America is in the midst of its greatest crisis since World War II. At this writing, we cannot yet confidently tell when the COVID-19 pandemic will end. More than half a year into its US outbreak, new infections are still out of control. Since it is a novel coronavirus-SARS-CoV-2 is a pathogen with which humanity has no previous experience-this immense threat is also by definition a fundamentally unfamiliar one. When-and whether- we can create a safe and effective vaccine and how many waves of contagion will roll through our country before COVID-19 subsides are at present unanswerable questions.
Under the terrible pressure of the pandemic (whose ration of public suffering, we must add, has been greater than necessary due to policy bungling), social, economic, and political fault lines in our country have been painfully exposed and enflamed. We endure today not only a socioeconomic emergency but also an explosion of radicalized anger that has spilled into the streets. These current troubles have historical roots: problems long festering and long ignored.
Washington has responded to the pandemic with an unprecedented peacetime mobilization of national resources. Already Congress has authorized trillions of dollars in "stimulus" spending to support distressed businesses and households, and the Federal Reserve System has committed additional trillions-with no end yet in sight.
In relation to total national income, today's public outlays for social benefits and economic guarantees to cope with the COVID-19 crisis are akin to the peak defense effort in World War II. Just as in the Second World War, we have embarked on an enormous expansion of government reach and a tremendous run-up of public debt, for a still indefinite duration.
In time, we will achieve our national objective in the struggle against COVID-19. Victory in World War II was followed by rapid military demobilization and wholesale dismantling of wartime economic controls. But what of the post-coronavirus era? How will we "demobilize" the makeshift super welfare state we are hastily throwing together to prop up shaky businesses and cover personal income shortfalls?
Such temporary emergency arrangements could easily become all too lasting. And how will we manage to renew postcrisis economic growth so we might, among other things, contend with vastly increased public debts accumulated during the COVID-19 crisis?
Even though the end of our plague is not yet in view, it is hardly too soon to start thinking about how we want America to look in the post-COVID-19 world. If we rely mainly on "muddling through" to set our course into the post-pandemic era, we are all too likely to temporize our way into a nightmare: an American future defined by a hypertrophied, crushingly expensive social-corporate welfare state; a stagnant, politicized economy; and deep, permanent financial dependence on officialdom, both elected and otherwise.
In such a future, democracy would be degraded, freedoms lost, and opportunities narrowed for generations to come. Were we to settle for such a future, we would be the generation that chose against American exceptionalism-that decided being just another sluggish, dirigiste social democracy was good enough for untold Americans to come.
To steer away from this grave danger, we need a vision of the future we want to build in the post-pandemic era, and we need that vision in advance. Such a vision should of course posit a rapid and orderly build-down from the current "total war" scale interventions by the US government and its central bank. But a promise to take us partway back from Leviathan is not good enough.
Simply restoring the pre-COVID-19 status quo ante is not a hill many would-or should-be willing to die on. However much they love their country, Americans are aware of our nation's creeping failure to deliver its great benefits to all. They know the American dream is not working for growing contingents of fellow citizens beset by faltering living standards, mired in rising misery.
As we look beyond COVID-19, we should therefore determine to redress the social and economic flaws impairing our national performance before the pandemic. We should seek a social and economic revitalization of our nation, a bold and thorough overhaul of our ways so as to spark a dynamic upswing in progress-an advance that should include everyone. Such an inspiring challenge and unifying goal can help us commit to building a stronger America with an even brighter future. It should be the foremost priority of the president inaugurated in 2021.
The Pandemic's Legacy
To prevent a catastrophic collapse of the US economy and the American financial system from the nationwide COVID-19 lockdown in March 2020, Washington unleashed a tidal wave of public resources to float businesses and families through the hard times immediately ahead. Mindful of the policy mistakes that deepened and prolonged the Great Depression nearly a century earlier, Congress and the White House reacted rapidly, authorizing extraordinary fiscal and monetary interventions. With the economy in free fall, the impulse to act urgently and "go big" was surely the right call. Yet urgency also meant the largest single "state surge" in American history was necessarily improvised, characterized by not only immense intended consequences but perhaps even greater unintended or unconsidered ones.
For the first phase of the pandemic stimulus, Congress authorized over $2 trillion of spending for affected households and businesses-a single outlay equivalent to 10 percent of the previous year's gross domestic product (GDP). Just after the first COVID-19 shock (April 2020), the share of transfer payments in total disposable income leapt above 34 percent- up nearly 15 percentage points from the previous year, against an overall 13-point increase for the previous 60 years of growth in the American welfare state. Presumably April 2020 was an apogee, with the worst of the crisis now (we hope) behind us, but for the foreseeable future, government transfers are likely to figure much more prominently in American family budgets than ever before.
