"Can Connecticut be Saved?"

Sydney M. Williams

swtotd.blogspot.com

Thought of the Day

“Can Connecticut be Saved?”

October 11, 2018

“Remember, you will be faulted not because you are ignorant against your will,

but because you neglect to seek out what makes you so.”

                                                                                                Saint Augustine (354-430)

Connecticut is in my blood. While I grew up in New Hampshire, I was born in New Haven. During the Second World War, while my father was overseas, my mother returned to her parents in Madison, bringing her [then] four children, including me. In December1965, my wife and I bought our first house, a cape in Glastonbury. A year and a half later we moved to Durham, and four years later to Greenwich. After two decades in that tony suburb, we bought a house in Old Lyme. Two and a half years ago – after a quarter century of idyllic living on the marshes – we moved to Essex.The State resonates with personal history. Two ancestors served as colonial governors (John Webster in 1656 and Thomas Welles in 1655 and 1658). Another two fought in King Philip’s War – Daniel Hotchkiss, a six-great grandfather, served as a sergeant and Captain Stephen Greenleaf, a seven-great grandfather, was wounded at the Battle of Hatfield (Massachusetts) in September 1677. A five-great grandfather, Captain Caleb Hotchkiss was killed during the Battle of New Haven in July 1779, during the American Revolution. Their blood courses through my veins and those of my children and grandchildren. Forefathers are buried in New Haven and Hartford. It is the State in which I was born, have lived most of my life and where I expect to be buried.

So, what has gone wrong with this State, with its magnificent Connecticut River and estuary, its hills, seaports, harbors, country churches, world-class universities, parks, meadows, beaches, towns and cities? Why is Hartford, once the richest city in the United States, on the verge of bankruptcy? Along with Hartford, Waterbury, Bridgeport and New Haven have credit ratings that rank in the bottom 10% nationwide. Why did Bridgeport, the state’s largest city, re-elect a man as mayor who served seven years in prison for corruption during his first term? Why have Hartford and New Haven landed on a list of the nation’s hundred most dangerous cities? What happened to industries like insurance and manufacturing? Connecticut is still wealthy. In terms of GDP per capita, the State ranks 3^rdin the nation and is 6^thin median household income; yet, it ranks 4th in terms of state and municipal debt per capita.

Why does Connecticut rank 4th in the nation in terms of the percent of the population moving out-of-state? Is it, as Governor Malloy would have us believe, because youth wants to live in cities, not suburbs, or is it because the State is unfriendly to business? Its corporate tax is 9^thhighest in the nation and its personal income tax is 10^thhighest. Is it because the State’s economy has shrunk at an annual compounded rate of 0.5% over the past nine years, while Massachusetts’ (formerly known as “Taxachusetts) economy has grown at an annual rate of 2.1 percent?  Or is it because of a loss of freedom? In a 2016 survey, the Cato Institute ranked Connecticut 45^thin terms of personal and economic freedoms. In 1971, when we moved to Greenwich, the State, then with no income tax and low property taxes, was considered the “Switzerland” of the region for commuters into the City. It is now a State that is shunned. 

Between 1955 and 1980 fifty companies moved their headquarters out of New York City, with many moving to Stamford, a city of 130,000, which became the third largest center for corporate headquarters, after New York and Chicago. Today there are ten States that have more S&P 500 companies’ headquarters than the entire State. In the past three years, Aetna, General Electric, Alexion Pharmaceuticals and Duracell have moved out. UBS and RBS (Royal Bank of Scotland) have abandoned their trading floors in Stamford. In a CNBC business ranking of States, Connecticut scored 45^thin terms of the strength of its economy, 26^thin terms of business-friendly, 43^rdin cost-of-living and 46^thin cost of doing business. Overall, it ranked 37^th, with education (9^th) being its most positive attribute. In an April 2017 analysis of the nation’s fifty states by the American Legislative Exchange Council – which looked back over the decade 2005-2015 – the State ranked 49^thin economic performance and 46^thin economic outlook. (In 2012, when the current governor Dan Malloy took office, the State ranked 36^th.) 

