Which economy will our grandkids inherit from us: Doomsday, or Easy Street?
Here's a hint, inspired by a successful political campaign mantra designed to keep the candidate on-message throughout the 1992 campaign:
It's productivity, stupid.
This article is a follow-up to "The Baby Boom Crunch" I posted last week. Click on the thumbnail below to watch a movie about the effect productivity will have on our grandkids' economy—in spite of boomer retirements and Medicare cost escalation.
Here's the productivity movie; click on it to get it rolling:
[To see still shots of each scenario I chose, see the very bottom of the end notes to this article.]
It's impressive what a difference each percentage point makes, isn't it? Makes me wonder why we never hear anything at all about "productivity" from the Doomsday Squad.
The Doomsday Squad
Senator Kent Conrad and Comptroller General David Walker, among others, have their opinion as to which way things will turn out for our grandkids: it's Doomsday, no question (...unless we sign up for their remedies, which some call "belt-tightening," but look to me more like a tourniquet around the neck). But Kent Conrad and David Walker have been hogging way too much of the airtime the so-called free press devotes to our nation's economic prospects; the press reaction to Walker's Fiscal Wake-up Tour is an example. That kind of one-sided coverage is unfortunate, because there are many experts who disagree with the dogma that says doomsday is inevitable—but they're getting ignored by our free press.
David Walker said, "We face a demographic tsunami that will never recede." [My reaction: "Never? Really??"] His list of fiscal challenges is "led by the imminent retirement of the baby boomers, whose promised Medicare and Social Security benefits will swamp the federal budget in coming decades." Kent Conrad's sound bite, from the same article (in USA Today, Nov'05), was this: "We're not preparing for what we all know is to come. We're all sleepwalking through this period." [My reaction: "Yes, some of us do indeed seem to be sleepwalking, Senator Conrad."]
The Productivity Squad
If they'd pay some attention to experts who understand what it takes not just to avoid doomsday, but to achieve continued growing prosperity, both Walker and Conrad—if not their gaping groupies—might learn something new and encouraging. Click on the following thumbnail for specific quotes I selected, from a few of the people who understand the power of productivity: Paul Krugman, Paul Romer, Brad DeLong, Eric Beinhocker, Ray Kurzweil, and William Lewis. (Even though this group's political leanings are diverse, they have little to no disagreement about the importance of productivity to our economy.)
The 64-trillion-dollar question
It's obvious how important our economy's productivity will be to our grandchildren's future, and it's clear what questions we should already be asking our politicians—assuming we'd like to do the right things now to secure that future.
The formula is pretty simple: In the 64-trillion-dollar question below, just fill in the blank with the policy proposal of your choice.
"Would [Policy X] make the US economy more productive?"
Here are a few specific examples of how easy this is:
• Would an increase in income tax rates make the US economy more productive?
• Would reducing and uncapping the payroll tax make the US economy more productive?
• Would simplifying the tax code make the US economy more productive?
• Would a skills-based immigration policy make the US economy more productive?
• Would deporting all illegal immigrants, if that were possible, make the US economy more productive?
• Would giving illegal immigrants a fine and a structured path to citizenship make the US economy more productive?
• Would an increased flow of legal immigrants make the US economy more productive?
• Would trade barriers make the US economy more productive?
• Would preventing foreign investment make the US economy more productive?
[Interestingly, even national security questions can be framed in this context. Example: Would the prevention of homeland destruction make the US economy more productive than not preventing it?]
Forming the right questions is easy; try making one of your own for a politician or journalist, using your favorite policy proposal. Most importantly, let's all start asking them. The Doomsday Squad is getting off far too easily, and it's time we changed the climate.
And what better time to start than Memorial Day? A lot of people have served this country over the years to preserve this land of opportunity for us. If we miss our opportunities by falling for the doomsday rhetoric without fighting back, I'd say that's shirking our responsibility, wouldn't you?
The productivity movie at the top was the best way I could think of to depict the results of the fifty-year model built to test various combinations of productivity per worker, retirement costs, inflation, real interest rates, etc., against the demographic projections from the US Census Bureau. I could have picked the debt-to-GDP ratio as the bottom-line indicator of fiscal well-being, but "interest as a percent of tax receipts" is more to the point; it's a coverage ratio that helps one judge an entity's creditworthiness. [For reference, interest takes 9% of tax receipts now, compared with 15% ten years ago.] In any case, as I've said over and over in this blog, a permanent and growing federal debt is not a problem as long as our ability to service the debt grows at least as fast; healthy private sector firms demonstrate this year in and year out.
For the movie, I chose six outcomes out of an infinite number of possibilities. But in every case the effect of higher productivity overwhelms just about all the other inputs combined—just as the various experts have been trying to tell us. The higher the productivity per worker, the better off we'll be. People like David Walker and Kent Conrad are ignoring productivity at their peril.
In case you're interested, here's a zoomed-out snapshot of the fifty-year model; click on the thumbnail to enlarge it. (The graphic was moved on top of the calculations for convenience, but the calculations weren't disturbed.)
And here are the six scenarios from the movie, one at a time; click to enlarge. Questions are welcome: