Growth and renewal in the US: retooling America's economic engine

More than ever, the United States needs productivity gains to drive growth and competitiveness. As baby boomers retire and the female participation rate plateaus, increases in the labor force will no longer provide the lift to US growth that they once did. New research by the McKinsey Global Institute finds that, to match the GDP growth of the past 20 years and the rising living standards of past generations, the United States needs to boost labor productivity growth from 1.7 to 2.3 percent a year. That’s an acceleration of 34 percent to a rate not seen since the 1960s. Read the complete report and executive summary on the Mc Kinsey website here.

Will next time be different?

Democracy tends to institutionalize moral hazard in sectors that are economically or politically important, such as finance or real estate, allowing them to privatize gains and socialize losses. But this does not mean that policymakers must repeat the same mistakes every time such sectors get into trouble. For example, the US Federal Reserve has essentially guaranteed the financial sector that if it gets into trouble, ultra-low interest rates will be maintained (at the expense of savers) until the sector recovers. In the early to mid-1990’s, rates were kept low because of banks’ real-estate problems. They were slashed again in 2001 and kept ultra-low after the dot-com bust. And they have been ultra-low since 2008. Senior Fed policymakers deny that their interest-rate policy bears any responsibility for risk taking, but there is much evidence to the contrary. Read the complete opinion piece of Raghuram Rajan (University of Chicago) for Project Syndicate here.

Interview with Robert Skidelsky: Is the US in decline?

Why America Will Stay on Top

"Until the 1960s public finance was run in all essentials on conventional lines—that is to say, with budgets more or less in balance outside of exceptional circumstances. The big change in principle came under Kennedy. In the autumn of 1962 the Administration committed itself to a new and radical principle of creating budgetary deficits even when there was no economic emergency. Removing this constraint on government spending allowed Kennedy to introduce a new concept of 'big government': the 'problem-eliminator.' Every area of human misery could be classified as a 'problem'; then the Federal government could be armed to 'eliminate' it."n Read the complete interview with the eminent historian Paul Johnson in the Wall Street Journal here.

America's grim budget outlook

"As countries get rich, you might assume that they focus greater attention on their children. Not in the United States. The federal government's expenditures on children have shrunk as a share of the budget over the past 30 years. In 1960, about 20 percent of the federal budget went to programs dedicated to the health, development and education of Americans under the age of 18. Today it's 10 percent and falling". Read Fareed Zackaria's article for the Washington Post here.

It’s Time to Face the Fiscal Illusion

"James M. Buchanan, a Nobel laureate in economics — and my former colleague and now professor emeritus at George Mason University — argued that deficit spending would evolve into a permanent disconnect between spending and revenue, precisely because it brings short-term gains. We end up institutionalizing irresponsibility in the federal government, the largest and most central institution in our society. As we fail to make progress on entitlement reform with each passing year, Professor Buchanan’s essentially moral critique of deficit spending looks more prophetic." Read Tyler Cowen's article in the New York Times here.

From Baghdad to Benghazi

Voices around the world, from Europe to America to Libya, are calling for U.S. intervention to help bring down Moammar Gaddafi. Yet for bringing down Saddam Hussein, the United States has been denounced variously for aggression, deception, arrogance and imperialism. Read Krauthammer's article in the Washington Post here.