The United States’ competitive edge in the global economy is not what it used to be. The World Economic Forum (WEF) reported that the U.S. dropped from fifth to seventh place—the fourth consecutive year it has fallen in the rankings. Chief among the reasons is the one-two punch of skyrocketing debt and uncertainty among businesses that Washington will address the country’s fiscal and economic problems.
Gee, that sounds familiar.
National debt recently cruised past the $16 trillion mark and is continuing its ascent toward the current debt limit of $16.394 trillion. It has already eclipsed the size of the entire U.S. economy. Reaching the debt limit again will serve as a grave reminder that Washington’s spending spree and failure to reform entitlement programs that are driving spending is wreaking havoc on the budget. That not only threatens to saddle future generations with crushing levels of debt—and taxes to pay for it—but also compromises the health of the U.S. economy right now.
Such irresponsibility in Washington—manifest in over-spending, huge and chronic budget deficits, and massive debt—diminishes the business community’s trust that the government can and will get the country’s fiscal house in order. Whether it is a failure to stave off Taxmageddon’s tax hikes now, rein in federal spending, or reprioritize the sequestration’s automatic spending cuts scheduled to deliver a serious blow to our national defense, Washington is only generating the bad kind of uncertainty—and lots of it. Because there is such distrust of political leaders and institutions, and government is grossly misusing its resources, businesses, investors, and families feel their hands are tied. Tepid economic growth results—a point we see reinforced by the latest in a slew of mediocre jobs reports.
The Heritage Foundation’s own Index of Economic Freedom tells a similar story: The U.S. dropped to tenth place in 2012 and has been relegated from a “free” status to “mostly free.” As the Index authors write:
Restoring the U.S. economy to the status of a “free” economy will require significant policy changes to reduce the size of government, overhaul the tax system, and transform costly entitlement programs.
While certain measures of competitiveness in the U.S. remain strong, the overall trend is headed in the wrong direction. If for some reason Congress and the President needed additional urging to address these “escalating and unaddressed weaknesses,” as the WEF report calls them, this year’s report should do just that.