America: Time to Learn From So. Dak.

I published the first two grafs below on the FacultyRow site several days ago but ran out of words. Here they are again, along with my closing thoughts.

America’s huge economy is finally showing signs of renewed vigor but it still faces significant headwinds in both the long and short terms. Inflationary pressure has been building for some years due to the rapid and sustained increase in the Fed’s balance sheet following the Panic of 2008. The monetary pressure may become insurmountable if the economy continues to heat up and the federal government continues to run large deficits. Longer term, the U.S. economy may face several crises related to the effects of changing demographics and runaway healthcare and higher education costs at a time when confidence in the federal government’s ability to do anything right, much less to implement substantial reforms, is at a very low ebb. 

Most troubling of all is the decline in Americans’ “economic freedom” as measured by the Heritage Foundation. The United States now ranks tenth in the world and its absolute score has declined for five consecutive years. Numerous studies have shown that economic freedom is highly correlated with sustained economic growth and many scholars believe, after removing the statistical noise created by the business cycle and one-off shocks like wars, that economic freedom is the root cause of growth. Bigger, more intrusive government, especially one that is no longer trusted by many citizens for a variety of reasons, is not conducive to entrepreneurship, especially of the more growth-inducing innovative and inventive varieties. Crony capitalism, one of the “bad” forms of capitalism identified by Will Baumol et al, appears ascendant.

Policymakers, pundits, and concerned citizens looking for a way out of this morass will find much to learn from South Dakota, America's freest state (and just a smidge less free than Alberta, the freest place on the continent). Although solidly Republican, the state is highly democratic; its people demand efficient government and usually get it, at least relative to many other places globally and even nationally. Congress has finally passed a budget, but one that doesn't solve any fundamental problems. Washington should not waste this reprieve but instead use it to really analyze government services and cut what is not needed, privatize that which can be privatized without endangering national security or the economy, and streamline the rest. If it makes those decisions based on independent studies and not partisan politics it will win back some respect and can then start to work on cronyism.