Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Edward Luce, Time to Start Thinking: America in the Age of Descent (NY: Atlantic Monthly Press, 2012)
Democrats have finally come to realize that America is in decline but they haven’t faced the fact that the policy-makers in Washington, including the U.S. Supreme Court, plus the liberal educational establishment have contributed to it. The author, Edward Luce, was a speech writer for Treasury Secretary Larry Summers during the Clinton administration and now works as the chief U.S. columnist for the Financial Times of London. The book is worth reading because the author does an excellent job of reporting what the problems are. But don’t look for solutions.
The author starts out by stating that the dominant characteristic of American policy-makers was pragmatism but “America, at least in terms of how it governs itself, is no longer very pragmatic.” Liberals are nostalgic for the 1960s when the middle class grew and “the federal government sent people to the moon.” For conservatives, “the past is wrapped up in the godly virtues of the Founding Fathers.” And that is the weakness of the book. He attributes the growth of America’s economy to Roosevelt who got us out of the depression by making war and to Democratic policies. It was America’s weak federal governments that enabled the private sector to innovate and invest.
The book is very well-written and filled with interviews that introduces you to some of the principal actors and thinkers on all the problems accompanying America’s decline. Unfortunately, he has a liberal bias and considers all Republicans as Neanderthals. Nevertheless, government policies, whatever the source, come in for a great deal of criticism.
Though the author considers Summers an outstanding economist, he notes his arrogance and his belief that he is always the “smartest person in the room.” Summers’ did not anticipate the 2008 recession, dismissing University of Chicago Professor Rajan’s warning in 2005 that the world’s financial system had been made riskier. Summer’s called him “misguided”. Greenspan, a Republican, ignored the economists who were warning of the coming recession which was triggered by a housing bubble to which Democratic and Republican policies contributed. Luce has little to say about what really caused the recession and is completely wrong about what would produce a recovery.
America’s decline is real. Summers believed that “Today’s ‘declinists’ were wrong” just as they were in the “late-1950s panic” that the Soviet Union was pulling ahead of the U.S. and in the 1980s when they declared “that Japan and Germany had won” the cold war. Luce describes the efforts made by Dan DiMicco, head of Nucor, an efficient US steel-maker, to alert Obama to the dangers of America’s growing trade deficit with China and why the problem had to be dealt with. He describes his meetings with Obama and Biden. With the former, he urged spending more on renewing America’s infrastructure which was rusting, and received the response that “we just can’t afford it”. Biden just laughed at the suggestion that he take the initiative on trying to restore America’s manufacturing sector. “As far as the trade deficit was concerned, DiMicco said “Here are how things work in the real world: antelopes get eaten by lions.” A realistic observation! What was he Democratic administration’s response. Extending U.S. free trade areas which Luce does not mention.
Luce describes the problems with America’s educational system. He quotes Dean Kamen, head of Deka, inventor extraordinary, “We are becoming a stupid country.” Luce, as a liberal, does not believe in decentralized education which he thinks is a disaster. He never stops to consider the possibility of no public education, a system of education vouchers. Control of education may be decentralized, but political correctness dominates the decentralized system. Bad imitates bad. He enthuses over Obama’s “Race to the Top –a very imaginative way of using what money the federal government had to persuade states to change their education policies.” It has no good effects at all. Luce surveys charter schools, and on balance favors public schools. He interviews Bill Gates who admits, “The truth is that we don’t know enough yet.” And as Michael Kirst, California’s education policy-maker, “Since the early 1970s we’ve added money, teachers, and administrators and we haven’t budged an inch.” He deals with the changes in the labor force, employer complaints of a poor work ethic, new jobs favoring women, more men becoming nurses and other characteristics of the labor market. “We are entering a whole new world.” But that is not why education has worsened. Genuine analysts would try teachers’ unions, compulsory busing (In Luce's view,we must be racists to make that assertion!), et al.
While the US has led innovation, it may no longer be taken for granted. Not only is manufacturing being outsourced, so is research and eventually innovation. Luce points to the great tax breaks received by the rich. No mention of how the taxes are spent, no mention of public schools, welfare, public parks, Medicaid, etc. Is debt-financed investment bad? Is it a tax break to be able to deduct interest on borrowed capital? Is accelerated depreciation really a tax break? What about depreciation allowances that make no adjustment for inflation. Ong-term capital This coming from a staff member of the Financial Times!. But notwith standing such iberal obfuscations, Luce is right. Equity capital is hard to raise and new ventures have little access to borrowed capital. But it has little relevance of innovation and where it takes place. Here is a quote worth concentrating on, “Often when I ask interviewees why Washington does not respond with greater alacrity to America’s declining competitiveness, America’s political classes appear to be acclimatizing to their country’s steadily weakening position.”