In bygone days, Connecticut had been attractive to business. It had some of the nation’s finest universities, an excellent public-school system, an educated and well-paid labor force, low property taxes and no income tax. Into the mid 1980s, the State continued to do well. It had weathered the outward migration of textile and rubber businesses. A September 18, 1984 New York Timesreport noted that the State was “on a roll,” led by defense spending, corporations moving out of New York City and with small, technology companies replacing brass mills and textile plants. “Most of New England is doing well, but Connecticut stands out,” said James Moor, director of economic research for the Hartford Insurance Group. Unemployment stood at 4.3% versus a nation-wide average of 7.1%. Per capita income was second only to Alaska’s. 

But things began to change. As is common, there is a pendulum-like swing to political parties. In the 1960s, the American Federation of State, County and Municipal Employees (AFSCME) – a union founded in 1932 – became more aggressive in Connecticut. The union had been founded to counter the patronage system that caused thousands of workers to lose their jobs every two or four years, as political parties changed. During the 1960s and early 1970s, Yankee traditionalism gave way to social revolution, with its emphasis on civil and women’s rights. (I remember attending, as an alternate delegate, the State Democrat convention in 1970 – the booze, the noise, the pot-filled air gave a sense of the surreal to those of us there.) In 1973 state workers in Connecticut were granted the right to organize, with teachers getting the right in 1975.  As public sector unions expanded in numbers and influence, the power of private sector unions waned. The 1970s recession put pressure on manufacturers, so managements switched retirement programs from defined benefit plans to defined contribution plans. Keep in mind, when corporations experience financial stress bankruptcy is an option. It is also an option for municipalities, but not for states. Today, according to the Yankee Institute for Public Policy, 94% of Connecticut’s 50,082 fulltime public employees are unionized, earning an average of $73,036, about the same as median householdincome in the State. Current unfunded retirement benefits amount to $100 billion, meaning each of the State’s 3.5 million residents is responsible for about $30,000. Unfunded healthcare benefits add another $10,000 to each of our liabilities.

With the intention of offsetting rising unionized labor costs, higher transfer payments and diminishing State revenues, then Governor Lowell Weicker (Connecticut Party), in the summer of 1991, signed the State’s first income tax legislation. In doing so, he violated a basic principle of governmental fiscal math – increased taxes do not result in smaller deficits. They are always used to justify higher expenditures on new projects, never to reduce debt or ameliorate the expense of existing programs. A simple flat 4.5% income tax in 1991 has been expanded to a complex – 6.99% at the high end – tax, with seven brackets. Deficits have widened, and unfunded pension and health benefits have ballooned. The only beneficiaries have been lawyers, accountants, moving-van companies and State employees.

What has been good for Connecticut’s government workers has not been good for everyone else. A report from the Bureau of Economic Analysis showed that personal income growth in Connecticut in 2017 was 1.5%, versus 3.1% for the nation, placing the State 44^thout of 50 and the lowest in New England, behind both Maine and Rhode Island, the traditional laggards. Governor Malloy’s tax increases have neither bettered the State’s income prospects nor alleviated its budget and unfunded pension and health liabilities.

The most attractive option for many of the State’s high-earners and wealthy retirees has been to abandon ship. According to the Yankee Institute, in the fiscal year ending June 30, 2017, 20,179 residents left Connecticut, taking with them $2.6 billion in adjusted gross income, or $128,846 per individual. During the year, the State accepted 18,000 migrants from outside the United States. As a rule, (and not surprisingly) immigrants’ consumption of a State’s resources, in their first two or three years, exceeds their contribution. Even excluding any costs associated with immigrants, lost tax income to the state – from those who chose to leave – amounted to about $100 million. Only New York, New Jersey and Illinois had a greater percentage of their population leaving.