Since all the COVID-19 stimulus is deficit spending, public debt is soaring. By just how much is still anyone's guess. In April 2020-after just the first tranche of emergency "stimulus"-the International Monetary Fund (IMF) projected a more than 15 percent deficit for America in 2020 and almost 9 percent for 2021.1 By such arithmetic, US public indebtedness is set to exceed World War II levels soon, thereafter drifting up to as yet uncharted heights. In July-just five months into America's COVID-19 crisis-the IMF foresaw US general government gross debt climbing to 160 percent of GDP by 2030, "even without further rounds of fiscal stimulus."2 In 2019, only four spots on the map had levels higher than that: Greece, Sudan, Venezuela, and Japan."3
But even as those IMF assessments were tendered, negotiators in Washington were considering the next round of COVID-19 stimulus. Since economic recovery has not wholly comported with the widely desired V-shaped rapid snapback, huge additional rounds of COVID-19-driven stimulus, deficit spending, and debt accumulation could still lie in store. The Congressional Budget Office (CBO) now projects net federal debt will be almost twice the size of the US economy in 2050-two and a half times the pre-pandemic level-and further upward revisions may await.4
And the full dimensions of the government's new involvement in American economic life are not captured by these figures on public finance, for they overlook a colossal off-budget item, important not only in magnitude but in nature. In this current crisis, at the behest of Congress and the Treasury Department, the Federal Reserve has crossed a Rubicon. With its new mandate in the pandemic rescue mission, the Fed readies to the role of managing, even micromanaging, the American economy through credit allocation: marshaling potentially vast sums to lend not only to financial institutions but also directly to businesses it judges suitable for such government support.
In the first half of 2020, the Fed's balance sheet soared by nearly $3 trillion, mainly through purchases of US government debt and mortgage market debt.5 We cannot know how much larger the Fed's presence in US credit markets may become, but in the summer of 2020, financial analysts speculated that its balance sheet "could conceivably exceed $10 trillion by yearend, as the central bank buys corporate bonds, municipal securities and makes loans to medium-sized businesses."6
Since the Fed now dominates the markets for US Treasury debt and domestic mortgage debt, a comparably dominant Fed position in the market for credit for nonfinancial businesses in the near future is by no means inconceivable.
All these dramatic transformations of the American economy, remember, are the intended consequences of the pandemic emergency rescue program. A host of additional unintended consequences are embedded in these policies-and they pose direct risks to America's long-term freedom and prosperity. The emergency measures are rife with moral hazard, the costs of which will grow ever more ominous the longer the measures remain in force.
Consider the initial $600 a week in additional unemployment benefits individuals could obtain if they were not working or not working enough, regardless of the recipient's wealth or annual income. (Those pandemic benefits came on top of benefits from the existing unemployment insurance system.) The generosity of this intervention cushioned tens of millions who lost their jobs in the ensuing months and no doubt contributed to public confidence in a moment of maximum economic anxiety. But you don't have to be in the Mont Pelerin Society to discern the distortions it imposed on the US labor market.
The year before the crisis, according to the Bureau of Labor Statistics, about a third of all jobs in the United States were paying less than $600 a week.7 When added to regular unemployment benefits, the pandemic benefits pushed payments for the jobless above the median wage level in 36 states, according to an analysis for the New York Times. 8 Behold! America's new "Lake Wobegon" job market, in which all men and women can have an above-average salary, so long as they do not work.
Pandemic benefits did not stabilize living standards; they boosted them. One early study showed spending levels for pandemic benefit recipients to be 10 percent higher after the onset of the crisis than before it.9 Pandemic unemployment benefits, in other words, turned out to be a jackpot for many-and you did not actually have to be unemployed to take home the bonus. In July 2020, the national unemployment level was about 17 million,10 but more than 30 million Americans were reportedly collecting some form of unemployment insurance.11
So is COVID-19 America stumbling toward something like a universal basic income (UBI)? Many advocates fervently hope so. But extending indefinitely the income guarantees prompted by the current emergency makes as little sense as fielding our 10-million-man World War II army far into peacetime-and could be every bit as counterproductive for our national interests.
Apart from the not inconsiderable expense and the incentive problems, paying people not to work-that is what a UBI does-is likely to corrode the quality of citizenship in America, perhaps severely.
We can see as much from patterns of daily life for American men age 25-54, ordinarily peak working years, who are neither working nor looking for work.12 Self-reported time-use surveys reveal they basically do not "do" civil society; they devote almost no time to worship, volunteering, or charitable activities. Despite their basically open schedules, they spend less time on domestic chores and helping with other household members- much less, actually-than women with jobs.
Instead, they while away their days in front of screens-television, internet, handheld devices, and the like-on average over 2,100 hours a year. This is their full-time "job." And nearly half of precrisis prime-age men out of the workforce said they took pain pills every day.13 Do we really want to use our national treasure to buy more of this?
Fortunately, we can still rely on a widespread American work ethic today, despite the perverse disincentives dangling from COVID-19 rescue packages. Let's not find out how America's expectations and attitudes about work respond to bad incentives over the long run.
As for the Fed, a vast new realm of unintended consequences attends its mission to rescue the American economy. The Fed has established facilities to purchase US government debt, municipal debt, domestic mortgages, and corporate bonds and to lend Fed money directly to nonfinancial businesses. A number of these new facilities at present have no set upper boundaries, implying potentially unlimited commitments. The Fed has announced it will become a player in the corporate-debt market, and it is preparing to lend directly to the private sector on highly favorable terms- under the inherently unfalsifiable argument that commercial banks and financial institutions will not voluntarily dispense sufficient credit to American businesses on their own.
