President Barack Obama's fiscal 2014 budget proposal. (Gary Cameron / Courtesy Reuters)
UNLEASH THE PRIVATE SECTOR
In "Can America Be Fixed?" (January/February 2013), Fareed Zakaria argues that American democracy has grown increasingly dysfunctional since the 1970s and that "a series of lucky breaks" -- namely, the end of inflation, new information technologies, globalization, and excessive borrowing, which has allowed Americans to consume more than they have produced -- have covered up structural problems in the U.S. economy. He worries that these factors are now keeping unemployment high and wages low. In outlining his solution to this problem, Zakaria looks back to the 1950s and 1960s, when Washington spent lavishly on domestic investment and the economy "boomed." What the U.S. government needs to do today, he concludes, is establish "massive job-training programs" and a "national infrastructure bank" from which "technocrats" could allocate funds to public works projects based "on merit rather than . . . pork."
But Zakaria's argument is grounded in a misreading of history: although government investment in infrastructure in the 1950s and 1960s did contribute to economic growth, many other factors drove that growth as well. Moreover, it is unlikely that building new physical infrastructure would do as much for growth in today's knowledge-based economy as it did in the two decades following World War II. Finally, there is little reason to believe that politicians would allow technocrats to control infra-structure spending. And even if they did, it is doubtful that technocrats could choose investments effectively -- much less with the wisdom and efficiency of free enterprise. After all, private-sector investment and risk taking, not infrastructure investment, have driven U.S. economic growth over the last two decades, and they will likely continue to do so in the future.
INVEST FOR SUCCESS
Low inflation, information technology, and globalization do not fully explain the United States' economic success over the past two decades. Europe and Japan also enjoyed these things, yet their productivity growth fell to near-record lows, while the United
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