Since Mr. Weicker introduced the income tax to Connecticut, the fiscal situation of the State has deteriorated, under two Republican governors and one Democrat – Republican John Rowland (who went to jail); Republican Jodi Rell, who switched her residency to Florida once she left office, and the current Governor Democrat Dan Malloy, who raised taxes more than all other governors combined and who has the dubious distinction of bearing the lowest approval rating of any governor in the Country. While neither Republican governor stemmed the bleeding, there has been, throughout this period, one constant: A Democrat-controlled legislature. The last time the State had both a Republican Governor and a Republican Legislature was 1976. Forty-two years is a long time for one-party rule. Should Connecticut elect a Republican Governor anda Republican House and Senate there is no assurance that sanity would return, but it is the best shot we have to emerge from the darkness that has enshrouded the State. To travel with Ned Lamont down the road paved by Dan Malloy would be to do “the same thing over and over and expecting different results.”[1](A vote for the third-party candidate Oz Griebel, with his poll numbers barely out of single digits, is to vote againstyour second choice.) The decision, when one walks into the voting booth on November 6, is easy – vote for Bob Stefanowski and the Party that has not had a majority for half a century.

Contractual agreements with unions have starved other programs badly in need of assistance. A recent report cited by CNBC ranks Connecticut the 4^thworse in terms of infrastructure. Sixty-two percent its major roads are in “poor or mediocre” condition. Eight percent of its bridges (more than 300) are considered “structurally deficient.” Eleemosynary institutions, which serve physically and mentally disabled and disadvantaged children and adults and that depend on State support, are being starved for funds, forcing them into the competitive world of private solicitations. Can Connecticut be saved? The State needs a re-boot and its unions and leaders must face the consequences of what they have wrought. Bankruptcy may not be an alternative, but Venezuela serves as an example of what happens when socialistic, business-unfriendly progressives, on empty promises, seize power. Everybody loses. 

As I wrote at the start of this essay, Connecticut has long been my home and I would prefer to have it remain so. It is also home to two of our children and seven of our grandchildren. I wish them the same love for its history and its natural beauty. I want them to look upon the State not only for its past achievements but for what it can accomplish in the future. Be proud of its education system – its public and private schools and its public and private universities. The State was once the region’s Mecca for freedom, economic growth and universal wealth creation. There is no reason it cannot be so again. We grow most confident and we look forward most assuredly when we have, as mole said in The Wind in the Willows, “…the special value of some anchorage in one’s existence.” Connecticut has served that purpose in the past. Now, it is up to the voters to let it fulfill its promise for the future.    

            

---

[1]A quote generally attributed to Albert Einstein.

"The Month That Was - October 2017"

Sydney M. Williams

swtotd.blogspot.com

The Month That Was

“October 2017”

October 31, 2017

“O hushed October morning mild,

Begin the hours of this day slow,

Make the day seem to us less brief.”

                                                                                                “October”

                                                                                                A Boy’s Will,1915

                                                                                                Robert Frost (1874-1963)

October 24^th marked the 100^th anniversary of Lenin’s Bolsheviks’ seizure of power in Russia. The rise of Communism gave birth to the world’s deadliest ideology – far worse than Nazism and Fascism, in terms of the number of people subjected to imprisonment, terror and death. Yet does the world associate Communism with evil commensurate with its history? I think not. In the Soviet Union alone, subtracting the number of Soviet soldiers and citizens killed in World II, an estimated twenty million were killed by Stalin. About forty-five million were killed in China by Mao Zedong. Between seven and ten million Ukrainians died during the Soviet-inspired “Holodomor,” in 1932-33. Approximately two million Cambodians – almost a third of the population – died at the hands of the Khmer Rouge. Millions were killed in North Korea, Vietnam, Cuba, East Germany, Rumania, Bulgaria, Ethiopia and other places. Communism killed as many people as died in the two world wars of the last century. As Bruce Thornton, classicist and Hoover research fellow recently put it, its history is a “…road to utopia [that] runs over mountains of corpses.” Today, it is not Communism that concerns us, but its half-brother Socialism. Despite its failure in places like Venezuela and in Europe where unrestrained Muslim immigration has created segregated neighborhoods and increased government dependency, it has become popular in the U.S. among followers of Bernie Sanders and Elizabeth Warren.