Anointing a credit czar for the American private sector will diminish economic and political freedom. It would mark an unprecedented, indeed explosive, expansion of the administrative state. The existing archipelago of extraconstitutional regulatory agencies in the current administrative state is in theory accountable to Congress, and thus the American voter, but far less so in reality. If the Fed takes over the commanding heights of the national economy, it, too, will most likely end up answerable mainly to itself in these new duties. Transforming the Fed into a national board of economic management and planning would be a landmark step along the warped path that leads to a permanently diminished Congress.
Then there is the matter of the likely-as opposed to the intended- impact of the Fed's active management in our private sector. Leave aside the unavoidable, and unavoidably corrupting, politicization of the private sector that will occur when every big business wants to become a "friend of the Fed"-and many will need to be. And leave aside that the Fed has neither the staff nor the technical competence to undertake such a complex and highly exacting task. Even if the Fed could somehow marshal an army of modern-day de' Medicis to execute it, the mission promises to end in economic failure because the assignment itself is an exercise in adverse selection.
The industrial policy record in other parts of the world-Europe, Asia, and Latin America-is littered with failures, often highly expensive ones. But at least in those other experiments, governments were attempting to pick winners. The Fed's mandate is to pick losers-companies whose debt is not of "investment quality," whose loan applications are un-bankable, or whose balance sheets are so precarious that they require big infusions of money on easy terms just to stay afloat. We know how this movie ends: misallocation of capital on a massive scale, unnecessary destruction of wealth, and ultimately weaker economic performance and slower growth.
Cheap money and all but interest-free loans may be delightful for winners of the Fed lottery, but they are procured at the expense of others. And the long-term costs of this racket are much greater than generally appreciated. Since the crash of 2008-for over a decade-the Fed has been enforcing near-zero interest rates. The argument during the Great Recession, of course, was that businesses were so fragile the Fed should do everything it could to help them survive. But the completely unsurprising consequence of long-term near-zero interest rates is a new breed of businesses that can only survive in a low- or no-interest environment. Such "zombie companies" scarcely existed on America's exchanges 20 years ago, but by one estimate they now account for nearly a fifth of all listed US securities.14
Zombie companies, near-zero interest rates, previously unimaginable levels of public debt-does any of this sound familiar? Yes, we have seen
it all before-in Japan, during its "lost generation" of growth, a saga now actually heading into its second generation. The specter of Japanification is already haunting Europe-and soon it will loom before our nation too.
One may object that our COVID-19 emergency measures are only temporary-that we will leave them behind when the pandemic subsides and resume healthy precrisis ways. But that is more or less what people said in Japan, too, a generation ago, when they confronted their "bubble economy" crisis. Japan, after all, did not always suffer from "Japanification." But with every passing year, Japan accepted excuses for deferring painful reforms and extending special "crisis" policies one more time. And if something like our own version of Japanification should befall us, there is reason to think we shall not fare as well under it as the Japanese themselves-for we are beset by a number of serious preexisting afflictions with which Japan does not contend.
A Tangle of Pathologies
Ronald Reagan, still perhaps the greatest of our recent presidents, had a gift for the clarifying question. For America today, the clarifying Reagan-esque question would be: "Are you better off than you were 40 years ago?" The unvarnished answer, if we are being honest with ourselves, is that growing numbers of Americans are not and were not even before the pandemic.
America's engines of material advance and personal success are in serious need of repairs. Without those repairs, America's future will be increasingly compromised.
Some will find this assessment preposterous. After all, our summary record of national performance over the past generation is a marvel to behold. No nation has ever been as powerful and rich as the United States is today. Thirty years ago, we won the Cold War and became the planet's sole superpower-a title we still hold. Over that same period, we nearly tripled our private wealth, adding almost $75 trillion in today's prices of net worth, close to a quarter of a million dollars per American man, woman, and child. Even today, in the midst of the pandemic, US stock markets are near all-time highs. Never before has the world seen a system that could generate so much national strength and prosperity.
But during our unipolar moment a rot was eating away our national foundations. For the most part, our elite-our deciders and describers- didn't notice: It wasn't affecting them or the people they knew. But in the glare of our current crisis, the rot can no longer be concealed. Symptoms of our social and economic ailments abound. Call them the paradoxes of plenty, unnatural afflictions that define daily life in our second Gilded Age.
Consider four startling contradictions in particular. First, although our nation has never been so rich, never before have so many in it been dependent on poverty-conditioned, means-tested benefits. Second, although survival odds for young and middle-aged parents are vastly more favorable than in earlier times, many more children today live as if orphaned: with just a mother, just a father, or sometimes just grandparents. Third, although we enjoyed a so-called "full employment" economy on the eve of the pandemic, the 2019 work rate for prime-age American men mirrored the level in 1940, at the tail end of the Great Depression. And fourth, although our national net worth has been soaring for decades, real net worth for the bottom half of households was distinctly lower just before the pandemic than when the Berlin Wall fell 30 years earlier.
No one can look at such results and claim that a rising tide lifted all boats, as some of us in the early 1980s ardently hoped it would. But why? What accounts for these miserable contradictions?
The conventional answer is "structural economic changes" in our age of globalization and rapid technological advance. There is truth in this explanation-but just as clearly, it is not the whole story, and it may not even be most of the story. For any honest observer knows that our country has become ever more ensnared these past four decades in a "tangle of pathologies."
