The rise of the U.S. to economic greatness is an extraordinary story. But it is a story with a sting in the tail. Productivity growth in the U.S. has all but stalled in recent years. The number of new companies being created has reached a modern low. Geographical mobility has been in decline for three decades. Economists worry that America’s potential rate of growth—the pace at which annual output can expand without pushing up inflation—is also falling.
. . . America’s problems, in short, are problems of poor policy-making rather than of senescent technology or a lack of entrepreneurial drive. This does not mean that they are insignificant. Unless the U.S. changes course, its economy will continue to flag, holding out the unhappy prospect of a self-reinforcing cycle of low growth and populist rage.
Some economists think that the U.S. is mired in a swamp of low growth. We prefer to think that it is trapped in an iron cage of its own making. Out-of-control entitlements and ill-considered regulations are condemning the economy to perform well below its potential. Swamps by their nature are very difficult to escape. Cages can be opened, provided that you have the right keys—and are willing to turn them.
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