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Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity

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Finally, we have a book that provides a good guide for the rebuilding of the American Economy. Most books focusing on economic growth assume that economy will recover as long as we have four conditions:

Republicans stress

1. Low tax rates to stimulate investment.

2. Little or no regulation of business activity.

Democrats focus on

1. Government spending to boost consumer confidence and thereby encourage consumers to spend money.

2. Increase business regulation either to increase opportunity and fairness or to increase the power of Washington D.C.

Are either of these prescriptions accurate?

The turbulent last decade has been in a way a great laboratory to test economic theories. Early in the decade Republicans received their chance to prove that low tax rates and reduced business regulations would lead to superior economic growth. Democrats now have had two years to prove that massive government spending would increase economic growth. Sadly, it appears that neither one of these theories is the answer. Currently, unemployment levels are near twenty percent if you count those who have been unemployed for more than six months. Unemployment levels were around twenty five percent during the great depression. Clearly neither strategy has been working very well over the last decade. During the last decade we have had two major stock market crashes, two rounds of fraudulent accounting scandals, and two unsustainable economic bubbles and a negative return on the S&P 500.

The Seeds of Destruction takes a different take on economic growth. Authors Glenn Hubbard and Peter Navarro prescription aligns closely with historical evidence on how economies grow.

Hubbard and Navarro's prescription is:

1. Free markets Free of corruption and Monopoly. "A free market free of monopoly elements - Adam Smith, Wealth Of Nations" According to Adam Smith you need laws to control corruption and monopolies. Lack of trust leads to economic freeze ups because no one wants to take the risk that they might lose their entire investment. This is true in investment markets and the grocery market. Who would shop at a grocery store if there was risk that they would not deliver the groceries over to you.

2. Free and Fair Trade Helps all countries grow. Free trade between two nations will never lead to stronger economic growth for both countries unless both play by the same rules. In short, you cannot have one country protecting its market while the other does not. Nor can one country manipulate its currency while the other does not. Page 32 of this book.

3. Entrepreneurship - Historically what has led America to the top was new inventions in machinery and operations. Innovators looking for easier, safer and more efficient methods in order to reduce waste and increase profits. Joseph Schumpeter observed this in his 1942 treatise Capitalism, Socialism and Democracy.

4. Without savings there can be no investment and growth.

5. Stable banking system. The Glass Steagall Act of the 1930's was implemented to reduce banking instability that contributed to the great depression. After its passage America had one of the most stable if not the most stable banking systems in the world. Ten years after its repeal the United States has had two stock market crashes, two large scale fraudulent accounting scandals and a huge government bailout to save the banking system which is going to cost tax payers billions.

6. Technological change matters more than machines and workers.

7. Workers matter as much as physical capital. Workers create technological innovation with new designs and operational techniques. Second, studies have found that companies that treat their workers well tend to have greater labor stability, higher profits and greater innovation. See The Human Equation: Building Profits by Putting People First

8. Energy dependence stunts economic growth. Oil accounts for 40% of the United States trade deficit in goods. Second, the high price of oil is in effect a tax that is paid to overseas nations such as Iran. In addition, when the Federal Reserve lowers interest rates to stimulate the economy this action is undone by a decline in the dollar which increases the price of oil which slows the economy. So by being energy dependent, you lose some ability to control the economy to foreign nations which may not favor the U.S.

9. A healthy nation is a productive and prosperous nation. University of Chicago Professor Robert Fogel has pointed out that there is a close connection between economic growth and improvements in human physiology. Currently, the US health care system is a reactive system not a proactive system. Why not try to head off problems before they occur. See Diet and Health Live 10 Healthy Years Longer The Blue Zones: Lessons for Living Longer From the People Who've Lived the Longest

10. A solid manufacturing base makes for a strong economy. Manufacturing jobs create more growth in other economic sectors. For every dollar of manufacturing output America creates almost a dollar and a half in related services. Finally, as Andrew Grove (Intel) pointed out in a recent Business Week article (July, 1, 2010) a huge amount of technical and operational innovation is learned on the manufacturing floor. Without manufacturing, a significant amount of innovation disappears from the U.S. economy and moves the the manufacturing country.