The formulation is not my own; it was coined by Daniel Patrick Moynihan, in his seminal, still-controversial 1965 report on the crisis of the black family in America.15 Moynihan warned that family breakdown and its ramifications-illegitimacy, broken homes, absent fathers, welfare dependence, and more-were undermining social and economic progress for black Americans and would limit the gains that civil rights reforms seemed to promise.
Moynihan's report is still an arresting read, in many ways prophetic. With the benefit of hindsight, however, we now know he was wrong on one crucial point-a point, I hasten to add, that none of his fire-breathing critics got right either. Since he traced the crisis of the black family to the "three centuries of injustice" African Americans had endured under slavery, subsequent institutional discrimination, and continuing racial prejudice, Moynihan believed it was unique-an awful aberration, not a vision of the American future.
Yet far from constituting a tragic exception to the rest of the national experience, the turmoil in black communities that Moynihan described in the 1960s proved to be a leading indicator-a prefiguration of the trends that would lie in store for citizens with no such legacy of race-based mistreatment. The symptoms Moynihan identified have worsened in black America since his diagnosis-but they have spread through the rest of the nation too.
At the time of Moynihan's report, 24 percent of black births occurred outside marriage. In 2018, America's overall ratio was about 40 percent.16 In the early 1960s, just under a quarter of black children were being raised in a mother-headed home; last year 26 percent of all American children lived with a single parent-and another 4 percent lived with grandparents or other relatives or in foster care.17 In the early 1960s, some 14 percent of black children were on Aid for Dependent Children (or "welfare," as it was widely known); by 2018 well over 40 percent of all American children lived in homes accepting means-tested benefits.18 In fact, one Census Bureau survey tracking social benefits put the share at about half.
Moynihan's "tangle of pathologies" is rampant nowadays in New Hampshire, 99 percent nonblack, where a third of births are out of wedlock, 26 percent of children live in single-parent homes, and 35 percent of children live in homes receiving at least one means-tested benefit.19 Even predominantly Mormon Utah, likewise 99 percent nonblack, is no longer immune from these pathologies: Nearly one baby in five in the Beehive State is born to an unwed mother, and a quarter of its children live in households that receive means-tested benefits.20
Worklessness and crime also figure in the modern American tangle. Back in 1965, one in eight prime-age black men was not holding down a job; in 2019, in a supposedly booming economy, the corresponding rate for American men of all ethnicities was even higher.21 And by 2016, over 90 million American adults-nearly three in eight-had criminal-arrest records.22 But we didn't pay much attention, for as social pathologies go mainstream, there is a temptation to normalize them by "defining deviancy down" (another fateful Moynihan insight).
We normalized some of this behavior in other ways too. When postwar economic growth began its long slowdown, America entered into a new social compact with the poorer half of its people. The compact was unspoken, but let's call it what it is: our modern Declaration of Dependence. In this raw deal, we tried to buy social peace by underwriting further improvements in how the other half lives-but through welfare and debt. No matter what they say or how they posture, both political parties are complicit in this arrangement, which is why it has continued for decades.
Between 1985 and 2016, according to Census Bureau Survey of Income and Program Participation figures, the share of Americans in homes depending on means-tested benefits more than doubled, vaulting from 15 percent to 36 percent. Over those decades, America's means-tested population nearly tripled, shooting up by 79 million: But total US population grew by just 85 million over those same years.
The relentless increase in social welfare recipients has transformed the face of dependency in modern America. These programs are no longer just for struggling women and children. Grown men in the prime of life, ordinarily a society's providers, are now a major constituency for need-based public aid. In 2016, 30 percent of prime-age American men lived in homes that asked for and accepted at least one means-tested benefit (triple the share in 1985). If we add in payments from our increasingly problematic disability programs, over 35 percent of our prime-age men were obtaining some form of government assistance in the years leading up to the current crisis.
Americans see our middle class as under increasing pressure. Yet in all the commentary on the factors threatening the American middle class, rising welfare dependence is almost never mentioned. It is a curious oversight. For "middle class" is defined not by a pay grade, but rather by a mentality: a set of values and aspirations and the behavior and habits these condition. Our middle class seemed to fare perfectly well in the Eisenhower years, when per-capita income was barely a fourth of what it is today. You can have a low income and still consider yourself middle class. If you seek and accept public benefits intended for the poor, on the other hand, your membership in the middle class is in jeopardy, and you probably know it.
As the lower half of the income scale became increasingly dependent on means-tested public largesse (and such spending now averages around $6,000 per recipient), their personal finances also grew strangely precarious.
Nearly three in eight American homes today are rentals, and most renters find themselves all too near a hand-to-mouth existence.23 Half of all renters in 2016 had a net worth of under $5,000-and not because they were all newly minted PhDs awaiting their first big job. Half of renting seniors 65 and older had less than $7,000 to their name-same for renters age 45-64. An astonishing half of all female-headed renting families had less than $1,500 in net worth.