He criticizes Republicans for opposing huge reserve grants and projects. He approves China’s expenditure of $200 billion on a high-speed rail network and condemns Republicans in Wisconsin, Ohio, and Florida for refusing the federal government’s “rail stimulus” money in early 2011. High-speed networks require high population density to be economic. None of the Democratic proposals are in high-density population corridors. All three governors projected cost overruns and low passenger uptake. Their decisions, he says, “almost certainly had more to do with cultural signaling: it is hard to imagine people arriving at a Nascar rally by train.” Could these decisions have been based on the fact that every rapid transit project really did have overruns and the patronage was insufficient to pay operating costs let alone repay their capital cost.
He quotes Vint Cerf, “The Republicans have become a party of demagogues against science.” Yes, the internet, which Cerf helped found, was created with government help. But government’s contribution to science has been trivial compared with the private sector’s support of science. How much taxpayer money has been wasted on government support of research and useless projects? Most recently the government wasted billions, as I’ve shown on this site in numerous opinion pieces, on worthless anti-global-warming projects from trading in “junkers”, subsidizing electric and dual-powered vehicles, to wind and solar energy plants. Yes, we would not have landed on the moon without the government’s sponsorship. Luce’s celebrities are worth interviewing on what they are expert on. But they have some stupid ideas as well, which Luce shares. He quotes Rob Atkinson, head of something he founded, the Information Technology and Innovation Foundation, “The difference between America and all its competitors is that they are working with their governments.” The difference between fascism and democracy is the degree of control of the private sector by the government. Japan and China have grown at the expense of the American worker by mercantilist practices which favor their producers, including foreign companies that locate within their borders. China and Japan have chronic trade surpluses with the U.S. Luce and Atkinson and many others would have the government spend more on innovation, in spite of the fact that American innovative products like Apple’s i-pad, are built in factories abroad. Luce seems to think that the President is more competent than Congressmen but Congress has left the president with little control of the civilian bureaucracy. Hence, the growth of “czars,” but that has created difficulties communicating.
Luce writes: “History tells Washington’s lawmakers, “.. [that foreign trade] is not a zero-sum game. If China wants to waste foreign exchange reserves on subsidies for foreign companies, then the American consumer will benefit through cheaper prices. The United States should not squander taxpayer dollars on a race to the bottom with China. It is a reasonable argument particularly in an age of fiscal scarcity.” Luce believe the U.S. needs something like Singapore’s Economic Development Board, a “one-stop shop” that Germany, China, Taiwan, and others have, which have the authority to grant incentives to foreign investors. Instead, as he points out, we have multiples agencies like the EPA imposing regulations and procedures seemingly designed to cripple manufacturing in the U.S..
Luce believe America has lost its competitiveness. We agree that America is losing its competiveness, but American firms are thriving abroad. What is silly is they can import their products tariff-free, adding to the trade deficit. We could become more competitive by undergoing deflation of wages and prices, the solution under the gold standard and the euro standard. That in our opinion is unnecessary.
Luce considers tea party members as anti-black compared with the virtuous Democrats. We’ve met black tea-party members. The backlash against out-of-control spending “has been spurred at least partially by white panic over the changing face of America.” As evidence, the writes, “Election studies show that wealthier whites living in large minority states, such as Mississippi, Texas, and Arizona, are more likely," he writes, "to vote Republican than are wealthy whites who live in states with fewer nonwhites, such as Massachusetts, Oregon, and Vermont.” No mention of the fact that the Southern states were controlled by the Democrats in all the decades while those states embraced anti-black policies. Superficial. You bet.
Money is the key to winning elections. At an Obama fund raiser, a leading supporter told Luce, “I have been sitting here all day and I haven’t heard what the Obama campaign message will be. All we’ve been hearing about is organization and money.”
What, indeed, was his message? Luce concludes with a chapter on “Why the coming struggle to halt America’s decline faces long odds.” He has one excellent insight: Sometime in the near future, China’s economy will experience a sharp slowdown and possibly worse. At which point America’s serried ranks of optimists may conclude we have reached another Japan moment, whereby predictions of America’s relative decline are comprehensively disproved—as happened after the “Japanic” of the late 1980s.
This would be a mistake.” We agree, but Luce thinks, “Tea Party opposition to any new spending forced Obama after 2010 to discard the sharpest weapon in Washington’s armory—countercyclical fiscal policy—which he could have use to fight what economists were already calling the “Great Contrraction.”
Obama’s economic stimulus plan of 2009 was supposed to be “countercyclical policy, nearly a trillion dollars and trillion dollar deficits in 2010 and 2011 were what? Unfortunately Luce is no economist and fails as a dispassionate reporter. His love affair with Obama and the Democrats is a love affai. It ruined what could have been a great book. Instead, he wrote a book worth reading only to meet the people he interviewed. The title got me to read it.
Corporate Income Tax
Economy - Long Term
Economy - Short Term
Last 100 Years
Real Estate Taxation
Journal of Economic Literature:
Atlantic Economic Journal: