THERE IS NO cause for despair. The United States of America is not foundering. Our tolerant democracy, for all of its occasional awkwardness, is a treasure by historical standards. Our military prowess assures our position as the most powerful nation in the world. Our economy has long been, and remains, the most productive in the history of the world, and it will stay at the top of the pyramid as long as we can maintain our fearlessly innovative and creative business culture. We can be an even better country, however. I have recommended to you five public policy changes, five logically easy theses that can help safeguard our greatness as a nation and, just as important, our decency. None of the five are easy from a political viewpoint; they may in fact be beyond our grasp. But they are worth the reach. Here is the short version:
The federal government should stop making commitments it has no plans to fund. This problem is most severe with respect to our Social Security promises to the next generation of elders. And Congress should cease to offer expensive tax breaks that serve no useful policy purpose. The most wastefully extravagant of these tax expenditures is the deduction available to corporations and individuals for payment of interest on their debts. The Social Security system can be secured by ceasing to automatically expand benefits as life expectancies rise. The corporate and personal interest deductions should be flat-out repealed.
The greatest threat to traditional American values today is the drift toward an aristocracy of wealth. It is harmful in many ways that the fruits of our recent economic growth have virtually all been taken by those at the wealth and income pinnacle. In order to remedy this, and restore the economic strength of the middle class while maintaining a safety net for those in need, we must take some steps that will sound as radical as the income tax sounded a hundred years ago but are just as necessary. We must begin to tax the unrealized gains resulting from investment asset appreciation, in whatever form those assets are held, and we must stop cold the leakage from inheritance taxes brought about through trust loopholes and excessive exemptions.
Our system of grade school education and our private-public balance of higher education opportunities have served us well in the past. Both elements, though, are now in need of major repair. The grade school curriculum is poorly serving those Americans, a majority of the population, who will not be earning a four-year college degree. The costs of college are undermining the benefits of higher education to all but the wealthiest students who do matriculate. And our incredibly prosperous nation manages to rank as no better than mediocre by international measures of educational attainment. While it should be theoretically possible to fix all of these problems within the educational arena alone, various aspects of our culture, our traditions, and institutional barriers render that goal beyond reach. A universal national service program would offer a powerful set of solutions to the educational shortcomings, while providing other social and economic benefits as an extra dividend.
The United States spends about 18 percent of its GNP on health care, while the rest of the developed world averages a little more than half that. Yet, our people experience worse health outcomes than those in other nations. The extra spending exceeds a trillion dollars a year, a vast amount you could put to many better uses. There is no remedy for the excess consistent with our hodgepodge of private and public health-care financing approaches. Only within the framework of a single-payer, single-negotiator, single-regulator system can we provide rationality, sensible incentives, and cost-effective administration. The gain to the public of a trillion dollars a year would be the largest available boost to the economy within reach today, and proper incentives would actually improve America’s health outcomes.
The New Deal reforms of Wall Street’s structure and behavior gave this country a financial sector foundation that enriched us all for fifty years and made America the financial capital of the world—without endangering the commerce and the public that finance exists to serve. The emergence of unmanageably large and complex banks whose failures would bring all of us down, the creation of hedge funds whose security and business practices remain beyond regulatory purview, and the rise of derivatives traded with nearly unlimited leverage all contribute to the financial sector’s enrichment at the rest of the economy’s expense—and without commensurate value to tangible commerce. Banks should be downsized. Hedge funds should cease to exist outside of the successful and safe regulatory structure applied to mutual funds. And derivatives trading should be backed up by reserves that would reduce its volume to a tiny fraction of today’s unimaginable numbers.
I don’t claim that these reforms will come readily, but I do assert that they would fortify our country’s values and enhance its prosperity. They are not, moreover, austerity measures or noble sacrifices you are called upon to make in the spirit of altruism. I could have stated them as calls to duty, or as responsibilities to our community, but it is all the more compelling that these changes are in all of the economic interests of the vast majority of citizens. George Washington was right when he admonished the Continental Congress on behalf of his underpaid troops that the number of people who “act upon the principles of disinterestedness are, comparatively speaking, no more than a drop in the ocean.”1 The five recommendations offered here are all to your financial gain and, all the more so, to the economic benefit of your children. They will also help secure our democracy.
Washington’s is not the only quotation that comes to mind on this topic. To the President or member of Congress willing to take on these five issues, I feel compelled to offer the following warning in the voice of another great figure and a longtime personal hero of mine. Adam Smith worried in his day about the commercial barons he called “monopolists,” but his cautions about taking them on apply equally well to any coalition of the powerful, including those who would organize to oppose these theses. Smith saw plainly the adversarial power an upright reformer would face, and he wrote, in 1776:
The Member of Parliament who supports every proposal for strengthening this monopoly is sure to acquire not only a reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.2
Substitute any potent interest for monopolists, and Smith’s warning still holds full force almost two and a half centuries later. I counter only that among those conflicts hazarding reputational detraction, abuse, insolent outrage, and conceivably even real danger are the fights most worthy of undertaking. For the leader who takes on any of the challenges that my five easy theses provide, there are at least these consolations: Adam Smith would have been proud of you, and a grateful nation will someday honor you.