The United States must race for economic growth. Both political parties are addicted to spending. We need to tax consumption, not investment. We need to do so because the federal deficit approaches 100% of gross domestic product.
The outlook is bad. It shows deficits are set to rise faster than nominal GDP growth, real growth plus inflation, over the next decade and longer. The central problem here is that demographics drive the deficit. And while the public loves entitlements, it refuses to pay the bill for Social Security and Medicare. Deficits push interest rates higher compounding the deficit problem. More debt requires higher service payments. Deficits crowd out productive investment.
After the November elections, the new Congress and the next president must focus on policy that promotes faster economic growth. Washington must cut the shackles that reduce the productivity of America’s system of free market capitalism.
The crown jewel of the American economy is Big Tech. America’s largest technology companies dominate data collection, accelerated computing, digital commerce, and artificial intelligence. Policy must support these companies. Throw the Federal Trade Commission’s ideas about Brandeisian economics in the trash. Confront the European Union on its discrimination of the U.S. technology giants. As technology becomes a larger part of the economy, annual productivity growth will increase proportionally. AI alone could raise annual productivity growth by 0.5% to 1.5% per year.
America is the world leader in healthcare innovation. AI will accelerate drug discovery. The federal government must stop hamstringing drug development with price controls on the public. Instead, the government should put export price floors on companies that wish to sell drugs to foreign health systems. That will force greater balance into the marketplace. But we need new drugs. New weight loss drugs will dramatically reduce the economic costs of obesity, associated cardiovascular diseases, and the pernicious effects of diabetes, for example. Rapid drug development can ameliorate the economic drag of the country’s inefficient healthcare system.
The U.S. is also a low-cost producer of energy. We need to implement policies that encourage the production of all forms of energy: oil, gas, solar, wind, and nuclear. Industry needs low-cost energy. The U.S. manufacturing sector can compete globally when its energy inputs are lower. AI is jump-starting productivity growth. But AI consumes prodigious amounts of energy.
Permitting reform is another essential feature for a faster growing economy. Why does it take a decade or longer to build a new energy and distribution network? Congress must assert its authority over permitting reform. Legislate that new energy projects be approved within one year. No more NIMBYism. Dismantle the regulatory state, which adds up to $300 billion a year in unnecessary costs into the back of business.
What about other areas for action?
For one, tort reform must be part of the solution to rolling back the regulatory state. The state of Florida has already demonstrated that tort reform can reduce abuses of the legal system.
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The transportation system can also be made dramatically more productive. We must rush toward autonomous driving. Today, China leads America in developing self-driving vehicles. This state of affairs is not acceptable. Autonomous driving is a function of higher order AI. The U.S. is the world leader in AI. We can be the world leader in self-driving vehicles. With automated vehicles, goods will move more efficiently across the country. Accidents will be reduced, and that means fewer deaths and costly hospitalizations.
Unleashing the American spirit of innovation can raise productivity growth, increase annual GDP growth, and stabilize the debt-to-GDP ratio, which will in turn lower interest rates and increase productive capital investment. Just as in the late 1990s, the U.S. can tame deficits with faster economic growth.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society.