Americans Can't Handle the Truth

David Stockman's new book, The Great Deformation: The Corruption of Capitalism in America, is getting a lot of attention these days. I recommend you don't buy it. It's much better to ignore the book and continue to listen to the White House and Wall Street, both of which tell us everything will work out just fine.

Stockman, President Ronald Reagan's first budget director, confronts us head-on with blunt truths we simply can't handle. He argues that our current economy -- and recent prosperity -- aren't real. Instead, they've been fueled by a series of artificial bubbles created by runaway deficit spending and reckless money-printing at the Federal Reserve. This is all going to lead to an epic crash, Stockman predicts, and next time around, there won't be any bailouts.

I hate to say it, but most of us would rather the president and our representatives in Congress don't cause us any pain. That means don't touch my Social Security in any way, don't do anything to cap the runaway growth in Medicare and Medicaid, and don't raise my taxes either. And keep printing money. We elect our officials to create no discomfort for us, and they deliver.

Inspired by Stockman's blunt assessment, I'd like to focus on three areas where all of us -- the White House, Congress, and citizens, too -- need a heavy dose of truth-telling: the unemployment rate, the unsustainability of healthcare, and the reality of America's economic growth.

The unemployment rate in the U.S. is stagnant at best. Yes, the U.S. Department of Labor says the rate has dropped from 7.8% to 7.6%, but it's actually frozen when you apply a more accurate measure. In simple terms, the Bureau of Labor Statistics' survey of 60,000 households per month doesn't count you as "unemployed" unless you looked for a job in the past four weeks.

I think it's better to turn the number upside down and ask, "What percentage of the population does have a good job?" According to Gallup's monthly payroll to population (P2P) survey of 30,000 adults, the employment situation has failed to improve recently and has remained relatively little changed year-over-year. Workers haven't found the full-time jobs they've been seeking, and the labor force and unadjusted unemployment rates are flat.

Healthcare costs are out of control. We must confront this problem now -- it cannot wait any longer. At $2.5 trillion annually, the U.S. healthcare tab is three times the size of the defense budget and nearly two times the whole Russian economy. It's also roughly twice the size of the whole Indian economy, and India has a billion-plus population.

The fact is, healthcare is breaking America faster than Social Security and other pension benefits. And healthcare is growing at an average of 6% per year, which means the new costs over the next decade will be a staggering $10 trillion over and above where we currently are.

We need authentic economic growth. While I agree with Stockman that the current booming stock market is an illusion driven by money-printing and deficit spending -- namely, that it doesn't reflect real prosperity -- many of his solutions are more political in nature: abolish the electoral college, impose term limits on the president and Congress, and so on. I have a more straightforward fix: Restore and encourage the spirit of American free enterprise. Get the engine of business roaring again.

Whatever anyone in the White House or on Wall Street says, don't forget that our economy is currently growing at a pathetic 1%, where we need a minimum of 2.5% GDP growth just to tread water, in my view. That being said, I think we need GDP growth of about 4.5% to get the economy humming again. We're not going to get there with more deficit spending and with the Federal Reserve handing out more free money to investors.

What will get us to authentic economic growth and job creation is for federal, state, and local governments to do everything in their power to help America's 6 million small businesses succeed. That means restoring their confidence in the future -- 30% of small-business owners are worried they may not be in business in 12 months, according to a Wells Fargo/Gallup Small Business Index survey -- and removing any barriers they may face. What most people probably don't know is that small businesses -- not large enterprises -- create most of the good jobs in America.

Maybe Stockman's political reforms are the right way to go, but whatever the case, I think that restoring the spirit of robust, free-market capitalism will cure most of our ills and put the country on a sustainable path for the future.

But first, we need to start telling ourselves the truth about what really drives prosperity and what's just an illusion. David Stockman has done us all a favor by getting us to confront reality. Of course, I actually do recommend his book.