During the month, elections were held in Europe, Asia, the Middle East, South America, and a re-run, in Africa (Kenya). Elections in Austria and the Czech Republic moved both countries to the right, meaning people are still concerned about terrorism, immigration and economic growth. Sebastian Kurz will become, at age 31, Europe’s youngest leader, when he assumes the Chancellorship of Austria. In the Czech Republic, Andrei Babis, former finance minister, populist and billionaire businessman, won a “thumping” victory, as Prime Minister-designate. The Catalans declared independence, and Spain’s parliament granted Prime Minister Rajoy powers to enforce union. Catalonia has simmered a long time. In 2006, Madrid promised the region increased autonomy. Four years later – amidst recession and financial crisis – they reneged on that promise. This is a story of disillusionment with bureaucratic and distant administrative governments run by elites. While immigration was pivotal in Brexit, the bigger problem is politicians who are deaf to the people they represent and who are unaffected by the policies they promote. We are witnessing a backlash against hypocrisy, arrogance and authoritarianism, in Brussels, Madrid and other capitals.  

In Japan, Shinzo Abe’s Liberal Democratic Party won its third landslide victory. Abe, an ally of the U.S. and a friend of President Trump, is an advocate for more defense spending. He benefitted from North Korea’s militant rhetoric and an improved economy. In Pakistan, Nawaz Sharif returned as Prime Minister and as head of the Pakistan Muslim League two months after being disqualified on charges of corruption. In Argentina, President Mauricio Macri’s Republican Proposal Party increased its seats in both the legislature and the senate, while former president Christina Kirchner’s Justicialist Party lost seats. A re-run of August’s race in Kenya was won again by current president Uhuru Kenyatta.

U.S.-backed Kurdish-led Syrian Democratic Forces took back the Al-Omar oil fields – Syria’s most productive – from ISIS forces, fields that had been captured in 2014. Elsewhere, Islamic terrorists persisted in their work. Almost 400 people died in Somalia, when separate truck and car bombs exploded, the work of al-Shabaab militants. In Marseilles, two women were stabbed to death by a man shouting “Allahu Akbar.” The assailant was shot dead. At least seventeen died in Cameroon, in two provinces bordering Nigeria. In all, over 700 people died during the month at the hands of Islamic extremists. Good news came toward the end of the month, when 32-year-old Saudi Crown Prince Mohammed bin Salmon said his country would return to “moderate Islam that is open to all religions and to the world.” It should be remembered that fifteen of the nineteen hijackers on 9/11 were Saudi citizens.

A Chinese Communist Party’s recent meeting positioned China’s President Xi Jinping as “pre-eminent leader,” with added powers and no successor, something not seen since Mao Zedong. It ends a period of collective leadership. Following an illness that infected U.S. embassy personnel in Havana, fifteen Cuban diplomats were expelled from their embassy in Washington. The Iran nuclear deal was not re-certified by President Trump, as required every three months, but sent to Congress for ratification.

Fifty-eight people were killed and 489 wounded by a lone gunman in Las Vegas. Almost immediately, anti-gun politicians politicized the tragedy, ignoring the fact that it is the person pulling the trigger who is at fault, not the weapon. Nevertheless, a question: how was Stephen Paddock able to buy so many high-powered rifles legally in such a short period? Technology today is such that red flags should have been raised when he purchased the third, fourth through eighteenth assault rifle. Was he planning on arming a regiment? The internet should allow for a repository of gun-purchase information available to all legitimate gun dealers. General John Kelly’s sterling defense of Donald Trump’s call to a bereaved Gold Star widow was politicized by a callow member of Congress with no sense of dignity or respect. The condemnation of Harvey Weinstein’s despicable behavior toward women set off a deluge of accusations against other men, including a ridiculous accusation that 93-year-old, wheel chair-bound, ex-President George H.W. Bush misbehaved toward a young woman.

