The Comeback (3 page)

Of course, Detroit’s decline is tied to the absolute and relative decline of the Big Three auto manufacturers, which remain the city’s largest employers. Fifty years ago, these distinctly American companies were the Dells, Microsofts, and Apples of the American economy. Although the United States didn’t invent the automobile, this country made it its own—indeed, never in the history of mankind had such an advanced technological achievement been available to so many. The American car in the middle of the twentieth century was what the personal computer would be at the end: one in every home.

And although the car is very much still with us, Detroit’s day is, as I look out the window, all but over. It survives only by the largesse of that other city I call home: Washington. The relative opulence of Washington compared to the distress of Detroit epitomizes a challenged nation. With apologies to Dickens, this tale of two cities is the story of the expansion of the public sector and the decay of the private sector. It is the story of how the public sector, ever growing, feeds on the wealth generated by the private sector. It is the story of how a once great American industry now must beg, hat in hand, at the table of Washington.

And it’s a tale I see all over the country, not just on my weekly trips back and forth between Detroit and Washington. Detroit, once the most innovative city in the country, is dying, and America’s innovative spirit is dying with it. In its place are the lawyers and lobbyists of Washington, who spend their work days trying to get the largest share of the Washington handout of taxpayers’ money.

It’s the story of the decline of America.

My parents’ generation worked hard to give my generation, the so-called Baby Boomers, a better world. They worked hard so we could be educated. They endured depressions and fought wars to give us a better future. They sacrificed so we would have a better life. They died knowing they gave it their all, did the right thing, and succeeded.

Sadly, my generation will not pass on with the comforting thought that we have done our children well. We are the first American generation that has failed to sacrifice for the next generation. Instead, we have stolen from them. We have lived for today. Every jobs bill, unemployment payments extension, corporate bailout, subsidy of state liabilities, and stimulus package; every increase in public pensions, Medicare, Social Security, and prescription drug and health-care coverage is a new debt we pile on our children. These benefits, which we bestow on ourselves, lift us briefly. But they massively burden our children and their children.

And with each heralded calamity, we focus on how to spend more money that we don’t have rather than on the opportunity to make tough choices and solve long-term problems. Instead, the crisis is an opportunity for a politician to fund his favorite spending program or for Congress to build another layer of bureaucracy. We can summarize this attitude of ours with the words from President Obama’s first White House Chief of Staff, Rahm Emanuel: “Never let a crisis go to waste.”

Which is why our children will be the first generation of Americans to inherit a more difficult life. While they will be enriched by technology, they will be poorer by other, more important measures. They will inherit a nation with more debt, less wealth, and greater challenges. More, they may not be equipped to deal with the intense competitiveness of a global economy.

We are already seeing burdens we put on our children and grandchildren. Spending and pension obligations at the municipal level are forcing cities to cut somewhere, and so we see austerity measures like “Furlough Fridays” for students and teachers, reduced foreign language and music courses, and larger classrooms with fewer instructors. These cuts are a transfer of wealth from the young to the old. We are now cannibalizing our children’s education to pay for our retirement. This is intergenerational theft. We are greedy geezers.

Our generation is but a link in the chain of generations. But now we are the weakest link. We have blithely assumed that our nation, which has been great, will continue to be great without our making it so. That is the curse of success: We assume prosperity is just something that happens, not something you work for. We had better start working, or history will record us as the generation that destroyed our children’s future.

Right now, the future looks pretty bleak. As I survey the economic, political, and social elements of America at the moment, I don’t see a society prepared to face a more competitive, more interconnected global future. The United States is drowning in debt, its political leaders are focused on false solutions, and we are failing to prepare our next generation to confront tomorrow’s challenges.

In short, we are deliberately pushing our nation into a decline. But before we can talk about arresting that decline, we have to properly and honestly assess the severity of our problems. And those problems begin with our economy.

For decades now, the United States, supported by a stable political system and a growing private sector, has been able to avoid economic realities. Policies and habits that would undo a lesser country are standard operating procedure in the United States, precisely because our underlying economic and political foundations have been sound. But the party is ending.

Although Greece’s output is just over 2 percent of the European Union economy, its financial collapse in the first half of 2010 roiled continental markets and required an international bailout. Imagine what would happen to U.S. markets if California, which is 13 percent of the national economy, experienced a Greek-style implosion.