As for liquid assets-cash, checking accounts, and the like-less than half of renters in 2016 had more than $1,200, and most renters 45 or older had less than $1,000. How would they handle an unexpected $1,000 expense? In a nation surfing on a tsunami of wealth, many millions of homes were one emergency away from being financially drowned. Reliable national data on the number of renters subject to eviction each year are as yet unavailable, but the phenomenon seems to be increasingly common
Moreover, whether renters or homeowners, the bottom half of homes in America saw its mean net worth fall between 1989 and 2019-by at least 16 percent and perhaps even more, depending on which measure of inflation one prefers. Median net worth for the lower half was under $2,500 in 2016; the median home in the lower half had less than $1,000 in liquid assets to draw on. And over the past generation, personal debts and loans have eaten away the net worth of Americans in the lower half. By 2016, they were far more leveraged than in the 1980s, with $75 of debt for every $100 of assets.24
To make matters worse, American voters do not want to pay for the means-tested benefits bolstering living standards for the bottom half, so they have been borrowing money to cover them. Actually, this is true for all our social entitlement programs, not just those earmarked for people willing to call themselves "poor." This is the meaning of the past four decades of near-continuous budget deficits, of the dramatic run-up in peacetime public debt in an era when transfer payments dominate our public finances. Since public debts are taxes postponed, we have been consuming and gifting more entitlements than we ourselves are willing to pay for-and charging them to future workers, including workers not yet born. The fecklessness of our aprés nous le déluge Keynesianism was perhaps most vividly illustrated by the 2019 federal budget, the last complete fiscal year before the pandemic, when Washington ran a budget deficit of nearly $1 trillion, an estimated 4.6 percent of GDP, at the top of a business cycle. 25
Our social enervation and increasingly fragile finances (both private and public) echo our national economy, in which dynamism seems to be steadily ebbing. True: America's top corporations are world beaters, still best in class and the envy of regulators in other lands. Our trillion-dollar gladiators cast a long shadow. Maybe that is why we don't always notice what is going on in the rest of the private-sector arena.
Simply put, there is less creative destruction, the lifeblood of free enterprise. The ratio of new startups to existing businesses has been falling for over 40 years-for as long as we have been keeping such records, in fact.26 Accompanying the decline of American "garage entrepreneurialism" has been a continuing drop in labor market "churn"-switching jobs.27 "Quits" are down, too, and while that may sound good, it isn't; it is a vote of no confidence in opportunities elsewhere. Overall, residential mobility in America is at an all-time low: Last year people were half as likely to move as in the early 1980s-yet another warning sign of gradual hardening of America's entrepreneurial arteries.28
"America's engines of material advance and personal success are in serious need of repairs. Without those repairs, America's future will be increasingly compromised."
Structurally, American business is increasingly gray and top-heavy, dominated by larger, older corporations with easy access to capital at highly favorable rates that smaller businesses cannot obtain, aided by fixers and regulatory counsel smaller firms can't afford. By some important yardsticks, we see increasing market concentration and decreasing knowledge diffusion-more laggards falling behind on the learning curve.29 This is not a recipe for healthy improvements in productivity. It should not surprise us that our decade of recovery from the Great Recession of 2008-09 was the weakest snapback ever recorded for the American economy.
Thus, as we look beyond COVID-19, the arithmetic for US economic growth is not necessarily advantageous. The problem signs are both social and institutional. Over the long run, economic progress in a modern economy depends greatly on human resources and business climate. Yet over the past generation, despite our unaccountably expensive health care system, health progress has been agonizingly slow-barely one extra year of life expectancy per decade, with stagnation and even slight declines since 2014-partly because of white America's opioid crisis.30
After leading the world in educational advance for the century following the Civil War, America's progress in attainment suddenly threw a gear; for a generation and more it has been limping along at barely a third its historical pace, as others surpass us in mean years of education. And while some appreciate the tax cuts, it is hard to argue that America's business climate overall has improved thus far in the 21st century. To the contrary: Although subjective, such varied measures as the "Index of Economic Freedom," "Economic Freedom in the World," the "Corruption Perceptions Index," and even the World Bank's "Ease of Doing Business Index" all show some drop in US ratings and rankings for quality of institutions and policies over the past two decades.
These trends influence long-term economic performance. Unless they change, America is in danger of an unexpectedly weak recovery from the COVID-19 crisis, followed by a run of much slower economic growth than we are accustomed to. We could find ourselves drawn closer and closer to our own form of Japanification-a version, for reasons already mentioned, quite possibly much more unpleasant than the Japanese original. If we are to redeem the promise of the American future, we need to be thinking right now about how to achieve escape velocity from a future of stagnation and dependence.
A Vision for Revitalization
Revitalizing America after COVID-19 will be a monumental national challenge-likely the greatest in our lifetimes. The alternatives are clear. Failure is too terrible to contemplate. A shriveled future would await America- not just us, but generations yet unborn.
Failure in this quest would also have global consequences, with the most devastating blows falling not on us or our descendants but on the weak and vulnerable in countries far away. The postwar liberal international order that the United States fashioned has been the single greatest force for global good-for human security, freedom, and prosperity-in modern history. Like it or not, there is no understudy waiting in the wings of the world stage if we decide to skip out of the starring role Providence has assigned us for the time being. Ask the Uighurs what a world order with more say for the Chinese Communist Party would look like.
But what's good for the rest of the world has to work for the folks back home in America too-or eventually the American voter will cease underwriting it. America is a republic, not an empire. Our Constitution says we need permission from the people to use our might and wealth overseas. And we cannot expect loyal Americans who have been falling behind for decades to consent indefinitely to the expense and sacrifices of US leadership abroad. At the end of the day, the stakes in restarting the escalator for all Americans are truly planetary.
