●An energy revolution. We are the world’s largest producer of natural gas, with a 100-year supply, and we are on track to become among the largest producers of crude oil.
●A manufacturing revolution. We are rapidly developing robotics and 3-D printing, areas in which the United States is among the world’s leaders.
●A revolution in life sciences.Genetics and stem-cell technology offer great potential in fields such as agriculture and pharmaceuticals and fundamentally new approaches in medicine.
●The IT revolution and the transition to cloud computing, in which we are also leading.
With all of these advantages, together with our North American Free Trade Agreement (NAFTA) partners, the energy-rich and economically dynamic Canada and Mexico, we could be on the threshold of the New North American Decades. The prospect is that North America — not China, Japan, Europe or India — will pull the world out of the global economic slowdown. But we will do so only if government gets the basics right.
Huge debt is incompatible with long-term growth. Yet sequestration’s arbitrary cuts — particularly to certain defense and domestic programs that provide the foundation and seed for future growth — make it far from optimal as a deficit-cutting action.
Our priority should be to reduce, in a rational manner, the ratio of debt to gross domestic product, which is about 75 percent. We need to get the debt curve to begin declining to, say, 72 percent of GDP over the next 10 years. The objective should be to do this while avoiding measures that would choke off the still-modest recovery. Sequestration-scale cuts done wisely can achieve this goal. The key is to achieve a virtuous cycle in which economic growth yields greater revenue and government spending declines relative to the size of the economy.
How to do this? We suggest that, for the good of the nation, each party agrees to achieve equal amounts of something neither wants to do: Republicans should produce, say, $500 billion in additional revenue over 10 years, and Democrats should identify $500 billion worth of reforms to entitlement programs over the same period.
Sequestration would be repealed. (Reductions in discretionary spending beyond those mandated by the initial provisions of the 2011 Budget Control Act should be sought, although they need be only $100 billion or so, given the substantial cuts already locked in law.)
One simple approach would be for Democrats to propose refinements to the (overly generous) cost-of-living-adjustment formula for Social Security and certain other programs. This has the advantage of being a modest change over time while protecting the basic structure of Social Security. (It appears that President Obama’s new budget proposal may move in this direction; if so, that’s a positive step.) For their part, Republicans could propose closing tax loopholes to increase revenue, with the proviso that half of any new revenue obtained be dedicated to lowering income tax rates, as economist Martin Feldstein has suggested. In essence, each party gives some, but neither is asked to capitulate on core principles.
The national focus should then shift to addressing issues that would enable the country to capitalize on its extraordinary opportunities:
●Regarding energy, agree on the Keystone XL pipeline while fostering partnerships between extraction companies and environmental groups; determine required regulatory rules; and grant a modest number of licenses to export natural gas.
●On infrastructure, drive the establishment of faster and cheaper Internet connections for most Americans to fully exploit the shift to cloud computing; and repair and rebuild roads, rail lines, ports, electricity grids and other assets that support our economic supply chains.
●On human capital, reform immigration policy; encourage science and technology study and research; and improve public schools while underwriting training in rigorous, relevant vocational skills.
●On finance, reform and simplify the tax code to stimulate savings; make health-care costs more visible; and help bring home the more than $2 trillion sitting offshore.
Not all of this will be achievable at once. But pursued with optimism, rather than lamentation and finger-pointing over our supposed national decline, it may prove more actionable. Given the opportunities before the United States, the future should be remarkable. Let’s get on with it.