Q: IS the sky falling on the American economy? What do we need to do to fix it?
No. But today our prosperity depends on foreigners continuing to lend us money. We are the world's largest debtor. If we want to take control of our own destiny, we must increase our national savings. We consume 71 percent of our GDP and save 1 percent. The Chinese consume 38 percent and save 35 percent of their GDP. The result: the first place our taxes go is not to defense or education or health, but to repay foreigners the interest we owe them. The result of all this is that in 2004, the U.S. dropped out of the top five countries in per-capita income for the first time since 1990. What we need to do is reduce the budget deficit at the same time that we spend more on health, education and pensions. That requires cutting other spending and raising taxes. But we can arrange our tax system so that we work less while we tax pollution more.
Q: What is the role of personal debt in the economic picture? You write that American households are barely keeping their heads above water; how so?
When people don't save and corporations don't save for them, they cannot have a comfortable retirement. Thirty-five percent of senior citizens have no pension other than Social Security. Fifty percent of all Americans own no stocks. If you're between 55 and 65 years of age, the Federal Reserve says you should have $314,000.00 in your pension account. The average is $60,000.00.
The prices for oil, education, health care and state taxes have gone up more than income. People maintain their living standard by borrowing. The home equity loan has replaced the company raise. Between 1992 and 2004 this kind of borrowing doubled, which means if interest rates rise a lot of people will be in trouble. Americans, at all income levels, need to save more, and government should make that easier for everyone.
Q: You take exception to formulas for economic growth that focus on tax cuts and reductions in government programs. Why don't those schemes work? And on the flipside, what growth-promoting policies do you support?
The best tax rate is the lowest possible tax rate for the greatest number of people. Economic growth comes from sound management of the national economy, which means increasing savings and reducing the deficit, investing in growth-producing areas such as education and productivity-increasing areas such as health. In a world in which our problems are international, only government has the authority, resources and consensus-building ability to deal with many of our national problems. When you trash the role of government, you get incompetence at best, corruption at worst - the results are events such as the government's response to Katrina, the scandal at Walter Reed Army Medical Center, and turning homeland security into a pork barrel of needless spending without increasing our security.
Q: What about Social Security and Medicare - how do we fix these programs?
Medicare could be fixed in the context of adopting universal health insurance. Social Security could be fixed for 75 years by bringing new state and local government workers into the system, modifying the CPI calculation, applying 2 percent of the 6.5 percent Social Security tax to all incomes and raising the retirement age to 70 by 2099. If we just did those four things, Social Security would be saved.
Q: How can we tackle poverty in America? As you point out in The New American Story, the gap between rich and poor has never been greater; how can we realize the promise of America - that working hard will lead to a good life?
A great education, quality health care and income security in old age will help the poor. Additionally, a larger earned income tax credit in the context of tax reform will allow them, like most other Americans under tax reform, to keep more of each additional dollar they earn. If you also increase the minimum wage, these measures will go a long way toward reducing poverty. In such a world, the poor would benefit more directly from economic growth.
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Comments: 2
I particularly like your assertion that we need to combine the more Democratic "ethic of caring", which emphasizes collective action, and the more Republican "ethic of responsibility" which emphasizes individual action. This is the sort of sensibility needed to address our weighty health care problems.
With this book, you prove that yours is still an important and valuable voice in modern American politics. But since "NAS" is the type of policy-oriented book written for a campaign undertaking, I'm wondering why you've written it now that you are no longer seeking political office?
You provide timely and sage advice, and it would be nice to hear it enter the collective consciousness and the current campaign dialogue.
Today's problems didn't crop up overnight. They've been building for twenty-five years. Our culture is changing, our national goals have been subverted, and our political scene has been dominated by mental midgets for so long that our younger genereatins thing greed should be the guiding principle, and the bottom line is the only thing that matters.