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The Evolution of Normal

As we plow through the second quarter of 2011, there remain signs of progress tempered with counter-admonitions ranging from the end of days to a return to deep recession. As always, nothing is ever as gloomy as some would have us believe, and facts indicate a cautious return to equilibrium. The country is still on a course that will generate around 3% GDP, unemployment is inching downward, and concern over federal debt and deficits seems to be getting genuine attention.

There is less financial leverage in the overall system, but there is also less foolish risk taking and more oversight. It would also appear that there is less fraud, but it remains to be seen if that particular pattern will continue. Government and industry are both concentrating on realities associated with greater productivity, fiscal accountability and innovation. And, there are signs that new seeds of innovation and creativity are being sown in virtually every sector, with the promise of significant returns just around the corner.

For those who do not understand the role of government, this has been an especially trying period. While it built enormous debt, the federal government has also been the great stabilizer. Through various means, it has stabilized financial services, brought elements of the auto industry back from the brink, and opened new dialogue on the subjects of fraud and misrepresentation. The result since 2007 has been less systemic leverage and more government…both of which must slowly seek an evolved state of balance that will accommodate the requirements of a revitalizing economy. Some news here, folks: With a growing population, demand for federal, state and local government services will increase – not decline. So, it is not the size of government that matters most, but its ability to operate efficiently while providing essential services. (And who defines essential?)

Overall, we are seeing more people begin to understand that there will be no return to any previous ‘normal’ but an evolution to a new economy – parts of which will seem alien and contrary to historic American capitalism. But for those who study such things, it is clear that levels of U.S. consumerism were unsustainable, as were income growth patterns, the number of new businesses and new jobs, and the range of entitlements demanded by the majority of citizens. Something had to give.

For the remainder of this decade, America’s GDP will be tied to the growth of global partners and its ability to both compete and collaborate on the world stage. Brazil, China, Argentina, Mexico, India, Canada, and many other countries are seeking global enterprise partners. After so long at the top, there is real concern whether the U.S. can strategically cooperate to take advantage of emerging markets, new enterprises, and the global thirst for development. Science, engineering, agriculture, communications technology, energy, education and healthcare can all be engines of community prosperity. Enterprise is a global and local driver…not politics or military strength. It is not capitalism so much as it is the advent of ‘free market democracy,’ that drives all nations and people to seek betterment and progress. It is happening; it is accelerating; and, it is impacting every community in the United States.

There will be other crises. However, as a society, we will be better prepared as debt is reduced, people become more cautious, savings increase, and accountability is restored. More critically, as young people join the workforce and mid-career professionals begin to more actively seek their fortunes, a new era of creativity will emerge. Watch carefully as other cultures adopt social media, cell phones and the Internet…then really begin communicating. Enormous change at the state and local level is occurring every day and will gain momentum. Now is not the time to pout and demand a return to the good old days. Now is the time to embrace opportunity, engage in new pursuits, and become fully open to new possibilities. As always, I ask, ‘Is your community fully Prepared for Challenge?’  

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). His new book, Planning the Future – A Guide to Strategic Thinking and Planning

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An Ignorant and Slippery Slope

Almost two years ago, Robert Samuelson wrote an essay in Newsweek (Let Them go Bankrupt, Soon, June 1, 2009) suggesting that citizens and politicians would never take Medicare and Social Security issues seriously until the systems failed. Citing extended life and more robust health among the U.S. population, he noted that more seniors (i.e. Boomers) will swamp both systems before mid-century.

While this is not the newest of news, it is interesting to me that Samuelson’s very powerful and carefully documented commentary and many since that time have failed to spark much effort to counter the slide to oblivion. Over the next 75 years, Social Security and Medicare will cost around $103 trillion while revenues will generate approximately $57 trillion. With a gap of almost $46 trillion, one would reasonably calculate this country would be in a precarious fiscal dilemma known to most of us Pilgrims as bankruptcy.

To be sure, our society places a premium on caring for the old, disadvantaged and infirm, but what of all the other obligations? One would think public infrastructure (ports, airports, highways, and bridges), defense, public health, public transportation, housing and education are worth retaining. If Medicare and Social Security trust funds won’t be exhausted until 2017 and 2037 respectively, it would seem we have time for a course correction. Why has there been no action?  Review the facts – every administration and congress merely pushes the crises further into the future, as the current crop of diddlers do little more that nibble around the edges and posture for political gain.

Tax reform is inevitable. As it would be in any private enterprise, growing debt indicates living beyond the means required to support the business. At some point, it is time to 1) cut spending, and 2) do what is possible to grow revenue. Pretty simple.  U.S. tax rates are generally low for the middle class and ridiculously low for high earners. Corporations, on the other hand, could use a tax break, which in turn might bring some of the multinationals (and their tax revenues) back home. Even slightly raising taxes for a period of time would help right the ship, as long as those additional revenues were used in concert with spending reductions.

Even larger looming issues are actually a convergence of several enormous negative variables. Deteriorating infrastructure, declining educational performance, cost of education, incessant and meaningless warfare and a financial system that preys on a nation hooked on credit are all impacting the American culture. And, the slope is beginning to incline to the point that catastrophic impacts are bound to occur…not in decades, but within a few short years.

The climate is shifting, the housing bubble remains problematic for millions of homeowners, oil prices are escalating, and deferred maintenance has become a way of life. We are living on borrowed time and still cannot bring ourselves to quit posturing, reduce spending, focus on the essential, and take sensible corrective action. Keep in mind that, as we debate and dink around, the most serious variables are bearing down on this country. There will be a multi-trillion price to pay for deferred maintenance; there is still not enough oil to support global needs and fuel costs will continue to rise; the climate will continue to evolve, with potentially disastrous effects (monsoons, epic snow or tornados, anyone?); and existing entitlements will continue to push the country toward bankruptcy.

In the meantime, much of the developing world is intent in building a ‘free market democracy,’ meaning that everyone has an opportunity to do business. Whether the world is truly flat is questionable, but one thing is certain – many countries are quite interested in trade, progress, growth, and development.  Kiplinger’s global forecasts put GDP for Brazil, South Korea, Russia, and Mexico at between 4% and 5% for both 2011 and 2012. GDP for China and India will both exceed 9% for the next two years. The U.S. will max out at around 3% and the Euro zone probably won’t break 2%. Commerce drives revenue. However, it can neither energize good decision-making, nor provide the will to make difficult choices.

As stated many times in this Blog, everything must now be triaged. What is in the best common interest of every community and state must drive every decision…not political affiliation or ideology. Very few professionals I contact in Washington D.C. are optimistic about the future. This is due mostly to the lack of foresight and will being reflected in partisan deliberations and empty rhetoric. 2011 is nearly half over, and we are no closer to being prepared for the enormous challenges ahead.

With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). His new book, Planning the Future – A Guide to Strategic Thinking and Planning for Elected Officials, Public Administrators and Community Leaders, was released in October 2010. An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges (public futures at http://www.futurescorp.com).