There’s a big hullabaloo in Washington about making America more “competitive.” Much of the hubbub centers around President Bush’s powerful Treasury man, Henry Paulson, who has been busy holding conferences and writing op-eds on the subject.
Competitiveness is a noble venture. But the problem I have with the current campaign is that it’s limited to accounting.
Undoubtedly, more transparent auditing, better financial reporting, and streamlined accounting standards to encourage international companies to list on U.S. exchanges are all good things. And of course, Sarbanes-Oxley is an onerous piece of regulatory overreach -- it throws red tape and huge costs at a problem that could have been easily remedied with the stronger enforcement of existing laws. Sarbox reform is in order.
But there’s plenty missing from this competitiveness calculation. To begin, the U.S. is actually doing quite a lot right.
Ever since Ronald Reagan rejuvenated the American free-market system in the 1980s with lower tax rates, deregulation, and disinflation, the U.S. economy has vastly outperformed its industrial trading partners in Europe and Japan. Amazingly, we’ve slogged through only five negative-GDP quarters over the past twenty-five years, for an unbelievable prosperity rate of 95 percent. Our stock market has increased twelve-fold in this period.
Then, in 2003, President Bush’s large-scale tax cuts on capital lit the booster rockets that launched today’s tremendous bull-market economy.
The Dow Jones is setting new highs almost daily. U.S. employment stands at a record 150 million. Household wealth is $56 trillion, another record. And contrary to what the bubbleheads keep telling us, the market value of assets is growing roughly three-times faster than the value of debt liabilities.
None of this would be happening if we weren’t already competitive.
The alleged demise of U.S. manufacturing is a key example of how uncompetitive perception often trumps competitive reality. U.S. manufacturers produced $1.5 trillion worth of goods in 2005, up 70 percent from $900 billion in 1992, according to Edward Gresser of the left-leaning Progressive Policy Institute. Manufacturing now accounts for a higher share of the U.S. economy than it did fifteen years ago, and for the same share of world production it enjoyed in the early 1990s. Yes, there have been manufacturing job losses, but virtually all of them have come from productivity-enhancing automation.