Russian interference in last year’s election became more complex. Robert Mueller indicted Paul Manafort, a former campaign chairman for Mr. Trump, and Manafort’s former business partner, Rick Gates. They were charged in a 12-point indictment, including conspiracy to commit money laundering. Also, it was disclosed that Hillary Clinton and the DNC paid $12.4 million to the Washington Law firm, Perkins Coie. The law firm then used the money to pay the Washington research firm Fusion GPS to hire discredited, retired British spy Christopher Steele. He, in turn, paid unknown and unidentified Russians to tell stories about Mr. Trump, in reckless disregard as to whether the stories were true or not. Specifically, who in the Clinton campaign and who at the DNC authorized those payments remains a mystery. Fusion GPS has refused to testify. The United States House Permanent Select Committee on Intelligence began investigations into the 2013 purchase by Rosatom, a state-owned Russian uranium company (and a contributor to the Clinton Foundation) of Canadian-based Uranium One, which produces 20% of the U.S.’s uranium – a deal approved by the Obama Administration, when Hillary Clinton was Secretary of State.

A budget resolution was passed by both houses of Congress that allows a tax bill to be approved with a simple majority. That vote is expected by the end of the year. The Supreme Court began a new term with a full complement of nine justices. Issues will include the right of a baker to refuse to supply a wedding cake to same-sex couples and the right of a federal employee to refuse to pay union dues. In a speech at Harvard, Education Secretary Betsy DeVos spoke, amid catcalls, of how school choice for the poor and disadvantaged empowers families, creates room for healthy diversity and is consistent with historic aims of public education. Alan Dershowitz, Felix Frankfurter Professor of Law, Emeritus, at Harvard, explained that President Trump’s “calm before the storm” comment was a message to North Korea and Iran.

Despite Hurricanes Harvey and Irma, U.S. GDP grew at 3% in the third quarter, surprising most economists. While most markets were calm during the month, the Bitcoin price soared 40%. In October, Goldman Sachs reported they would trade the crypto-currency. But trading an instrument is not the same as recommending it. Volatility and liquidity are what traders want. October 19^th marked the 30^th anniversary of “Black Monday,” a non-event this year. Amazon asked states and municipalities to bid on a second headquarters. Warren Buffett, whom it is better to watch what he does than what he says, bought a controlling stake in Pilot J Travel Centers, the owner of truck stops – sellers of coffee, food and fuel. The market’s calm bewilders me, but tech stocks are on fire. Pay Pal’s market capitalization now exceeds that of American Express. The market capitalization of Apple is greater than the combined values of General Electric, IBM, Boeing, Disney and Dow/DuPont. The Senate voted relief to banks from class-action lawsuits, which have always been a boon to trial lawyers and meaningless for individual plaintiffs. Jerome Powell, a current Fed Governor, is expected to be named Fed Chairman.

In other news, an imperious EU Parliament asked British Prime Minister Theresa May to fire Foreign Secretary Boris Johnson. The U.S. (finally) dropped out of UNESCO, citing an anti-Israel bias. Four U.S. soldiers were killed in Niger, reputedly by ISIS. (American GIs serve in 150 countries.) Despite such weapons proliferating, the Nobel Peace Prize was awarded to the International Campaign to Abolish Nuclear Weapons.  The Nobel Prize for literature was won by the Japanese-born, British author, Kazuo Ishiguro. NASA reported that signals reached Earth of two collapsed stars that smashed into one another 130 million years ago. Nigerian terrorist, Farouk Abdulmutallab, better known as the “underwear bomber” filed suit in the U.S., claiming his jail conditions are too tough.

