A New Economic Agenda

Small changes won't do the trick. Here are eight bold initiatives we need.

In my long career as an economic journalist and forecaster, I've become known for my steadfast optimism about America's future.

In times of deep public gloom -- such as the severe recession of 1981-82 and the months following the trauma of September 11, 2001-my Kiplinger colleagues and I reminded our fellow Americans of the fundamental strengths of our society and its long tradition of adapting to changing economic circumstances.

"This too shall pass," I would say, if America just made some minor course corrections and built on its strengths. My confidence in America has been validated by our nation's remarkable record of rising productivity, output and standard of living.

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Bold actions. That progress isn't over, but it is now threatened, I believe, by daunting challenges that we Americans are not taking seriously enough. I am not referring to the current financial crisis and the emergency measures being taken to combat it. There's no doubt that some of the challenges I address here are interwoven with the issues that are claiming the headlines today. But the $700-billion rescue package, although necessary, is not transformative. The most daunting challenges facing our nation must be addressed with bold, creative measures-a total rethinking of what Americans and government must do to prosper in this new century.

We will soon have a new president and many new members of Congress. As candidates, they may have felt limited in their boldness by fears of alienating key constituencies. I'm not running for office, so I don't have to worry about that.

Here is my list of the America's eight toughest economic problems:

  1. Overconsumption and undersaving by individuals and the federal government, as evidenced by rising personal debt, budget deficits and the resulting dependence on foreign capital.
  2. Soaring old-age entitlements, which, if not reined in as the baby-boomers retire, will crowd most other public priorities.
  3. Addiction to fossil fuels (petroleum for our vehicles and coal for electricity), which contributes to dirty air and global warming.
  4. Dependence on imported oil, which aggravates the U.S. trade deficit and impairs national security.
  5. An overly ambitious foreign policy of promoting democracy by forcible regime change. However idealistic the intent, America cannot afford it.
  6. Failing public schools and inadequate vocational training, which leave many youths unprepared for tomorrow's high-tech jobs.
  7. Uneven access to health care. Medical care should be preventive, universal and delivered in lower-cost settings-not hospitals.
  8. A broken immigration system, which should be replaced with a broad guest-worker program and improved border controls.

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Now, here are my proposals for fixing these problems. Please note they are a mix of public and private remedies -- governmental policies and behavioral changes that we Americans must make ourselves.

Increase savings. Everyone in America-from the super-rich to the middle class-would benefit financially and emotionally from trimming spending and boosting savings, anywhere from 10% of gross income for average folks to a third or half for the very wealthy. Simple living reduces energy consumption, and it lowers the stress of managing complex lives, in which we sometimes feel like a captive of our possessions.

A robust savings rate would boost the capital available to American business, reduce the need for consumer credit and provide savers with future retirement income. Some of Americans' lower spending on consumer goods should be diverted to more charitable giving -- to schools and colleges, social-service agencies, cultural organizations and overseas charities.

Reduce spending. Voters should insist that Congress begin reducing the federal budget deficit, starting first with spending restraint. Tax hikes could come later--but only if proved to be needed.

My nominees for frozen or gradually reduced federal spending: military hardware; a wide array of subsidies to business, especially energy and agriculture; and health care for the elderly and poor (not less care, but more efficiently delivered).

My candidates for higher federal spending: support for elementary and secondary education, basic scientific research, and infrastructure (bridges, airports, harbors and parks).

Bringing the federal budget into balance will slowly reduce Washington's rising need for foreign loans. It will help firm up the dollar and keep interest rates low.

Reform the tax code. The best thing Washington could do to supercharge private savings would be to tax consumption rather than income. The Byzantine U.S. tax code (all 60,000 pages of it) should be scrapped. All present federal taxes -- on personal and corporate income, capital gains, estates, even payroll taxes (FICA) -- should be gradually replaced by a new, national consumer sales tax, collected by the states at the point of purchase and forwarded to Washington.

At every income level, big spenders would pay a lot of taxes, super savers much less. Poor people would get all their sales taxes rebated. (For more information on one version of a consumption tax, visit www.fairtax.org.)

