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HALL OF FAMEon September 5, 2011
Thomas Friedman is one of my favorite columnists, and I looked forward to 'That Used to be Us' because it addresses America's #1 problem - our sagging economy. However, Friedman and co-author Mandelbaum's analysis of the causes and cures for our economic malaise is confused and often erroneous.

The book begins with Friedman comparing two projects - the six months required to repair two D.C. Metro escalators with 21 steps each near his Bethesda home, and China's building its new Meijiang Convention Center (2.5 million square feet, with gigantic escalators) in eight months. The comparison symbolizes how China's economic dynamism makes 21st-century America seem sickly and inept. Unfortunately, the authors attribute our current state of affairs to a loss of intensity and purpose after the collapse of the Soviet Union. Reality, however, is that our relative decline vs. China began with Premier Deng Xiaoping's 'socialism with Chinese characteristics' in 1979, and intensified after 9/11 as the U.S. became preoccupied with terrorism and paralyzed by increasingly partisan politics, while the Chinese began moving, largely unnoticed, up the economic value chain.

Continuing, the authors contend that America faces three other major challenges - the IT revolution, our chronic and growing deficits, and our world-leading energy consumption. The 'solution' - reviving the values, priorities, and practices that we have used to succeed in the past. The remainder of the book consists of underlying details and their blueprint for doing so.

Globalization (and the hollowing out and weakening of the American economy) was largely initiated by American firms transferring American technologies and management skills while seeking lower-cost production. (So much for 'What's good for American business is good for America.') However, it has since produced a new variety of 'capitalism' largely led, funded, and protected by China's government that has become more successful than our version. A byproduct is that the strength of much of our middle-class, government regulation and finances, and world stature have deteriorated.

Unfortunately, the authors see America's two parties as so sharply polarized by competing ideologies that they are incapable of arriving at the compromises required. Their solution is a new third-party, and a return to sensible policies on education, immigration, infrastructure, risk/capital management, and scientific research. Meanwhile, we stagger forward (?) with budget-ballooning tax cuts, trillions of dollars (and thousands of lives) wasted in the War on Terror, and raising denial of the physical sciences (Global Warming, evolution, stem-cell research) and math (spending increases should be matched by cuts, but tax cuts don't need to be matched by spending cuts - Senator Jon Kyl) to a qualification for high office.

Reality, however, does not entirely support their case that improved education (read 'more money') is key to our future. Americans have nearly tripled per-pupil, inflation-adjusted spending since the early 1970s, with little or no change in pupil achievement or graduation rates to show for it; even 'Let No Child Be Left Behind' has done little to close racial achievement gaps. Unfortunately, Friedman and Mandelbaum give little emphasis to the large and consistent superior performance by most pupils from Asian and Jewish families, dismal Hispanic high-school graduation rates, the common denigration of academic achievement within African-American youth, and the fact that Michelle Rhee's education reform efforts within D.C. were undone by the largely African-American electorate in that city. (Similarly, a recent poll in New York City shows minority parents particularly unhappy with Mayor Bloomberg's reform efforts.)

The authors also undermine their credibility by first claiming Chinese education smothers creativity (no evidence provided), and later reporting that Chinese computer programmers took 1st and 3rd place in the 2011 IBM-sponsored world championship of programming. (The U.S. took 2nd, its only placement within the top 12, while Russia took five of the top twelve positions; the U.S. spends far more on education than both China and Russia.) Friedman and Mandelbaum, when alleging that Chinese education stifles creativity, also seem unaware that the Chinese recently built the world's largest dam and hydroelectric facility, largest network of high-speed rail (admittedly having early problems), longest sea bridge, HVDC transmission line, and irrigation project, and have passed the U.S. in supercomputer speed. Militarily, they've largely neutralized American naval and air power in the Pacific with relatively low-cost missiles, torpedoes, attack boats, and quiet submarines.

Meanwhile call centers in India are now adding PhDs, programmers, and statisticians, showing how losing even low-technology jobs can lead to the loss of high-technology jobs as well. (Outsourcing our manufacture of low-tech CRTs also led to losing out on the R&D and manufacture of high-tech LED and plasma screens, and a handicap in the nanotechnology and solar film races.) The authors also confuse the enormous impact of single individuals (eg. the revolutionary Toyota Production System was essentially the work of one man - Taiichi Ohno), and the much more limited impact of widespread employee involvement, contending the latter augers for more higher education. Need more convincing? Consider the relative impact of Steve Jobs in Apple, vs. its hundreds of thousands of manufacturing workers in Japan and China, Bill Gates within Microsoft, Sergey Brin and Larry Page within Google, Michael Bloomberg within Bloomberg, etc.

