The 2020 presidential campaign is shaping up to be all about spending: which candidate can spend the most money on various existing and new federal programs; which candidate can raise and spend the most money on a presidential campaign. The candidates are mimicking their constituents, be they corporate leaders or typical American consumers: it’s all about short-term spending and running up debt. There’s no emphasis on long-term goals or strategies.
Many corporate leaders today focus on stock prices and the next quarterly earnings report. Instead of investing in R&D, many CEOs pursue mergers and acquisitions, stock buybacks (that boost share prices), and award handsome shareholder dividends and lavish executive compensation. The result: a $10 trillion unsustainable and dangerous cascade of corporate debt that’s now roughly 47 percent of GDP.
For consumers, the focus is on securing the newest must-have goodies at the lowest possible prices. Consumer, corporate, and government spending are all trending in the same direction, sustained thus far by near record low interest rates. When the impulse-spending stops and the party winds down, Americans may well ask what their spending really bought them.
The short answer is not much, other than a brief high from today’s cocaine economy. The operating premise of the American economy is spend today, don’t invest for tomorrow.
What’s lacking is a longer-term focus and strategic goals to guide national investments during the next decade. Things weren’t always this way.
After World War II, Harry Truman invested in The Marshall Plan to rebuild much of Western Europe and, in doing so, provide markets for American manufacturers.
Dwight Eisenhower championed major infrastructure spending that created our interstate highway system, thereby enabling faster economic growth and productivity.
John Kennedy challenged the nation to land a man on the moon within a decade.
Lyndon Johnson supported enhanced federal R&D investments, notably for the Defense Advanced Research Projects Agency that helped create the Internet.
Since Johnson, however, presidentially led national investments have been rare. We’ve basically been spending down our seed corn on distant, regional military skirmishes and ever-increasing domestic entitlement programs. Today, major portions of the federal budget are on autopilot: the reflexive spending rises without any apparent human intervention.
On Nov. 16, the Wall Street Journal published an important article that should be required reading for every CEO, every political leader (especially presidential candidates), every MBA candidate, and every economist: “Innovation Should Be Made in the U.S.A,” by Sridhar Kota and Tom Mahoney. It’s a thoughtful, persuasive version of “Make America Great Again” without the bombast and the partisanship.
The authors aren’t suggesting an industrial policy that picks winners and losers, such as high-density television or solar panels. Instead, they want a strategy that promotes U.S. innovation and U.S. domestic manufacturing. They note that for decades we’ve followed an off-shoring strategy that lowered costs as part of a broader effort to maximize shareholder value (and short-term profits). They deem that failed approach “innovate here, manufacture there.”
The results have been catastrophic: lost jobs, lower wages, hollowed out cities, and reduced manufacturing capacity. For decades, the sign over a bridge in Trenton, New Jersey, has read: “Trenton Makes, The World Takes.” Today, it’s just the opposite.
Kota and Mahoney argue that offshoring “has devastated the small and medium-size manufacturers that make up the nation’s supply chains and geographically diverse industrial clusters.” Moreover, when manufacturing moves offshore, innovation tends to follow in short order.
As Nobel Laureate in Economics Edmund Phelps has noted, U.S. productivity began to decline in the early 1970s. That productivity decline has also been accompanied by an accelerating decline in innovation and the ability to turn innovation into production.
Kota and Mahoney decry the loss of “America’s industrial commons” and argue that “[t]he slow destruction of the U.S. industrial ecosystem is a clear case of market failure, and the government has an important role to play in remedying it.” They want a new industrial policy that prioritizes innovation and domestic-based manufacturing.
The one major blemish on their proposals is their recommendation to vest this important work in a new Cabinet-level department. Inspired, insightful, and innovative presidential leadership could reform existing government offices to achieve the desired results without launching another new bureaucracy.
Imagine what could be achieved if our next president embraced the concept of a 21st century DARPA that also engaged the private sector in promoting innovation, productivity, and domestic manufacturing. That’s what we need to make America really great again.
Charles Kolb was deputy assistant to the president for domestic policy in the George H.W. Bush White House from 1990-1992. From 1997-2012, he was president of the nonpartisan, business-led think tank, the Committee for Economic Development.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.