At TNR, TDS Co-Editor William Galston shifts from the many unhappy assessments of American life in the aughts, and focuses on a formula for better economic times in the decade ahead.
During the next decade, we must save more, invest more, produce more, and export more. That sounds anodyne, but it isn’t, because it implies that personal consumption will have to grow more slowly than the GDP. And because personal consumption includes health care, which will continue to grow faster than GDP, other areas of consumption, such as home furnishing and restaurant-going, may have to flatten or even decline—an abrupt shift from 1995-2007, when consumption soared in nearly every category.
During the next decade, we better not borrow a trillion dollars a year, year after year, much of it from the rest of the world. I say “better not,” because at some point foreign lenders will come to doubt our long-term solvency and demand a higher risk premium, with devastating effects on U.S. interest rates and economic growth. There’s no way we can regain our balance with restraint in discretionary spending alone; everything will have to be on the table.
Galston goes on to argue that an “empowered fiscal commission” along the lines of the proposal recently made by Sens. Conrad and Gregg may be the only way to execute a major change in public borrowing habits. And he calls on the president to support this approach as a signal that he is serious about restoring long-term fiscal discipline.
The stakes, Galston suggests, couldn’t be much bigger:
Serious analysts ponder the possibility of a Japan-style decade of stagnation; others fear an irreversible power-shift to China. But national decline, if it comes, will be our choice, not our fate. The next decade will test our capacity to govern ourselves, to exercise some much needed restraint in the face of dire economic circumstances. As George Bernard Shaw once remarked, “Democracy is a device that insures we shall be governed no better than we deserve.”