Restrain entitlements. Washington should be honest with us that future senior citizens will have to finance more of their own retirement needs for income and heath care. Congress should reform Medicare and Social Security accordingly.

With regard to Social Security, some simple fixes would suffice: raising the benefits age to 70, flattening future payments and subjecting more current earnings to the payroll tax. Ditto for Medicare.

But it would be better for the U.S. economy and for today's younger workers if Washington allowed them to divert some of their Social Security taxes to private retirement accounts, which are likely to yield them a higher retirement income than Social Security will 30 or 40 years from now.

Curb fossil fuels. We should simultaneously develop more of America's oil reserves (offshore, in Alaska, everywhere) and radically decrease our need for all petroleum, whether imported or domestic, by practicing conservation and shifting to alternative fuels as rapidly as possible. That means more ethanol in our tanks-made not from corn, but from wood chips, sawgrass and other cellulosic biomass. And more biodiesel, too, made from used cooking oil.

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Plug-in electric cars will lessen our foreign-oil addiction and help trim the trade deficit, but they won't clean up our dirty skies and warming earth if their juice is generated by coal-fired power plants.

Sure, we should also learn to burn coal more cleanly, but America's electricity future should focus on atomic power, wind farms, photovoltaic panels and hydrogen fuel cells.

America's total carbon emissions should be limited -- in a sense, taxed -- in a "cap and trade" marketplace. Meanwhile, conservation made possible by new energy-saving technologies and the simple-living trend will flatten America's demand for electricity from all sources, whether fossil or new age.

Limit foreign intervention. There are too many tyrants in the world for the U.S. to undermine or overthrow even a few of them -- and some of them, regrettably, are U.S. allies. The primary responsibility for regime change rests with the oppressed citizens of those autocracies, occasionally helped financially and militarily by the western democracies.

The U.S. should embrace the limited goal of joining with other nations in deterring and combating genuine international aggression and terrorism, as when we expelled Iraq from Kuwait in the first Gulf War, intervened in the Balkans, and overthrew the Al Qaeda-sponsoring Taliban regime in Afghanistan after 9/11.

A modern, muscular U.S. military-accompanied by increased nonmilitary aid to poor nations-will still cost America vast public funds. But it won't cost nearly as much as our noble but ill-advised nation-building experiment in Iraq. The money saved should be diverted to U.S. domestic needs and balancing the budget.

Improve public education. America's economic future lies with our children, period. We must spend more to improve their schools, but we can't keep relying on local property taxes, which are woefully inadequate in poor communities.

We should equalize educational opportunity across America by shifting more of the cost to the states and the federal government, which is not at present a major funder of local education.

We should offer more tuition assistance to high school graduates to continue their education, but not necessarily at four-year colleges. Many high-paying jobs -- for example, in health care, high-tech manufacturing, maintenance and repair -- can be filled with workers who get vocational training at community colleges.

Provide universal health care. Everyone in America should have access to health-care coverage, either through an employer, individual policy or government program. Uncle Sam should help subsidize the cost but not run the whole system. The emphasis should be on prevention and healthful living, and more care should be provided at low-cost clinics by nurses and medical assistants, overseen by physicians.

Reform immigration. Workers who are genuinely needed by American employers and were law-abiding citizens in their home countries should be registered as guest workers. This will reduce illegal immigration and enable workers (but not their whole families) to move freely across our borders in response to changing U.S. labor needs.

Our government will know who is here, and be able to track their movements and collect more taxes. Guest workers who play by our rules can work toward citizenship by learning English and studying civics.

Meanwhile, we should better protect our borders against illegal crossing. That is our national right.

There it is, my agenda for America's bright economic future. It includes good ideas from the right, left and center, from private enterprise, academe and government. It gores the oxen of many special interests. With political courage, hard work and some luck, it just might work.

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Knight Kiplinger
Editor Emeritus, Kiplinger

Knight came to Kiplinger in 1983, after 13 years in daily newspaper journalism, the last six as Washington bureau chief of the Ottaway Newspapers division of Dow Jones. A frequent speaker before business audiences, he has appeared on NPR, CNN, Fox and CNBC, among other networks. Knight contributes to the weekly Kiplinger Letter.