — wanted less taxes but more government. Local, state and federal governments obliged, taking on massive debts. A generation’s worth of economic growth has been generated by an unsustainable expansion of borrowing.
That is why the current economic debate between another stimulus and deficit reduction is frustrating. Right now, there is a strong case for government stimulus, since no one else is doing much spending. But then what? What happens after another year of federal spending? Consumers still might be cautious; do we really want them to spend like they did in the old days? Is the strategy simply to reinflate the housing bubble? In recent years, the left and the right in America have conspired in feeding consumption spending. The left expands government, much of which means more consumption (pensions, health care). The right focuses obsessively on tax cuts, which have a similar effect. The political system, pandering to today’s constituents, encourages both tendencies. But when will we invest for our children’s economy?
His three pronged approach is: shift from consumption to investment, a high priority on training and education, and fiscal sanity. And once you shift priorities America needs to examine what other countries are doing right and not be afraid to adjust. One other thing he points out is that it’s time for this country to overhaul its tax code — a monstrosity of political corruption if there ever was.