There can be no doubt that this nation is going through a period of genuflecting about how to deal with the economic crisis that began hitting our shores in 2007. Certainly, most observers would state that this economic turn-down is not merely just a recession, but perhaps something ominous and more complex than the end of the business cycle.

In this vein, I was interested in reading what arguments these two authors had in resolving the question as to whether Washington is doing the types of things to resolve this crisis in a meaningful way or not. This book takes a breif survey of the American economy through the prism of the Washington blender and argues that the resulting `mash-up' is not only disgusting looking, but even more awful to drink.

I believe the best encapsulation of this book is the argument that good politics is triumphing over sound economic principles. Beyond the blather of political party campaigns are the principles of sound economics that the authors argue this nation is distorting. To wit:

1. Insane fiscal policies which only exacerbate the monetary policies put in place - the cheap dollar that ends up begetting an even cheaper dollar and actually is a chimera for Americans in that cheap interest rates distort savings and investment cycles, cause havoc with business signals and inevitably drive up the cost of living.

2. Questioning the mantra of `free-trade' that is not so `free,' particularly pertaining to China, which the authors describe as being mercantilist in a `free trade' world.

3. Perversion of signals to Americans in terms of driving the economy, from obnoxious taxation policies, to government spending causing `crowding out' and ultimately killing business growth. Also, how the 'entitlement dirty bomb' (my phrase, not theirs) is already here and ready to contaminate the American economy all over and burden all Americans going forward.

4. How oil and health care are adding a huge burden on future Americans, and how Washington policies are driving faulty signals to individuals when making choices causing more problems than are actually solved without Washington's political intervention - the theory of 'second choice.'

Essentially, the authors describe the environment of Washington trying to drive policies that are based on political expediency rather than sound economic policy. I believe the authors make a compelling case that seems to be based on `common sense' for anyone with an economics background,and for those without such background, a non-partisan explanation into how Washington is distorting the economy into making worse choices collectively that ultimately hurt (almost) everyone, not help.

The better parts of the book aren't just another bill of particulars about how fouled up Washington is, but rather some suggestions about how policymakers can make better choices. Many of these suggestions are rendered difficult because of political considerations, not whether the economic principles make for a better nation. Such arguments as sound monetary policy, reforming the housing markets and bank reforms are well argued. But unfortunately, it seems as these arguments are tilting at windmills unless the American people truly become aware at just how Washington truly is ruining the economic climate in a way the truly affects all Americans.

In short, I enjoyed reading this book. I have a background in economics, so much of the discussion of economic principles, signals and inefficiencies seemed like old hat to me. The good news is this book is written for the casual reader, not a Ph.D in economics. It is a short but powerful read, and I learned some new things about economic policy. Plus, the book, thankfully, is not a political rant about fault (everyone according to the authors has some blame apparently), but about providing some possible solutions to these problems.

This book deserves a wide audience, especially in Washington (and state capitals for that matter).

Two Harvard educated economists explain why they don't like Obama's economic policies. The book also explains some basic economics. It starts by defining GDP and the levers of growth for the US Economy - free trade, entrepreneurship, savings, bank stability, innovation, human capital, independence from oil, healthy populace, manufacturing. Whereas manufacturing is a lever, I'm not convinced it's an essential lever in a knowledge-based, services-based economy. Whereas manufacturing CEOs are well-paid, the thesis that manufacturing jobs enjoy a "wage premium" may have been true in the past, but in the future knowledge-based jobs may generate higher salaries.

The book has a clear description of problems with the Fed's easy money policies and a critique of government stimulus programs. The book claims that short term stimulus programs make long term structural economic problems, but if the situation is dire, a quick fix can help people - although I agree with the authors that financing an increasing deficit is not good for the economy.

In chapter 5, the authors cry for a simplified taxation scheme and lower taxes. What the authors fail to realize is that taxes applied to the right government programs can enrich the country. They take the popular view that taxes are bad for the economy - without a serious analysis of which taxes are applied. There is a good analysis of the types of tax people might pay, but no analysis of where the government might levy taxes.