A study by a group at Stanford University pegs California’s unfunded pension liabilities at $500 billion. But that only includes California’s own state debt. When you factor in California’s 13 percent stake in the U.S. economy, which is saddled with $13 trillion in debt, the state’s total debt liability is over $2 trillion.

In many ways, California as a state has bigger problems than Greece as a country. The unemployment rate in California is higher than that of Greece. Much has been made of the ability of Greek government workers to retire at the age of fifty-three. In California, government workers can retire at fifty-five. As defeated gubernatorial candidate Meg Whitman noted during her campaign, the amount California spends on its pension programs has increased by 2,000 percent in the last decade to over $7 billion annually.
⁵
More, while California lost over one million private sector jobs since 2007, California’s public employment has remained flat.
⁶

In fact, if California were an independent nation, it probably would have suffered Greece’s fate a long time ago. The only thing keeping California—and Michigan, and Illinois, and New York— afloat is the resiliency of the U.S. economy, which is the best long-term bet in the world.

Or at least it used to be.

According to White House estimates, our total federal government debt will be $20.3 trillion by 2020.
⁷
But this doesn’t factor in the unfunded liabilities associated with Medicare and Social Security. Also, this burden assumes no further crises, wars, or bailouts of state and local governments over the next ten years—not exactly realistic assumptions. This 2020 debt amount—$20.3 trillion—is if nothing changes at all. And the interest alone on $20.5 trillion, roughly $500 billion per year, would swallow about a third of today’s entire federal budget. The Congressional Budget Office (CBO) says that if we keep on this path, we will raise the federal debt to 90 percent of the nation’s economic output by 2020.

Well, take your pick. There’s the example of Japan, which suffered in the 1990s from what was known as the “lost decade.” Following a real estate crunch in the early part of the decade, Japan responded with massive stimulus packages to boost economic growth. To offset the rising deficits these spending packages created, Japan had to raise taxes, which destroyed the fragile recovery and ensured that the crisis continued for several more years.

Or we could follow the scenario of present-day Greece. As our federal deficits continue to grow unchecked, the international community will eventually lose confidence in the U.S. government as a good investment. Our debt rating will go down, our interest expense will increase, the federal government will impose austerity, and government workers will revolt.

As quickly as Greece collapsed, the United States could find itself a second-rate economic power. The dollar’s replacement as the world’s reserve currency would be the least of our problems. Rebuilding America’s credit would take precedence over any other domestic priority, which would require taxes at least twice as high as they are now. In short, the private sector would exist to rebuild the public sector—at least, much more than it already does. America’s economic engine would sputter for decades.

Or more immediately, we will see states and local governments facing a condition equivalent to bankruptcy. These governments survived 2009 and 2010 thanks to receiving one-third of
the $787 billion stimulus package, courtesy of the U.S. taxpayer, plus another late 2010 bailout from Congress in the form of Medicaid and unemployment insurance assistance. Predictably this has allowed the worst offenders—California, New York, and Illinois— to delay addressing their structural problems of bloated state payrolls and huge pension obligations and they still look to Uncle Sam. California’s 2011 budget simply assumes an additional $5 billion gift from Congress. The Ponzi scheme can’t continue, and it won’t continue.

Whether we’re talking about federal or state obligations, those debts must be paid—or, more realistically, the federal and state governments must at least put forth a good-faith effort to control our debts and begin to live within their means. We have seen what happens when those debts are called in: Beware the Greeks.

But are our political leaders honest (and mature) enough to address our economic and budgetary problems in a forthright and realistic way? Are they prepared to do what my parents’ generation did and accept that
sacrifice
is required?

Given the last few years, there’s no reason to think they will.

Across the ideological spectrum, our political leadership has become more political and less leader. With a different crisis dominating the headlines every week—from bankruptcies to bailouts, from bonuses to stimulus packages, from global warming to health care, from unemployment to madmen terrorists, from education to oil spills—our political leaders run about like chickens without heads. There is no coherent focus in Washington; there’s just politics. Consider the last two years of major policy changes, which have come too swiftly to comprehend:

The 2008 TARP bill.
Total cost: $700 billion. Total debate time: TARP passes Congress in two weeks.

The 2009 stimulus package.
Total cost: $787 billion. Total debate time: The House voted ten hours after the bill was printed.

The 2010 “Obamacare.”
Total cost: Unknown. Total debate time: House voted three days after bill was introduced.