Fires in Napa and Sonoma Counties, California, killed forty-two, destroyed 8,400 structures and created $1 billion in insured losses. A group of protestors supported by Antifa said they wanted to “deface” Columbus Day. Richard Thaler, a behavioral economist with the University of Chicago. won the Nobel Prize for economics. The Boy Scouts of America, which has seen membership drop 40% over the past 45 years, said they will now admit girls. A “hostile” take-over? The opioid crisis was declared a National Emergency by the President. Vietnam veteran and medic, Captain Gary Michael Rose was awarded the Congressional Medal of Honor, for bravery during a just-declassified operation in Laos, in September 1970. In an example of beautiful irony, the group behind the “Fearless Girl” statue on lower Broadway in New York agreed to pay $5 million, to settle claims by 305 women employees that their pay was unequal to men in similar positions. With fears of white supremacists on campuses and an absence of common sense, a Michigan State student misidentified a shoelace for a noose. Heritage High School in Wake Forest, North Carolina joined a chorus of politically-correct schools. They will no longer name a valedictorian, citing unhealthy competition among students. And “Lulu,” a young black lab, flunked the CIA’s explosive detection “puppy class,” indicating labs may be smarter than their reputation.

Antoine Domino, better known as “Fats,” died at age 89. His recordings of “Blueberry Hill” and “Ain’t It a Shame” are among my favorites. Succumbing at the same age was Robert Guillaume, unforgettable to millions as “Benson.” And, I lost a good friend, amateur actor, author, former Wall Street Journal editor and fellow Drones Club member, Ned Crabb.

We move on to November, the month in which we celebrate the bounty of our harvests, and during which we prepare for joyful, though commerce-fixated, holidays.

           

"Deficits and Debt Limit Options"

Sydney M. Williams

swtotd.blogspot.com

Thought of the Day

“Deficits and Debt Limit Options”

September 18, 2017

“The purpose of government is to enable the people of a nation to live in safety

and happiness. Government exists for the interests of the governed, not for the governors.”

                                                                                                Thomas Jefferson (1743-1826)

A recent front-page article in The New York Times dealt with the fate of yellow-cab drivers in New York. The reporter, Winnie Hu, provided a heart-breaking look at those (mostly immigrants) who bought medallions at high prices before Uber and others entered the market, and who are now suffering from fewer riders and lower prices for medallions. She did not write of the role government played, in limiting the number of medallions, which artificially inflated their price and which helped cause the upsurge in unconventional competition. She did not write of creative destruction, where new technology drives out the old, and without which our economy and productivity would stagnate. And, she did not point out the options consumers now have – more competition and greater flexibility.

Governments are facing financial crises. Debt is high, and growing. Deficits are expanding. Yet, our infrastructure needs repair and/or replacement, and our defense needs are not being met. Eleemosynary institutions that rely on government support are facing hard times. There are many reasons for this situation, but the gist is that unionized government workers, entitlements, and the bureaucracies to support them, limit options. Mandatory spending on welfare programs has risen inexorably. Union demands, especially at the state and local levels are untenable. Revenues have not kept pace. The solution lies not in more taxes, but in more robust economic growth.

Demographics add to the problem. As a nation, we are aging. In 2015, 15% of the population was 65 and older, up about three percentage points from 2000. In 2030, that number, according to the U.S. Census Bureau, is expected to be 21%. At the same time, the working-age population (18 to 64) is expected to decline from 62% to 58%. In other words, demands on government for retirement and health benefits will increase, while the number of working taxpayers decreases.

We can persist along the current path: borrowing more heavily, increasing taxes, and cutting “discretionary” spending, while increasing deficits and debt. Or we can try to extricate ourselves by changing direction: We can rein in mandatory spending (i.e. entitlements), temper union demands and employ tax and regulatory reform to let the economy grow more quickly.

