Forget Washington: Here's how we'd fix the economy

According to the article, America's leaders aren't leading and causing the economic damage in the US to grow. Citizens have complained for years that those is Washington do not compromise and never resolve any big issues on economic policy and the results are serious. Millions still can't get work, confidence is falling and growth is slowing.

August 16, 2012: 5:00 AM ET
CNN Money

Neither Obama nor Romney talks about the hard choices America needs to make to solve its economic woes. So we will.

FORTUNE -- Partisan politics and tired talking points aren't solving America's economic woes. Mitt Romney says he'll prime the economy with pro-business measures; Barack Obama says he's going to increase stimulus spending while reducing the deficit. But is either talking about the hard choices America needs to make? Fortune's Geoff Colvin and Allan Sloan offer their own commonsense proposal for getting the country back on track.

America's leaders aren't leading -- and the damage is mounting. Citizens have complained for years about Washington's squabbling children, who'd rather stamp their feet and hold their breath than resolve momentous issues of economic policy. The games are childish, but the resulting suffering is serious: Millions can't find work, confidence withers, growth slows, and the self-reinforcing upward spiral that makes an economy grow can't get going -- largely because our supposed leaders won't grow up.

You may have heard such generalities before, but consider this specific: The CEO of a Fortune 50 industrial firm with operations in 180 countries told one of us recently that the prospect of the year-end "fiscal cliff" of tax increases and federal spending cuts means that "we're already holding back on things we'd otherwise be doing. I could show you a list." He doesn't want to be identified, for obvious reasons. But his list represents economic growth that isn't happening because Washington's leaders prefer playing inside-the-Beltway chicken to dealing with a potential economy-crushing problem less than five months away. So the U.S. hobbles on, its GDP growth having slowed from a feeble 2% annual rate in the first quarter to 1.5% in the second.

Yet U.S. economic policy isn't being meaningfully discussed in the presidential campaign. The addition of Rep. Paul Ryan to the Republican ticket could bring the issue more airtime, but we aren't counting on a substantive discussion breaking out, just candidates endlessly repeating their talking points. Our Fortune colleagues have sought for months to get former governor Mitt Romney and President Barack Obama to share, in detail, their plans for reviving the economy; the fruits of their valiant reporting efforts can be found here and here. Our boss, feeling frustrated by the candidates' lack of specificity, asked us to propose a policy outline that we believe would serve the nation well. In doing so, we emphasize that stability is at least as important as policy. In Washington's immature world of extremes, where "compromise" is a synonym for "treason," crises don't get resolved until the last, looming moment, as with the 2011 debt ceiling embarrassment and possibly with this year's fiscal cliff. Major policy shifts like health care reform pass without bipartisan support. When Standard & Poor's announced its historic downgrade of America's credit a year ago, it explained that the move "reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened." Managers, investors, and consumers have no idea what's next, what will last, and what will be reversed after the next election or perhaps after the next news cycle. Result: a CEO's on-hold list, multiplied across the country.

America needs more than just smart moves to get a struggling economy moving. We have to increase tax revenue and reduce spending growth. Most important, we have to give neither side everything it wants -- to adopt policy so relentlessly bipartisan that it attracts strong, stable support from both sides. Believe it or not, that has been the norm in U.S. history, even though fundamental disagreement between the parties is eternal. Former senators George Mitchell and Bob Dole, grownups who led the Senate's Democrats and Republicans, respectively, in the 1990s, had dinner together every week and successfully did business; they also held each other in the highest personal regard and still do. Today, however, researchers at Princeton and the University of Georgia find that Republicans and Democrats in Congress are further apart than at any time in the 120-year period they studied.

Many people in other countries still envy the U.S. Our system is more open and transparent than most, our economy stronger and more resilient. But we can't settle for a government performing as badly as ours now is. Artificially created crises like the debt ceiling get only expedient kick-the-can-down-the-road responses, and major problems like Medicare aren't even addressed. All-or-nothing intransigence is paralyzing the system.

That's why this article carries a joint byline. Your two authors have been writing about these issues for decades. We're both data-driven, yet tend to arrive at different conclusions. Beyond that, in journalistic and personal styles we are wildly different (just trust us on that). If the two of us can agree on policy prescriptions, then maybe Washington can too. Believe us, neither one of us got everything he wanted. But we've ended up with a package we can both live with and we think would help the country climb out of its economic rut.

"Current policy is unsustainable," says the Treasury's latest Financial Report of the United States Government, and we agree. Absent substantive changes, federal debt will soon rocket to levels no country can bear. The only solution is fundamentally changing spending and taxes in ways that eventually balance revenue inflow and outgo.

Spending

By far the largest elements of unsustainable spending are America's biggest social insurance programs, Medicare and Social Security. People talk about them as linked entitlements, but they're really quite different. Social Security is emotional but is primarily about numbers, and you can compromise numbers in many, many ways. But Medicare is emotional times 10 -- it's about who lives, who dies, and who pays for it.

Hence even the Simpson-Bowles commission on fiscal reform, which made daring, detailed proposals for spending cuts, suggested almost no specifics for Medicare. Former Fed chairman Alan Greenspan, who chaired a Social Security reform commission in the early 1980s, says Social Security is an easily fixable problem: "If you get the right people in the room, you can solve Social Security in 15 minutes, and the first seven minutes are pleasantries." Medicare, he says, is a far tougher challenge.

The biggest problem in dealing with Medicare is the endgame -- when people enter their final descent and are kept alive, expensively, often with no statistically significant chance of leading what most people would consider a decent or rewarding life.

So we would restrict the end-of-life care that Medicare will pay for. Yes, that sounds like the nonexistent "death panels" invoked during the debate over the Affordable Care Act, a.k.a. Obamacare. But insurance companies, hugely important players in our health care system, already heavily restrict the procedures they pay for. Taxpayers, collectively, should do the same.

In 2006, the last year for which data are available, more than 25% of all Medicare spending went for people in their last year of life, according to the federal Centers for Medicare and Medicaid Services, even though they were only 5% of the covered population. When baby boomers, who are beginning to enter Medicare and as a group are still relatively healthy, reach their terminal years, the end-of-life expense will blow through the roof unless we deal with it now.

Both of us have been through deaths of close family members, and we know the pain, suffering, and emotional trauma involved in letting loved ones pass on. But sometimes you just have to do that.

We propose that if you want to use heroic measures to keep yourself or any other Medicare or Medicaid recipient alive -- we'll leave it to experts to define "heroic measures" -- either spend your own money or buy a supplemental end-of-life policy from the market that will doubtless spring up if our proposal is adopted.

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