The problem with the U.S. government is that its allocation of resources is highly inefficient. We spend vast amounts of money on subsidies for housing, agriculture and health, many of which distort the economy and do little for long-term growth. We spend too little on science, technology, innovation and infrastructure, which will produce growth and jobs in the future. For the past few decades, we have been able to be wasteful and get by. But we will not be able to do it much longer. The money is running out, and we will have to marshal funds and target spending far more strategically. This is not a question of too much or too little government, too much or too little spending. We need more government and more spending in some places and less in others. The tragedy is that Washington knows this. For all the partisan polarization there, most Republicans know that we have to invest in some key areas, and most Democrats know that we have to cut entitlement spending. But we have a political system that has become allergic to compromise and practical solutions. This may be our greatest blind spot.
Tomorrow: Fareed Zakaria talks about America’s decline and the rise of the rest of the world.