Chapter 6 discusses China, reflecting the fashionable beef of US policy makers - it has an undervalued currency and doesn't abide by World Trade Organization rules because it sells at marginal prices. It then goes on to discuss pollution and piracy - behaviors contrary to US business conduct.

The authors admonish US policy makers to find the optimal amount of oil to import, rather than aiming for zero dependence on foreign oil, which would be too costly for the economy. They propose a flexible tariff on imported oil - so weaken their free trade stance.

In looking at ways to reduce Social Security and entitlement program costs, the authors take a purely economic approach. They advocate raising the retirement age. They rightfully point out that the cost of ObamaCare is not well thought out and advocate a more market-driven health system.

This book lacks moral arguments, it is purely focused on economics. There are policies that might be right, but politically abhorrent. A moral society will care for its poor, regardless of economic arguments.

In summary, this book provides a general introduction to current government policies and suggests alternative ways to grow the economy. It is not a detailed book that discusses the details of how you stimulate economic growth through vision, charisma and moral imperatives. Given the authors' Washington experience it is also US centric.

Concise history, present assessment and solutions for the future of America's current troubles. Let's find a way to get this book to the policymakers in Washington, our local elected officials, and the President himself. Specific Points have been determined and outlined to get our Economy and therefore American growth and prosperity onto a solid track. If our nation's economy and growth is a patient on life support in the Intensive Care Unit or in a Recovery Room - our current prognosis is bleak with a dim destiny. This well synthesized book/thesis is a medicine to help us recover rapidly, grow jobs and economy, and maintain our innovative and technological leadership in an ever increasingly competitive global economy. A must read eye-opener on our nation's erroneous present fiscal, monetary and governmental policies making a dire current situation worse by the minute.

Glenn Hubbard is not to be taken seriously. As the brilliant documentary Inside Job reveals, Hubbard himself is a "seed of destruction" by engineering the profoundly misguided Bush tax cuts and undermining any attempts to regulate the financial services industry. It is this lack of regulation that allowed insurance companies and investment banks to become unsustainably leveraged and vulnerable to the totally predictable defaulting on subprime loans that led to global financial collapse. Take your $12 and go see Inside Job instead of buying this book.

The cover and publicity materials for this book highlight that it is non-partisan. The co-authors are prominent Republican and Democrat economists, with strong academic credentials and policy experience. The solutions are pretty much in line with the bipartisan compromises worked out by Presidents Clinton and Bush from 1995 to 2003. Those were considered center-right at the time and are squarely centerist today.

But centerist and bipartisan is not the same as non-partisan. The authors get to their position by adopting two extremes. In the libertarian view of the world, people should do what they want, and keep what they earn. Government and taxes are necessary evils not because they are corrupt or inefficient, but simply because they infringe on individual rights. Socialists think of everything as the property of society, because society creates value, not individuals. The government allows people to keep some of what they earn in order to provide incentives, not as a matter of right.

In this respect, the authors sound as if they would be at home working for Gosplan, the organization that planned the Soviet Union's economy. There is no mention of individual rights in the book, instead an almost Stalinist preoccupation with scientific management of aggregate economic quantities. There is no discussion of what GDP or employment rates really measure, and if perhaps they leave important things out.

Like socialists, the authors also assume the goal is to improve things for one country, and they need not worry about whether that includes illegal immigrants, unborn children, lazy people or criminals. There is a well-defined State, with well-defined interests. For example, when discussing US trade deficits, the money is treated as if it disappeared. There is no consideration that it may have lifted hundreds of millions of people out of poverty, and helped make the world more democratic and prosperous, to everyone's advantage. Libertarians believe all humans have the same rights, they are not parceled out by bureaucratic fiat.

Where the authors break from the socialist camp is in their strong faith in private markets and innovation, and corresponding assumption that government programs will be inefficient and corrupt. Most socialists assume the opposite, that the government will act fairly and competently in the social interest, while unregulated private behavior is likely to be antisocial, enriching criminals and impoverishing honest working people.

