More than four years after the Great Recession the American people are still waiting for a real recovery. Household income has actually declined the past five years while economic growth has struggled to outpace inflation. As UCLA economist Edward Leamer said recently, "It's not a recovery. It's not even normal growth. It's bad."
The good news, though, is our country is poised for not just a long-overdue recovery but an economic boom. Our global competitive advantage and our vast reserves of both energy and capital have us primed for another American century. What's missing is leadership in Washington that has the courage and vision to turn our potential into prosperity.
Three factors are working in our favor, if we would only act.
First, in the context of the global economy, we're the least wilted rose in the vase. All of the challenges we face in terms of demographics and debt (i.e. too few workers to sustain our safety net) are worse among our key competitors, particularly Europe, China and Japan. For the foreseeable future America will be a safe harbor, in spite of ourselves.
Second, our nation is sitting on vast reservoirs of cash that are either on company balance sheets, committed to failing government programs or being misdirected through an inefficient and immoral tax code.
In terms of public funds, how Congress handles the impending bankruptcy of our safety net programs could trigger a debt bomb or an economic boom. And regardless of what the administration says we don't have years to act. According the latest trustees' report, the Social Security disability trust fund runs out of money in two years, while Medicare Part A (the part that funds hospital visits and procedures) could run out of money in six years. The sooner we act the sooner we put our nation on a path toward growth rather than stagnation or decline.
Beyond entitlements, the rest of the budget contains billions that could be redirected to activities that create wealth rather than debt. For instance, the Government Accountability Office has documented at least $200 billion that is wasted every year through duplication. Meanwhile, our broken and parochial grant process (the refuge of vanquished earmarxists) spends nearly $600 billion every year. We also spend $537 billion on contracts, $175 billion of which are no-bid contracts. Modest reforms in these areas could produce far more growth than the ill-conceived 2009 stimulus.
Real tax reform would also help propel a real recovery. Reducing rates and eliminating special interest provisions that give a corrupted IRS too much power over our lives could help bring back 1980's and 1990's growth rates of 4-5 percent instead of today's meager sub 2 percent growth. Simplifying the code would also shift a significant portion of the more than $150 billion Americans spend each year on tax compliance toward activities that create real wealth.
One obstacle to tax reform is the administration's effort to redefine tax reform as reform that only leads to more revenue instead of lower rates for working families. This bizarre revisionism is at odds with every serious tax reform effort in the past 30 years from Reagan-O'Neill in the 1980's to Simpson-Bowles today, which was embraced by progressives like Senator Dick Durbin (D-IL). The moral outrage in today's code aren't rates that favor the rich but special interest carve outs that keep rates artificially high for low and middle income Americans who can't afford to hire a tax earmark lobbyist. Giveaways for pro sports leagues, Hollywood movie producers and green energy companies keep rates high for the very low and middle income families the administration says it wants to protect. Asking working families to subsidize the salaries of wealthy NFL team owners, movie producers, and politically-connected energy executives is hardly the moral high ground in the tax debate.
Third, and finally, our energy potential could turn North America into another Middle East in the next two decades. In April, we learned the Bakken Formation in North Dakota, South Dakota and Montana holds twice as much shale oil and three times as much gas as was previously estimated. By 2020, we could be a net exporter of natural gas and within striking distance of the elusive goal of energy independence, but only if we have an energy policy that places economic growth ahead of green ideology.
In today's atmosphere of scandal the best thing the president can do to help his administration and the country is to give the House Ways and Means Committee an offer they can't ignore. It can't be a rehash of talking points, but a bold and imaginative plan that says the president is serious about a grand bargain and serious about compromise. Or, they can spend the next three years defending an indefensible IRS and fending off other scandal-related questions.
The administration is right to warn against GOP overreach but the administration and congressional Democrats should be focused on their own problem of underreach. Over the past two decades, six separate commissions have come up with ways to save Medicare -- the biggest driver of our debt --yet the president, Senate Majority Leader Reid and the Senate Finance Committee, who control two-thirds of our government, have done nothing to save Medicare or Social Security.
If the president chooses to lead, he'll do much more than change the subject. He'll bring us closer to the kind of recovery, and American century, we all so desperately want.