If we are to commence revitalizing America as soon as our current crisis subsides, we need a vision right now for where we want to take our nation tomorrow. Not a plan-too many details are intrinsically impossible to hash out in advance-but rather aspirations and ambitions that head us in the right direction and offer a bit of guidance for the journey ahead.
We should envision a more dynamic, rapidly advancing, and self-reliant America: an America that can generate prosperity for all. An America with more freedom and stronger families and communities. An America in which people are less weighed down by government debt, less dependent on infantilizing state handouts, and more fully in charge of their own pursuit of happiness.
The arithmetic of American revitalization depends, first and foremost, on a sustained upswing in national productivity. Our economic performance has been ever more anemic in the decades leading up to our current crisis.
We know the main elements required for restoring rapid productivity growth in America. We need more and better research, both public and private. Like any resource, funds for research and development can be squandered if they are not used wisely. But in a revitalizing America, we would be investing much more heavily in this aspect of America's future than we do today. Israel, South Korea, Taiwan, even Sweden: All now devote more of their economies to research and development than America does.31 We used to lead the world in this-and we should want to again.
We need more and better education and training-again, much more. As noted already, over the past four decades, America has been stricken by a strangely unexamined slowdown in educational-attainment advance.
If we had only maintained our previous tempo of long-term advance, our working-age population today would have on average nearly two additional years of schooling-and even more for younger adults.
Rough rules of thumb suggest these educational shortfalls have lowered current US output by many trillions of dollars. And that slowdown in educational progress has not only depressed our national income but also skewed the distribution of opportunities unforgivingly. In what economists call America's "race between education and technology," lagging education makes for labor displacement, with flagging wages for the less skilled to boot.32 Should we really be surprised by what has happened to our nation's employment and earnings profiles since our great slowdown in educational progress set in? More and better education will generate better wages, especially at the bottom; increased opportunity; and that welcome, vibrant "churn" once again.
Then there is America's other big innovation problem: the sclerosis, complacency, and rent-seeking in our private sector, especially in big business. America cannot succeed unless a lot of its firms fail-including some of its largest ones. Bankruptcy and reallocation of resources to more productive ends are the mother's milk of dynamic growth in a competitive market. There should be no room for corporate welfare in a revitalized America. Bring on the "zombie apocalypse" in our corporate sector. We will not only survive it; we will thrive by it.
The gradual spread of dependence unintentionally incentivizes longterm helplessness and incapacity, wastes human potential, and kills dreams. A revitalized America must offer a pathway from dependence back to self-reliance for individuals and families. This will of course be easiest with dynamic growth, but in any case, it will require rethinking our sprawling and largely dysfunctional social welfare system.
To the fullest extent possible, American social welfare arrangements should be reconfigured based on a work-first principle, with active employment or job seeking conditioning other benefits. The concept of a living wage for working families is worth exploring as well. Of course, a panoply of unintended consequences could attend subsidizing employment, so reorientation to a work-first principle bears careful consideration. This will unavoidably create problems of its own, but pursued correctly, we are likely to be trading a larger set of problems for a decidedly smaller set.
This brings us to demography, the vital factor that may spare us the plight of a shrinking, atomized society. Perhaps the two most important demographic questions for a revitalized America concern family and immigration.
Some truths about the family are so obvious that it would take an expert to miss them. Family is the basic building block of our society and our nation, so the health of our country depends on the health of our families. Without presuming the Solomonic acumen to judge any single family situation or circumstance, we can nonetheless confidently prefer more intact families to fewer of them; greater rather than fewer lasting, committed marriages; more rather than fewer children born within marriages; and more time at home, not less, for parents with their children.
We also know that strong bonds of kinship are the very first safety net our species developed. Weak and fractured families spawn big national welfare systems. A century and more of modern social policy has demonstrated that the state is a highly imperfect substitute for the father and is even more misbegotten when attempting to step in as mother. Repair of the family would greatly aid the revitalization of America-but if this happens, it will be on its own organic schedule, abetted by recovered social wisdom and maybe even one of those unsummoned Great Awakenings to which America seems subject. Government can cheer this project on and of course amend anti-family bias in its own policies, but at the end of the day, this is a project for the American heart.
Then there is immigration. Immigrants have been a great blessing for our country. Current and future immigrants should play an important role in revitalizing America. People who risk everything to come here to start a new life embody the American spirit; that is why immigrants generally make such great Americans. And the magic of the American ethos seems especially suited to making loyal and productive citizens out of these newcomers.
There is an argument for favoring highly skilled immigrants in the future, and it has merit. But the grit, drive, and family values of immigrants with little formal education should have a place in our country too. Such strivers and their children make us more dynamic, for talent and entrepreneurialism do not always come with academic credentials.
Yet we must not forget this important proviso: Globalization should work for Americans-not the other way around. That holds for immigration.
Our national sovereignty is nonnegotiable. We Americans get to choose who is invited to our land-no one else. My own preference, as you can probably tell, is for fairly high immigration quotas. But whatever the level, immigration to our country should be legal immigration.
Illegal immigration is not only an affront to our rule of law; it is an affront to our democracy because it circumvents the people's will. If our immigration process is badly broken, as almost all agree it is, we should fix it; that is what competent democracies do. But it is voters from the US- not virtue signalers from Davos or elsewhere-who get the say over who joins in our American experiment.
A key indicator for our national revitalization will be wealth trends for the lower half in our society. We should want to see their net worth growing-in fact, growing a good deal faster than for the country as a whole. And when I say wealth, I mean private assets in their own immediate possession-things such as bank accounts, homes, college funds, and retirement accounts.
A neoclassical economist will make the case that payouts from our national social insurance system-Social Security-should be counted as wealth for these homes, and the argument is theoretically unassailable. But some take this to mean we should not worry so much about tangible private assets for the less well-to-do. If we took this logic to its conclusion, we would be counting the net present value of expected future food stamp use as wealth too. There is a world of difference between a monthly check from the government and a lump sum you put together through managing your own affairs. A free people deserves better than a life on allowance money and a debit card.
A revitalized America can provide the framework in which everyone can build their own wealth-with the help of more work, better wages, and constantly improving opportunities and skills. But personal responsibility is the other element. Establishing creditworthiness is up to you. Financial discipline, thrift, and other money habits determine a family's savings, and consistently accumulated savings are the basis of personal wealth. As a practical matter, family stability is terribly important to a household's wealth outlook. The struggle to save and get ahead is so much harder in homes with just one parent, and even in a revitalized America, that hard reality is not going to change.
If America is to revitalize, then our government will need to adopt budget discipline. Yes, there is a respectable Keynesian case for running big deficits in bad times and emergencies, just as there are special times when a family may need to live beyond its means. But unlike John Maynard Keynes, who said government should run surpluses in good times to balance out the deficits in bad times, we seem to find an excuse every year to spend more than we bring in. If we treat each and every new fiscal year as if it is an emergency, the prophecy will become self-fulfilling. The path to Japanification is paved with high budget deficits and ultra-low interest rates.
If we revitalize America, ours will be a future of positive interest rates and low or negative net budget deficits. Taxes will have to be higher, too, for at least a generation, since in a revitalized America we will cease spending our children's inheritance. But future generations will thank us for this-and if we attain dynamic growth, then the tax bite shouldn't sting quite as much.
Over the past half century, affluent democracies that undertook farreaching reforms usually did so only after their governments faced forcing crises-"ran out of other people's money," as Margaret Thatcher put it. For better or worse, we do not have that "luxury" today. America is backstopped by over $100 trillion in private wealth, plus the perquisites of printing the world's reserve currency.
No one is going to make us undertake the far-reaching, long-term, initially painful changes we will need for revitalization. We have to want them-and do them all by ourselves, with our backs not yet to the wall. Yes, the American people will have to hunger for revitalization if they are to see it. And we will need leaders, including presidents, who want to help us get there too.
1. International Monetary Fund, Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic, 2020, https://www.imf.org/en/Publications/FM/Issues/2020/04/06/ fiscal-monitor-april-2020.
2. International Monetary Fund, "United States of America: Staff Concluding Statement of the 2020 Article IV Mission," July 17, 2020, https://www.imf.org/en/News/ Articles/2020/07/17/mcs-071720-united-states-of-america-staff-concluding-statementof-the-2020-article-iv-mission.
3. International Monetary Fund, "Fiscal Monitor," May 8, 2020, https://data.imf. org/?sk=4BE0C9CB-272A-4667-8892-34B582B21BA6.
4. Congressional Budget Office, "The 2020 Long-Term Budget Outlook," September 21, 2020, https://www.cbo.gov/publication/56598.
5. Federal Reserve, "Factors Affecting Reserve Balances," statistical release, July 2, 2020, https://www.federalreserve.gov/releases/h41/20200702/.
6. Bill Dudley, "A $10 Trillion Fed Balance Sheet Is Coming," Bloomberg Opinion, June 22, 2020, https://www.bloomberg.com/opinion/articles/2020-06-22/fed-s-balancesheet-heads-to-10-trillion-to-support-u-s-economy
7. US Bureau of Labor Statistics, "Distribution of Employment in Each Major Occupational Group by Wage Range, May 2019," https://www.bls.gov/oes/2019/may/ distribution.htm.
8. Ella Koeze, "The $600 Unemployment Booster Shot, State by State," New York Times, April 23, 2020, https://www.nytimes.com/interactive/2020/04/23/business/ economy/unemployment-benefits-stimulus-coronavirus.html.
9. Diana Farrell et al., "Consumption Effects of Unemployment Insurance During the COVID-19 Pandemic," July 2020, JPMorgan Chase & Co., https://institute. jpmorganchase.com/institute/research/labor-markets/report-consumption-effects-ofunemployment-insurance-during-the-covid-19-pandemic.
10. US Bureau of Labor Statistics, "Employment Situation Summary Table A. Household Data, Seasonally Adjusted," September 23, 2020, https://www.bls.gov/news. release/empsit.a.htm. I also exclude full-time students and trainees from this grouping, to focus on the habits of the "NEETs"-those neither employed nor in education and training.
11. Ernie Tedeschi (@ernietedeschi), "My comprehensive insured unemployment rate, which includes all state & federal UI programs and attempts to correct for PUA data errors, is flat at 20.2%.," Twitter, July 23, 2020, 8:41 a.m., https://twitter.com/ ernietedeschi/status/1286280153128214531/photo/1.
