The Weekly Standard’s Yuval Levin:

The persistently weak economy is at the core of [voter] uneasiness: Thirty-five months after the recession technically ended, economic growth remains anemic, and unemployment remains very high. But Americans are nervous not only because the economy has yet to bounce back, but also because we have a sense that the economic order we knew in the second half of the 20th century may not be coming back at all—that we have entered a new era for which we have not been well prepared.

To say that we are not, in fact, on the verge of the triumph of welfare-state liberalism is of course a gross understatement. We are, rather, on the cusp of the fiscal and institutional collapse of our welfare state, which threatens not only the future of government finances but also the future of American capitalism. But at the same time, American capitalism is not exactly ready to bloom once the shadow of Obama is lifted at last. While our welfare state has grown bloated and bankrupt, our economy has grown increasingly sclerotic—weighed down by a grossly inefficient public sector, the rise of crony capitalism, demographic changes transforming the workforce, and a general loss of focus on productivity and innovation. The American economy still has great stores of strength, but it is not well prepared to make the most of those strengths or to address its deficiencies as a global competitor.

This is not the fault of conservative plutocrats or of Barack Obama. It is not the fault of income inequality or of the Federal Reserve. It is the fault of our country’s failure to adequately modernize its governing institutions and its economy—its public sector and its private sector. This failure exposes us to a grave risk of stagnation, and, therefore, decline. And it is that risk, which we all have been sensing in our bones in recent years, that has Americans exceptionally anxious. …

It is more difficult, however, to see why Mitt Romney would not be laying out the nature of America’s predicament before the public. He has begun to offer an agenda that speaks to some key elements of the predicament, but he has not made a coherent case for that agenda as a whole, and so ends up presenting voters with laundry lists of policy ideas wrapped in general criticisms of Obama. He has yet to state clearly the problem to which he offers up his economic policies as a solution.

The problem is that America is unprepared for the future, and Barack Obama is not so much the cause of that problem as the embodiment of it. He stands for what has gone wrong, and his ideological views, his party’s most powerful constituencies, and his policy commitments stand in the way of America’s future prosperity. …

The story of our public finances is the story of the collapse of the liberal welfare state. The edifice of the Great Society entitlement system, poorly constructed in a time of plenty and shielded from reform ever since by a bipartisan conspiracy of political convenience, is crumbling all around us. At its core are the health care entitlements—Medicare and Medicaid—which between them are responsible for essentially all of the growth of government as a share of the economy over the last four decades, and all of its projected unsustainable growth in the next four. At its periphery is an approach to discretionary spending that has left us with a broken budget process and an array of bloated and ineffective public programs. It all adds up to an explosion of the national debt—which has nearly doubled in just the past four years—and to a course of spending and borrowing that we could not hope to chase with tax increases even if we wanted to, and that our creditors know we cannot sustain. This is not the government of a lean, efficient, 21st-century economic power.

And it is not just government spending but government work that is holding us back. The two sectors of our economy that have seen the most job growth in the past decade have been the two most government-dominated sectors: health care, and government employment itself (especially in education). In both cases, that growth has decidedly not been matched by improvements in productivity. Our health care system—largely as a result of Medicare and Medicaid and of the poor design of the tax treatment of employer-purchased health insurance—is horrendously inefficient, inflating costs without any relationship to outcomes and playing a central role in an economy-wide wage stagnation. In education at all levels, meanwhile, we have been paying more and more for less and less—the very opposite of productivity improvement—while much-needed reforms have been prevented by powerful unions and their allied politicians.

The private economy is not exactly getting geared for efficiency either. The failure of education reform makes it difficult for too many younger Americans to gain the skills they will need to compete with foreign workers in tomorrow’s economy, and our immigration policy imports low-skilled foreigners to compete with low-skilled American workers while denying employers the high-skilled workers they lack. It is the worst of all worlds for building American human capital and driving productivity and innovation. …

To help voters see that fact, Republicans this year will have to show that they are not similarly disconnected from what worries Americans. Rather than beginning from Obama’s failures, or from vague if well-meaning allusions to the importance of liberty, Mitt Romney should begin his appeal by explaining the sources of public concern. He should be frank about the danger of stagnation, clear about identifying President Obama with precisely the difficulty we face, and then explicit in offering his own alternative and his own qualifications.

That alternative should aim not simply to remove obstacles to prosperity, but to cultivate the sources of strength and growth in the American economy—to help enable the kind of productivity boom necessary to get us back on a trajectory of growth.

Ironically, one plausible source of the next productivity boom is American health care. Today’s health sector is horrendously inefficient—thanks largely to poorly conceived federal policy—and yet demand for care is great and growing in our aging society, which makes health care primed for an efficiency revolution. …

A second and perhaps no less surprising potential source of strength is the energy sector. While the president has indulged in embarrassing fantasies about solar and wind power and electric cars, America’s domestic energy supply has undergone an utter revolution in the past few years. Advances in technologies for recovering oil and gas from previously inaccessible sources now look increasingly likely to make available astonishing quantities of domestic fossil fuels. …

While promoting reforms to encourage these two potential boom sectors in particular, Romney should also seek to modernize the federal government’s approach to the economy more generally, to make it supportive of the productivity improvements we need. One obvious target for reform is the tax code, which, as nearly everyone by now agrees, needs to be made broader and flatter to raise more revenue more efficiently. The daunting maze of credits and deductions should be pared back to serve just a few essential ends (like charitable giving, health insurance, and child rearing), rates should be lowered where they can be, and the corporate income tax rate in particular must be brought into line with those of our competitors abroad. …

Governor Romney should also shine a light on the disturbing expansion of regulatory power that has accompanied the growth of the liberal welfare state (under Republican and Democratic presidents alike). Regulation obviously has a crucial role to play in governing free markets, but as bureaucratic discretion has increasingly replaced clear and predictable rules approved by elected officials, our regulatory system has become an obstacle to innovation. Romney should call for rebalancing our constitutional separation of powers by requiring all major regulations (judged to carry costs of $100 million or more) to be approved by Congress, along the lines of legislation passed by the House last year, and for pulling back the unprecedented regulatory discretion granted by Dodd–Frank. …

But the real heart of a human capital agenda must be education reform, which for the most part is not the federal government’s purview. Romney should propose to put Washington on the side of serious reformers in the states working to modernize K-12 education by breaking the stranglehold of the teachers’ unions, permitting more choice and variety, and beginning to think beyond our 19th-century system of school districts and local boards of education. He should also not be afraid to put the weight of the federal government behind efforts to reduce the costs of college—using the leverage of federal dollars (not only the billions in subsidized loans, but even the billions in academic research grants) to deflate the higher education bubble, rather than vigorously pumping it up as federal dollars now do, and encouraging alternatives to the traditional four-year degree.

And as he pursues pro-growth reforms like these, Romney should also lay out a new vision of the American safety net, understood as a way to make the benefits of a thriving economy available to all—of making the poor less dependent, not making everyone else more so. Productivity and efficiency need not come at the expense of financial security and social cohesion; indeed, they have often gone hand in hand throughout our history. Only in a stagnant economy, in which redistribution is the only means of bettering the condition of the needy, is the good of employers and producers fundamentally at odds with that of workers and consumers, or with that of the poor. …

America needs more than economic growth. But without growth, we cannot hope to take up our other priorities. With the crumbling of the liberal welfare state and the passing of the postwar economic order, we are badly in need of a new vision for growth. Barack Obama stands for the old order. If Mitt Romney chooses to stand for the new one—for American principles, drive, and ingenuity applied to our novel circumstances—America’s anxious electorate might just stand with him.