INTRODUCTION
TRAPPED
Three facts are now poised to shape our economic life for a generation. First, thanks to global competition and rapid technological change, America’s economy is about to face its most severe test in nearly a century. Second, our political and business leaders are doing next to nothing to prepare us to cope with what lies ahead. And third, the reason for this inaction is that our entire economic and political culture remains in thrall to a set of "Dead Ideas" about how a modern economy should work. This book is about the threat that individuals, companies, and the country face from the things we think we know, and about the new (and surprising) ways of thinking destined to replace these Dead Ideas so that America will continue to prosper.
The next decade will bring a collision of forces that threaten to disrupt U.S. society, sink the middle class, and call into question the political and business arrangements on which our prosperity and stability have rested for decades. These perils have little to do with the housing-related financial crisis that gripped America in the fall of 2008; in fact, the need to steer our way through this near-term credit crunch now masks longer-term economic challenges that are far more consequential. The stakes couldn’t be higher: if America doesn’t decisively manage these tides of change, we’ll face a backlash against our economic model—which, for all its flaws, has produced more betterment for more people than any other system in human history. If this backlash proves contagious, and other advanced nations lose faith in capitalism’s ability to improve the lives of ordinary people, the rich world’s efforts to protect its citizens from economic change will doom the developing world to dollar-a-day poverty.
The good news is that there are ways to avert this dark scenario and to flourish. The trouble is we’re not doing what we need to because of the Tyranny of Dead Ideas. By this I mean the tacit assumptions and ingrained instincts broadly shared by business executives, professionals, policy makers, media observers, and other opinion leaders regarding the way a wealthy, advanced economy like the United States should work. While current thinking about the American economy is hardly monolithic, the individuals who occupy its most influential positions subscribe to certain key premises:
· our children will earn more than we do
· free trade is "good" no matter how many people it hurts
· employers should play a central role in the provision of health coverage
· taxes hurt the economy
· "local control" of schools is essential
· people tend to end up, in economic terms, where they deserve to
These axioms have percolated through the culture for decades, becoming second nature to many of us. They determine which paths we consider, which large questions we view as settled, which possibilities we allow ourselves to imagine. And therein lies the dilemma: from the halls of government to the executive suite, from the corner store to the factory floor, Americans are in the grip of a set of ideas that are not only dubious or dead wrong—they’re on a collision course with social and economic developments that are now irreversible.
As these new realities crash against what people believe, a strange intellectual chasm is revealed. It’s not just ordinary people who are disoriented. The stewards of our economy themselves are lost, at least to judge from the bizarre reasoning on display in exalted precincts. Consider:
· CEOs routinely bemoan skyrocketing health care costs, saying they give foreign companies a competitive edge because governments abroad pick up these bills. Yet in the next breath most executives insist that America’s government should not play a bigger role in bearing this burden. Who else do they think is available?
· Politicians and business leaders say we should cut taxes for most (some would say all) Americans to boost the economy. Yet America already has $40 trillion in unfunded promises shortly coming due in Social Security, Medicare, and other programs serving senior citizens—and that’s before we toss in the costs of rescuing America’s banking system, not to mention assorted sensible blueprints to insure the uninsured, develop clean energy, rebuild roads and bridges, extend preschool, and more. Has anyone noticed that these numbers don’t come close to adding up?
· Everyone agrees that education is the key to improving future living standards in a fiercely competitive global economy, and that we need to lift all children, not just the most talented, to higher standards of learning and achievement. Yet in the 2008 presidential campaign, not a single major-party candidate questioned our shockingly inequitable system of school finance, which dooms schools in poor neighborhoods in ways no other advanced nation tolerates. How are 10 million poor American children supposed to compete?
· Top economists in both political parties perennially assure us that free trade is "good for the country," because the benefits to some Americans outweigh the losses suffered by others due to foreign competition. But wait: Who put economists in charge of weighing the interests of one set of Americans against another?
As puzzles and contradictions like this ricochet across boardrooms, union offices, town hall meetings, and kitchen tables, the questions ask themselves. Why are business leaders afraid or unwilling to say that we need government to play a bigger role in health care? How can top officials and their advisers call constantly for tax cuts when trillions in unpaid bills are coming due? Why do politicians pledge to "leave no child behind" while overseeing public school systems that systematically assign the worst teachers and most rundown facilities to the poor children who need great schools the most? Why do free trade’s losers get only lip service even from those elected representatives who say that workers are getting the shaft?
The best explanation is not ultimately cynicism, selfishness, or indifference, nor is it really an inability to perceive and act in one’s own long-term self-interest. No, the deeper ailment afflicting today’s confused capitalist is intellectual inertia. In every era, people grow comfortable with settled ideas about the way the world works. It takes an extraordinary shock to expose the conventional wisdom as obsolete, and to open people’s minds to a new vision of what is possible and what is necessary. Yet eventually a point is reached when what was once deemed unthinkable comes to seem inevitable. The climate of opinion is transformed by events. It happened in the Great Depression, when mass unemployment and hardship swept away long-standing taboos against government intervention in the economy. It happened during the civil rights movement, when televised horrors outraged the nation and brought a convulsion that ended legal discrimination based on race. It happened in the 1970s, when recession, oil shocks, and inflation mixed with the sense that welfare programs had spun out of control to bring a new consensus to renew capitalism’s "animal spirits" via lower tax rates. But the forces of the twenty-first-century global economy, powerful as they are, haven’t yet proved strong enough to topple the unquestioned ideas that continue to shape American economic life—ideas about the nature of economic progress, the role of the federal government and the corporation, and the best way to balance the risks capitalism brings with the security people seek. For now, in short, America’s economic future is at risk because of the Tyranny of Dead Ideas.
I’ve seen the distorting influence of these ideas from the inside. As a consultant to major companies, I work with top executives across corporate America, and I have heard the doubts and anxieties they bring to such questions. I also know they’re too busy running their businesses in the face of unprecedented global pressures to have "connected the dots" on all this. As a government official, I saw how ambition and fear shape political behavior and breed timid thinking unequal to our challenges. As a journalist, I’ve spent years moving among the voices on all sides of these debates; I’ve also seen how hard it is for the media to address these questions without resorting to caricatures that mask more than they explain. Together these experiences have given me multiple angles of vision with which to put the American economic mind "on the couch." The struggle to adapt to globalization is poised to dominate the next generation of business and political life. What we need now are not more out-of-touch assertions that faith in markets will see us through, nor do we need well-meaning but naive "stop-the-world" jeremiads. To get past these tired formulations and transform the way we think, we need a burst of what might be called "economic therapy," offered by an ardent capitalist to help the American economy through another of its periodic turning points.
The basic aim when our economy reaches such a crossroads is to make sure that the infamous "creative destruction" of capitalism doesn’t destroy so much for so many that America’s embrace of innovation and economic change is also a casualty. This isn’t a new worry, of course. The quest for a better blend of growth and justice has preoccupied reformers since the dawn of the industrial age. But reform is never easy. "Devotees of capitalism are often unduly conservative," wrote John Maynard Keynes in 1926, "and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be first steps away from capitalism itself." Today, after America’s own recent experiments, there is much we already know. We know that old-style "big government" liberalism in America is dead,...
