The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [6]
Source: Data from U.S. Bureau of Economic Analysis.
Figure 2.4: U.S. Deficit as Percentage of GDP, 1955–2011
Source: Data from Office of Management and Budget Historical Budget Tables.12
The chronic lack of saving by households and by government (especially state and local government) means an impending retirement crisis for baby boomers. The oldest of the baby boomers were born in 1946, meaning that they hit the retirement age of sixty-five in the year 2011. With this long track record of undersaving, millions of baby boomer households will suffer a significant decline of living standards as they enter retirement. The Center for Retirement Research at Boston College prepares a “National Retirement Risk Index” of the percentage of households whose financial assets are insufficient to preserve their living standards during retirement. The evidence suggests that the percentage of households “at risk” has soared, from 43 percent in 2004 to around 51 percent in 2009, including 60 percent of all low-income households.13
What is true at the household level regarding retirement risk for private-sector workers is also true for public employees at the state and local level. Pension plans for state and local employees are chronically underfunded relative to the promised benefits, though by exactly how much remains in dispute.14 The consequences of underfunded pension plans will be some combination of a squeeze on public spending, a rise in state and local taxes, and a renegotiation of pension benefits.
The Investment Squeeze
The decline of net national saving has also meant a decline of funds available for domestic investment to build capital stock.
Whereas China, which saves around 54 percent of its national income, is building hundreds of miles of subway lines and tens of thousands of miles of fast intercity rail lines, America is building hardly any infrastructure at all.15 In fact, our existing infrastructure is increasingly decrepit, a point of shock to foreign visitors when they arrive. The American Society of Civil Engineers (ASCE) has been our eyes and ears on the growing crisis, publishing every few years a report card detailing the estimated five-year investment needs to correct major deficiencies in key systems. The report card is sobering reading, with few passing grades. The roads are worn out; bridges and dams are vulnerable to collapse; and levee and river systems need major upgrades, as the tragedy in New Orleans shockingly exposed. The water supply is widely contaminated. The overall grade is D, “poor,” with an estimated five-year bill of $2.2 trillion to correct deficiencies in basic systems. At roughly $400 billion per year, we require a scaling up of infrastructure investment equivalent to 2 to 3 percent of GDP each year.16
Intellectual capital, the pride of America, is also diminishing, as America cedes technological leadership to China and other countries in areas such as renewable energy and stem cell research. The energy system is in a deepening crisis. The power grid is outmoded, yet there is little advance in building a new state-of-the-art national transmission system. There is policy paralysis regarding many kinds of possible power generation: nuclear, coal plants with carbon capture and storage (CCS), offshore wind power, biofuels, gas shale, deepwater drilling, and many others.
The most serious threat is to our human capital. The quality of the labor force will be the most important single determinant of American prosperity in the decades to come. The evidence, therefore, that America’s public schools are falling behind those of the rest of the world in core attainments in reading, science, and math is a harbinger of a deepening crisis. There is now a systematic global comparison of scholastic performance of fifteen-year-olds carried out every three years as part of the Program for International Student Assessment (PISA), currently covering sixty-five countries. The 2009 results are chastening. On the one hand, the United States ranked only fifteenth in