12. The data that follow are from the author's analysis of American Time Usage Survey data published by the US Bureau of Labor Statistics.
13. Alan B. Krueger, "Where Have All the Workers Gone? An Inquiry into the Decline of the U.S. Labor Force Participation Rate" (working paper, Brookings Institution, Washington, DC, September 7-8, 2017), https://www.brookings.edu/wp-content/ uploads/2017/09/1_krueger.pdf.
14. Ruchir Sharma, "The Rescues Ruining Capitalism," Wall Street Journal, July 24, 2020, https://www.wsj.com/articles/the-rescues-ruining-capitalism-11595603720.
15. Daniel Patrick Moynihan, "The Negro Family: The Case for National Action," US Department of Labor, Office of Policy Planning and Research, https://www.blackpast. org/african-american-history/moynihan-report-1965/.
16. Joyce A. Martin, "Births: Final Data for 2018," National Vital Statistics Reports 68, no. 13 (November 27, 2019), https://www.cdc.gov/nchs/data/nvsr/nvsr68/nvsr68_13-508.pdf.
17. US Census Bureau, "Table CH-1. Living Arrangements of Children Under 18 Years Old: 1960 to Present," November 2019, https://www.census.gov/data/tables/ time-series/demo/families/children.html.
18. US Census Bureau, "POV-26. Program Participation Status of HouseholdPoverty Status of People," 2019, https://www.census.gov/data/tables/time-series/demo/ income-poverty/cps-pov/pov-26.html. All estimates of means-tested dependence in this chapter exclude benefits from the school lunch program.
19. Derived from US Census Bureau, Survey of Income and Program Participation, 2014-18, excluding means-tested school lunch benefits.
20. US Census Bureau, Survey of Income and Program Participation, 2016.
21. Nicholas Eberstadt, "Family Structure and the Decline of Work for Men in Postwar America," in Unequal Family Lives: Causes and Consequences in Europe and the Americas, ed. Naomi R. Cahn et al. (Cambridge, UK: Cambridge University Press, 2018), https://www.cambridge.org/core/books/unequal-family-lives/familystructure-and-the-decline-of-work-for-men-in-postwar-america/4E987CC2E3C92509305092B4E44C1C2F; and US Bureau of Labor Statistics, "Labor Force Statistics from the Current Population Survey," https://data.bls.gov/PDQWeb/ln.
22. Becki R. Goggins and Dennis A. DeBacco, "Survey of State Criminal History Information Systems, 2016: A Criminal Justice Information Policy Report," National Consortium for Justice Information and Statistics, February 2018, https://www.ncjrs. gov/pdffiles1/bjs/grants/251516.pdf.
23. Data here are drawn from the Federal Reserve's Survey of Consumer Finance.
24. Moritz Kuhn, Moritz Schularick, and Ulrike I. Steins, "Income and Wealth Inequality in America, 1949-2016" (working paper, Opportunity & Inclusive Growth Institute, Federal Reserve Bank of Minneapolis, Minneapolis, MN, June 2018), https:// www.minneapolisfed.org/institute/working-papers-institute/iwp9.pdf.
25. White House, "Historical Tables," Table 1.3, https://www.whitehouse.gov/wpcontent/uploads/2020/02/hist_fy21.pdf.
26. Ian Hathaway and Robert E. Litan, "What's Driving the Decline in the Firm Formation Rate? A Partial Explanation," Brookings Institution, November 2014, https:// www.brookings.edu/wp-content/uploads/2016/06/driving_decline_firm_formation_ rate_hathaway_litan.pdf; and Josh Boak, "A Slowdown in US Business Formation Poses a Risk to Economy," Associated Press, September 5, 2019, https://apnews.com/ e7179fc8b9dc4399818f2038b75ec423.
27. Michael J. Pries and Richard Rogerson, "Declining Worker Turnover: The Role of Short Duration Employment Spells," October 2019, https://www.frbsf.org/economicresearch/files/2019-11-22-Pries-Rogerson-paper.pdf.
28. William H. Frey, "U.S. Migration Still at Historically Low Levels, Census Shows," Brookings Institution, November 20, 2017, https://www.brookings.edu/blog/
the-avenue/2017/11/20/u-s-migration-still-at-historically-low-levels-census-shows/; and William H. Frey, "It's 2019. Do You Know Where the Kids Went?," Milken Institute Review, January 8, 2019, https://www.milkenreview.org/articles/its-2019-do-you-knowwhere-the-kids-went.
29. Ufuk Akcigit and Sina T. Ates, "Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory," American Economic Journal: Macroeconomics, April 10, 2019, https://static1.squarespace.com/static/57fa873e8419c230ca01eb5f/t/ 5e837a4aa3fd6b16ef358b74/1585674827166/AA_tenfacts_fin.pdf.
30. Data from the Human Mortality Database, website, https://www.mortality.org/hmd/USA/STATS/E0per.txt.
31. Organisation for Economic Co-operation and Development, "Gross Domestic Spending on R&D (indicator)," accessed September 25, 2020, https://data.oecd.org/rd/ gross-domestic-spending-on-r-d.htm.
32. Claudia Goldin and Lawrence F. Katz, The Race Between Education and Technology (Cambridge, MA: Harvard University Press, 2010), https://www.hup.harvard.edu/ catalog.php?isbn=9780674035300.