Why America Doesn’t Grow

Posted: Apr 29, 2015 12:01 AM
Why America Doesn’t Grow

In this century, economic growth has averaged 1.9 percent per year—down from the 3.4 percent the prior two decades—and anemic growth is a major force squeezing wages, the middle class and working poor.

Conservatives and liberals blame too much or too little government. Either way, getting policy right is critical to restoring opportunity for everyone.

Here are four issues that will be tough to solve but warrant serious attention.

1. The Baby Drought

The birth rate predictably fell during the recent recession but has not recovered. At 948 children per 1000 women, fertility is below what is necessary to maintain even a steady population.

Family formation is a major driver for the housing sector and supporting industries, and the baby drought is an important reason we hear so much about too little demand to sustain growth. Longer term, the U.S. risks the stagnation besetting Japan and northern Europe.

Since the 1970s, public policy has focused on educating young people about avoiding teen pregnancies and opening wider career paths for women, but the time has now come to start talking about childbearing at an appropriate age, responsible parenting and the adverse social consequences of postponing family formation too long.

2. Dumbing Down Education

National policy emphasizes pushing as many young people as possible into college. Young adults emerge heavily in debt—further slowing the birth rate—but as importantly, colleges are not doing a terribly good job.

Besieged by large numbers of emotionally and academically unsuitable students, universities are spending huge sums on mental health, social and remedial services and failing to provide the basic core of a college education—about 40 percent of graduates lack critical reasoning and complex problem solving skills.

Universities need fewer students and less money. Meanwhile community colleges, whose vocational programs are starved for cash, should be beefed up to provide skilled technical workers industry leaders say are in short supply.

3. Vanishing Startups and Small Businesses

Prior to 2000, small businesses created more jobs than large corporations but no more. Burdened by student loans, the number of young entrepreneurs has fallen off and new business startups— incubators for the next generation of Apples and Googles—are down overall.

Tougher government regulations—ranging from health care benefits to hiring practices—impose overhead that is more easily spread across large enterprises. To better bear compliance costs, smaller banks are merging into larger ones but small banks tend to specialize in funding small businesses and startups—be it candy making or cyber security.

Streamlining regulations for small businesses—especially community and regional banks—and student debt relief for young people starting businesses—similar to loan write-downs offered for those entering public service—would help.

4. Evaporating Edge in Basic Research

Government and corporate spending for basic research has been falling for decades.

Breakthroughs such as the laser, invented at Bell Labs and the personal computer, much of which was pioneered at Xerox, require investments whose benefits often are not appropriable to financing entities. Yet, those investments are essential to launching new industries—like fiber optics—and enterprises—like Microsoft.

The federal government must fund more basic research and incentivize private companies to do the same if the United States is to continue reaping economic benefits from cutting edge innovation. That requires tough choices about shifting resources away from other purposes to ensure adequate growth and tax revenues 10, 20 and 30 years from now.

Overall Americans have been myopic—focusing too much on the immediate benefits of personal and public decisions—by excessively limiting family size, emphasizing quantity over quality in higher education, choosing job security over the risks of starting a business, or devoting too much more money to social programs than science.

A prosperous economy and secure future for our children simply requires more unselfish behavior and risk taking.