When the GDP falls, so does the amount of money the U.S. government has on hand to pay for everything because there is less to tax. The root cause is this: U.S. citizens aren’t hatching new businesses, nor do they have the confidence to grow them, so the country doesn’t have the new jobs that business typically creates or the income from them to tax.
This is the seminal point about job growth: Changing how the pie is cut doesn’t significantly change anything. Governments can take more money from here and less from there, but in the end, there’s not enough money. In any case, raising taxes too high doesn’t create jobs.
The traditional or classical economic formulas didn’t work because the blind spot of unpredictable human entrepreneurship overwhelmed and washed out all the rest of the variables in the calculations. That’s not to say that Americans should pin their hopes on something rare, unforeseeable, and miraculous. They shouldn’t cross their fingers and pray for another Internet to come along. What they should do is recognize the danger America is in — and the flaws inherent in projections from classical economics. Predictions from classical economics cannot accurately detect the primary drivers...
The problem with using classical economics to foresee the future is that the most powerful predictors of GDP now lie within the fields of entrepreneurship and innovation. They are nearly impossible to see, let alone forecast. These blind spots hold more weight than what is visible. Within these blind spots are the most needed answers of all to this ultimate question: What is the likelihood that there will be an unpredicted, transformational event that will cause a sudden extraordinary surge of entrepreneurship and innovation just like the one 30 years ago that saved America?