Prosperity in a Crisis
The United States needs to recapitalize banks and enact broader tax cuts.
What is most remarkable about the public debate about the stimulus bill is not the partisan bickering or even the astonishing price tag of the bill's congressional pet projects. Rather, it is the lack of an open debate among policymakers about what kinds of activity a "stimulus" bill is supposed to, well, stimulate. We are on the verge of committing more than three-quarters of a trillion dollars to "stimulate" the economy with very little explanation by the nation's political leaders about how the bill will jump-start much of anything. At its current price tag, if the bill were divided equally as cash payments among American households, each family would get approximately $6000. Without a clear idea of what needs "stimulating," one cannot say why a healthy rebate check for each family is any less of a good idea than spending vast sums on projects whose dubious relationship to economic recovery members of Congress would rather have us ignore.
President Obama has provided more partisanship than leadership on the matter. Despite fulminations against special interests, he has actually defended dubious pork projects in the bill as job-creating innovations in an effort to justify them. At the same time, he encouraged unionization in federal contracts, even though his chief economic advisor, Larry Summers, has said that unionization is a "cause of long-term unemployment." Obama's rationale on job creation is as contradictory as his description of tax credits for the middle class as "tax cuts." The latter allow people to keep their own earnings. The former transfer earnings of some people to other people.
If the American public is finding it difficult to muster enthusiasm about the stimulus bill, perhaps that is because ordinary taxpayers are growing suspicious that there is little in the bill that will make them more prosperous in the future than they are now. Similarly, international observers are beginning to wonder whether this bill will do much to help the American economy, the recovery of which is necessary to help the global economy.
Obama has done little to make clear to the American people what he considers to be the fundamentals of a prosperous society, even though he is prepared to spend nearly a trillion dollars in its pursuit. The nature of prosperity is a question for our times. Ronald Reagan, Bill Clinton, and George W. Bush all got elected with relatively clear positions on what the underlying factors of a successful economy and society looked like, and they offered policy proposals based on those factors. Obama did not, and as an anxious public worries about its economic future, the new president should carefully examine the key underpinnings of U.S. prosperity, and the prosperity of other nations, as he formulates his core policies.
We have recently completed new research on global prosperity that yields some encouraging insights for the United States. Our study, the Legatum Prosperity Index, defines prosperity to include both economic growth and quality of life, and examines the foundations of prosperity across 104 nations. While Americans understandably feel more anxious than prosperous right now, the truth is that the U.S. is still one of the most prosperous countries in the world. It ranks fourth in our study and is by far the largest of the top 10 countries. No other country with more than 100 million inhabitants ranks in the top 10. Japan ranks 13th, but the next mega-state in our Index ranks 43rd (a tie between Brazil and Mexico). For such a large country, the United States is incomparable in the levels of wealth and well-being enjoyed by so many of its own citizens.
The Prosperity Index ranks nations by how well they foster the practices, institutions, and habits that create competitive economies, stable and free political institutions, and social capital. In other words, it looks at prosperity holistically, considering how both material wealth and quality of life factors contribute to national well-being. This makes intuitive sense. Most people understand that economic progress cannot be sustained at the personal or national level if some basic non-economic factors, such as social trust or government accountability or physical health, are in decline. It would be difficult to consider a nation (such Russia, for example, which ranks 57th) as truly "prosperous" when short-term increases in per capita GDP are accompanied by factors such as the widespread deterioration of civil liberties and life expectancy. The United States, in contrast, has historically flourished because of its ability to foster progress in both economic and non-economic realms of life.