What Ails Us

In these times of financial stress, I submit that we know what's wrong, but we won't face up to our issues. The most difficult things in life to change are both simple and hard. Losing fat weight is a great example. It is simple; eat fewer calories and exercise more; and it is hard, because I am like so many people that I can't seem get it done.

So what's wrong?
1. We don't save enough collectively. Economic growth is tied very closely to the rate of savings. We thought we could defy this particular law by using Chinese savings to finance our growth. Hasn't turned out too well. Meanwhile the government tax code favors debt over saving. But don't be fooled, mere incentives won't fix this, people's bad habits have to change.

2. Our education system isn't serving our needs. In a global economy, the only way to maintain hourly wage rates is to move up the skills ladder. It is folly to expect that low skill jobs will continue to pay high wages forever, when billions of Asians are waiting for the opportunity to do that sort of work. If our workers want to be paid more they must be able to do more. But our education system does not provide sufficient grounding in statistical methods for one example, to allow high school graduates to be effective at using six sigma methodology to improve process control. But we somehow expect the current system to come up with the breakthrough that will improve education. Meanwhile, new methods, such as charter schools are actively fought by entrenched forces. Even the big charities aren't giving money to educational experimentation. But there is another dirty secret, parental involvement in encouraging educational excellence is key. But, some pockets of our culture have come to disdain educational achievement.

3. We expect our government to know best how to direct investment, but this always fails when swimming against economic forces. We tried to push home ownership rates to above market and only managed to wreck that market. In a mostly free economy, government is never going to be powerful enough, wise enough, to direct an outcome that the free market would not provide. The tragedy is that every misdirected dollar is a dollar that doesn't go to a more productive use. What makes this hard to fix? We get addicted to the sweet stuff. Are you a homeowner? Wouldn't elimination of the mortgage interest tax deduction hurt; wouldn't you complain? But that very deduction misallocates resources to home ownership. A big deal? Maybe not, until you add up every corporate welfare subsidy (more ethanol anyone?) and realize how much of the economy is tied in non-productive subsidies.

But more fundamentally, we seem to have lost the sense of morality and civic duty that acted as a compass in year's past. We used to save much more, respect education much more, and believe in making our own way much more. What happened? I submit that the loss of respect for religion is part of the root cause, but I wonder what you think.