We don’t need so-called “budget-neutral” tax cuts. We need tax cuts that spur economic growth – simplification and lower nominal rates. While The New York Times contemptuously decried Mr. Trump’s tax reform proposal, saying it favors the wealthy, they were disingenuous. He does want to cut corporate tax rates from 35% to 15%. He also does want to cut personal income tax rates, including those for the top brackets. But he has recommended disallowing many deductions, such as state and local income taxes – a favorite of coastal liberals. The Times knows this, and they know that that would negatively impact their wealthy and elitist readership. A million-dollar wage earner in New York City would lose $127,000 in tax deductions. A California resident, with the same income, would lose $133,000 in tax deductions. Their objections have nothing to do with equality or fairness. Their objections are self-serving. There is, though, a hitch on the President’s proposal – ironically, one noted by conservatives, not liberals. What, for example, would prevent the very wealthy from declaring themselves one-person S-Corporations, so to qualify as a corporate taxpayer? Congress needs to ensure that mom-and-pop businesses can benefit, without the system being abused by “big-bucks” earners in high-income-tax state venues – individuals who can afford high-priced lawyers and accountants.

As for regulatory reform, President Trump has made a good start. He has unwound many of the regulations President Obama imposed on the economy through executive actions. But more needs to be done.  We need regulations, but, when they serve the bureaucrats who administer them (providing assured employment at good wages) at the expense of the people and economic growth, they must be removed or relaxed.

Over the past decade, the good news is that we did not go into depression, as some feared in the wake of the credit debacle of 2007-2009. The bad news is that economic growth, coming out of recession, was the slowest in recent history. When President Obama assumed the Presidency in early 2009, one of the first decisions he made was to form a bi-partisan commission to recommend fiscal stimulus. The Simpson-Bowles Commission was formed in 2010 and reported back about a year later. Their recommendations were ignored by the President and Congress. Tax and regulatory reform were not to be. So, the only game in town became the Federal Reserve, which cut Fed Fund rates to zero, and then instituted a program of repurchasing government and agency debt (quantitative easing) – which caused their balance sheet to expand more than four-fold, and which allowed long rates to remain historically low.

In many respects, the Fed’s actions succeeded: The recession did not deepen; in fact, it improved. The stock market went up three-fold from its bottom. Credit spreads tightened and commercial real-estate cap rates fell. But, we were left with double the national debt and artificially low interest rates, which mask debt’s true cost; GDP growth has been one full percentage point below historic levels. Workforce participation is at the lowest levels in forty years. Income inequality has risen. Wages are stagnant. Labor productivity, according to the Bureau of Labor Statistics, is less than one quarter of the average for the past 40 years. Identity politics have created the greatest societal division since the 1960s. And now the Fed must normalize interest rates and unwind its balance sheet. Rising rates will pressure an already extended budget.

Staying on the current glide, the Country faces reduced options. Slow economic growth reduces tax receipts. With mandatory items consuming ever-larger portions of the budget, spending cuts will have to continue to come from infrastructure, housing, science, the arts, foreign aid, the environment, and defense and homeland security. If we want to keep our options open, we will have to restore some semblance of financial order and increase economic growth. Else, deficits and debt will dictate options.

As Thomas Jefferson noted years ago, the purpose of government is to serve the needs of the people, to provide for their security and to ensure their happiness – not to provide cradle to grave care, and not to do those things we can do for ourselves. We are not the youthful nation we were then. We are mature and we are aging. But we are also the sole democratic guarantor of world peace, which means we need a strong military. Our aging population means there will be greater demand for healthcare and pension accounts. Technology and globalization bring enormous rewards, but they also bring competition and the challenge of “creative destruction.” We face risks, not only natural ones, but from terrorists and nations that would do us harm. Governments must be run in a fiscally responsible way, so that we will have options to confront threats and to assess opportunities when and wherever they occur.