For one example, the authors note that US per capita health care spending exceeds that of other nations with higher life expectancies. They do not mention problems with measuring health care spending or life expectancies, they take the figures as if carved in stone. They do not consider people spend health care dollars for things other than extending their lives (like feeling better, looking better, relieving anxiety, etc.). This is about as silly as someone showing that Americans spend more money per capita on automobiles, but have longer average commutes to work.

Now most people who use this kind of logic argue for the government to take over health care, or at least increase regulation. Seeds of Destruction reverses field to blame government intervention for the problems. Under the car analogy, socialists would likely argue the government should seize the "wasted" resources from excessive car consumption and use it to provide free mass transportation for everyone, thereby reducing commute times for the same expenditure. In this book, the authors instead might call for ending public construction of roads and other subsidies for automobile use. In the case of health care, I think they come up with some reasonable proposals for reducing government distortion of the market; but on a logical basis they are making the same argument as socialists, just reversing the conclusion.

Surprisingly, this combination of extremes results in sensible policy proscriptions that might be politically possible. The US center-left reluctantly accepts as temporary expedients that we have to cut back government in order to make good on the promises we have already made, and restore growth and innovation in the private sector. The US center-right reluctantly accepts as temporary expedients that we have to find a way to pay down the accumulated debt and also to fund at least partially pension obligations and entitlements. You may not have voted for the programs, but if they fail our economy may go with them.

The policies are clearly described, but the rationales are not. Partly this is due to the extreme unexamined assumptions that underlie the analysis. It is also due to a style of arguing through word choice. In the best alarmist tradition, anything the authors don't like is "massive," "threatening," or "unsustainable," but no reasons or numbers are given. Purchasing power does not decline, inflation "ignites," as if any increase in the CPI leads to a worthless currency. That we will be forced "down the road to confront some very unpleasant choices," is described as a "clear and present danger." It is neither. That phrase was invented by Justice Oliver Wendell Holmes precisely to prevent suspension of Constitutional rights by vague "unpleasant choices" that are "down the road."

So read this as a well-organized and carefully researched blueprint for action, as a counterargument to those who think disaster is inevitable and any solutions politically unpalatable. But it is just a blueprint, it does not explain what is being built or why.

With so many great economic books out now, Seeds of Destruction just isn't worth getting. I saw a claim of non-partisanship on the cover--not true, only a Republican could like this book. It was like reading a very long Wall Street Journal editorial; the market is held as the magical solution to all our problems. The book's mediocrity is proof that academic credentials do not necessarily lead to wise solutions or interesting writing.

I chose this book because I had read an op-ed in the NY Times by Hubbard that had the most creative solutions for the mortgage crisis and need for economic stimulus that I had seen. Imagine my disappointment when this book arrives and is the usual screed against Washington, though considering the subtitle I shouldn't have been surprised.

Not much going on here. If you've read Conservative talking points you've got the book. Not recommended for people who are looking for creative solutions

This book changed my opinion of the decisions being made about our nations future. It should be required reading for policy makers on both sides of the aisle.

I hope to see more from these two brilliant and insightful economists.

Wake up America! Hubbard and Navarro's collaboration shows that caring about America's future goes beyond our political ideologies! The recklessness in DC must be stopped!

The authors detail a frightening stream of remarkably bad policy choices and an insane preoccupation with spending. The otherwise, seemingly brilliant folks in the Obama administration. have created a monster that threatens to undermine what so many generations of Americans have worked to achieve. Continuing on this path will not fix our short term problems with unemployment, energy, or security, but it will leave our children a bankrupt and hopeless nation.

Further, the two economics professors; one a former Bush white house advisor and the other a Democratic congressional candidate offer concrete policy solutions to these problems. Of course, they aren't the easy, populist, and divisive fear mongering ideas that sell best in Washington, but rather bold and thoughtful suggestions for redeeming our industrial base and reclaiming our position in the world.

A must read for anyone who wants to see America stay on top!