Jobs. If the economy continues to grow at a decent pace, the problem beyond next year will not be “creating jobs” (which governments can’t do), but finding enough willing and able workers to fill the jobs that will need to be done.
The labor force is slowing and aging dramatically. Immigrants have accounted for half of recent labor force growth, but few arrive qualified for technically difficult careers. We need to be very careful to preserve incentives, in tax rates and benefit programs, for people to make the most of their potential lifetime work effort, including incentives to preserve and enhance their skills.
Health insurance. The larger problem is not that too few Americans have health insurance (which is often their free and sensible choice), but that too many have far too much insurance for minor expenses. This is like insuring your car for oil changes but not for a disastrous accident. The effect is to minimize the cost consciousness of both providers and consumers.
I do not cut my Zocor in half because I’m poor, but because I have a Health Savings Account. I pay small bills and complain if I’m gouged. That’s the way to go.
Social Security. The problem is not a matter of saving the system but of saving young people trapped in that system. Social Security is not “guaranteed” or “safe,” and it would be dangerous for young people to count on it to any significant degree. Do-nothing politicians would end up forced to worsen that danger with demoralizing tax hikes on young workers in exchange for dwindling benefits. As with education, this issue is about expanding choice.
Prices of tuition, pills and gas. The notion that the president can or should do something about any price deemed too high is as dangerous as it is ignorant. As we should have learned from President Nixon’s price controls fiasco, arbitrary price ceilings boost demand (including speculative hoarding), shrink supply (including diverting products to other countries), and end up creating waiting lines and rationing. If regulations and litigation are restricting supply, however, the solution is freer markets, not more regulations.
Interest groups, media stars and Beltway pundits invariably define each pet project as a “crisis,” something demanding immediate federal action and, by the way, more federal spending. The wisest strategy is for the executive branch to pretend to listen carefully to all this self-interested noise and to then politely ignore it.
Setting priorities — putting first things first — does not mean ignoring festering long-term problems such as Social Security and Medicare. But it does means assigning a higher priority to known dangers (too little flu vaccine) and a much lower priority to extremely unlikely events (too much smallpox vaccine). Putting first things first also requires ignoring various over-agitated predictions of unseen crises that are purely hypothetical.
One example of a hypothetical crisis is the perennial “hard landing scenario,” designed to persuade authorities to “do something” about the trade deficit, such as the clumsy Treasury efforts to talk the dollar down on the eve of the stock crash of October 1987. The United States always runs a trade deficit whenever the U.S. economy is growing much faster than export markets like Europe and Canada. The trade deficit shrinks when other economies speed up or the U.S. economy slows down. The hard landing zealots’ proposals are designed to slow the economy, which would turn their hypothetical concerns into a genuine mess.
There will be a lot of talk about healing wounds and ending some bitter disputes between Democrats and Republicans. There are opportunities to do that, but they need not, and should not, involve domestic economic policy.
The Iraq war is the one issue that is most clearly and sharply divisive along partisan lines. The Edison/Mitofsky exit poll says President Bush received only 24 percent among those who considered the war in Iraq the most important issue (regardless whether they approved of it or not) and only 11 percent among those who disapproved of the war. One thing that could help a lot is for the president (who is loyal to a fault) or Defense Secretary Don Rumsfeld to strongly encourage two lighting rods to resign. That means Deputy Secretary of Defense Paul Wolfowitz, of course, and Undersecretary Douglas Feith — two of the most bluster-prone cheerleaders for the Iraq war. They should have had the sense and decency to resign on their own by now.
It would be socially calming to replace Attorney General John Ashcroft with someone viewed as more secular and tolerant, less inclined to make a federal case of local issues and less eager to invade the privacy of U.S. citizens.
Investment guru James K. Glassman recently proposed that William Donaldson be promptly relieved of his duties as chairman of the Securities and Exchange Commission (SEC). I heartily agree. An extraordinarily unprofessional SEC has been running amok with capricious publicity stunts and dangerous schemes, raising both costs and risks for investors, while limiting their choices.
If the president wants to appoint a Democrat to his Cabinet, I believe New Mexico Gov. Bill Richardson would be an effective secretary of state. Tom Ridge earned a change of pace, perhaps as OMB Director. The chairman of the Council of Economic Advisers, Greg Mankiw, is “a bit Keynesian for my taste,” as Mick Jagger said of Bill Clinton. If Ed Prescott or Gary Becker could be recruited, why shouldn’t the president have a Nobel Laureate on his side?
Tax reform cannot be tackled intelligently in fewer than two years, so there’s no rush to get started. Since it is impossible to both rebuild the tax code and make the existing code “permanent” (which is also impossible), everything should be on the table — particularly fixing mistakes made in 2001, 1993, 1990 and 1986.
The president should avoid passing the buck to another national commission. We have had a national commission on tax reform, headed by Jack Kemp, and I was the research director. We had a national commission on the cost of higher education, and I contributed to that, too. We had a national commission on Social Security reform. We had one on entitlement reform. Nothing significant gets done until bold elected representatives create a bill and push hard for it with colleagues and the public. If some entrepreneurial legislator wants to do that, I and others would be glad to help.
President Bush has been granted a rare opportunity to redefine the key economic issues in an entirely new way, to be highly selective in putting the most serious issues ahead of trendy hypothetical scares and to get a fresh start with a fresh crew on the nation’s single most divisive issue — namely, a reasonably swift and graceful exit from the Iraq war.