Comparing incomes between various levels of education in America creates confusing results. Some researchers report higher incomes for those with a college education (Friedman and Mandelbaum quote from them), while others assert that the coming decade will see much high levels of offshoring high-level jobs (eg. extensive R&D in China is already occurring, and software, legal, and financial/accounting offshoring is predicted to quickly increase, then there's the fact that even prior to the Great Recession about one-third of college graduates ended up in jobs not requiring a degree, while a fourth group has found that after taking into account the costs and foregone earnings associated with college, it is not a good investment. I have an MBA and work as a cross-country truck-driver; one of my college friends (PhD in chemistry) for H&R Block preparing taxes. You figure it out. Regardless, the authors also ignore the glaring need to roll back the cost of college education to 1960's levels before it began rocketing upward at 4X the CPI.

On the other hand, they're 'spot-on' in reporting that effective teachers can make a big difference; strangely, however, they fail to mention that reducing class size and paying teachers according to experience and number of graduate courses completed are both enormously expensive and have very little, if any value (except for the first two years of teaching experience). Worse yet, it would seem that decades of education research findings since the mid-1960s on how to improve pupil achievement, and innumerable reforms, fads, and 'improvements' have accomplished nothing except prove that our colleges of education are vacuous.

The need to reduce health care expenditures rightly receives considerable attention in 'That Used to be Us.' The authors, however, strongly infer that AARP/Medicare is the problem and that the elderly should receive lower subsidies. Simply cutting Medicare, however, would cast many seniors deeper into poverty - by themselves they are unable to counteract providers' demands for high reimbursement and unneeded care. Regardless, America's health care cost problems disadvantage everyone, especially businesses competing with foreign producers. We spend so much more (17%+ of GDP, vs. 9% or less for Japan, South Korea, Taiwan) because our much less regulated fee-for-service reimbursement encourages over-utilization and overpayment, compared to other nations. Unfortunately, efforts to control the problem have been met with 'death panel' and 'government interference' demagoguery.

'We need to keep America's doors to immigration open so we are adding both the low-skilled/high-aspiring and best minds in the world' is another recommendation from 'That Used to be Us.' Common sense, however, says it is not possible to add some 12 million low-skilled, high-birthrate illegal aliens who, on average, value education little (very high dropout rates) without harming Americans already here. (I had a job taken away last year by an illegal.) As for adding the 'best minds' - I would agree; however, our weakening economy is becoming less attractive to those Asians.

Research is essential to America's revitalization, claim the authors. Seems logical; actually, by itself more research support is of little benefit because most subsequent manufacturing (the big dollars) now takes place in Asia (think Apple). The authors also fail to mention that the vast majority of research dollars in the U.S. are wasted, eg. on some 300 new books and 3,000 articles on Shakespeare each year, picayune managerial theorizing that ignores strategic and global issues, economics professors telling us 'we benefit from getting rid of manufacturing and low-skill jobs,' market regulation is not needed/bubbles are self-correcting, etc. Further, '99% of (important and useful discoveries) are made by 1% of researchers,' per Julius Axelrod, Nobel-winner in medicine. The authors also fail to note that Chinese researchers are even more productive because they are encouraged to focus on implementation (not pure research), do less writing of papers, and utilize outstanding college students in lead roles (eg. Zhao Bowen, age 17, leading a genetic analysis of IQ at Beijing Genetics Institute) instead of their having to wait until completion of a PhD and attainment of years of experience as a research understudy. (Note how they are also addressing an important topic head-on, while U.S. research in this area has largely been blocked by political correctness.)

Friedman and Mandelbaum tell us that "Thirty years ago, 10 percent of California's general revenue fund went to higher education and 3 percent to prisons. Today nearly 11 percent goes to prisons and 8 percent to higher education." The implication is that opening more colleges would shut prisons. Reality, however, is that that nationally during that same time period the proportion of 18-24 year-olds enrolled in higher education has risen from 32% to 49%, while imprisonment rates also rose - from about 130/100,000 to 500. A better approach to lowering prison costs would be to rethink the War on Drugs ($1 trillion, over 40 years, and about 40,000 lives - mostly in Mexico).

One final area - Friedman and Mandelbaum contend our political system is much superior to that in China, but again offer no economic evidence of such. China's government has taken a consistent, long-term, fact-based forward-looking perspective; U.S. government, if it acts at all, has been much more reactive, and ideology and short-term focused. Further, if the authors talked to the Chinese they would learn that most of the middle/upper-class fear allowing the lower class voting rights, and that overall the Chinese are much more satisfied with their economy and government than Americans are (Pew International Poll - 2010). Citizens simply don't have the time, knowledge, or interest to become as knowledgeable as required to make intelligent decisions in most areas. Regardless, China has broadened membership in its Communist Party to recently include leading intellectuals/academics and businesspeople.

Bottom-Line: The recommendations in 'That Used to be Us' will not return America to its former glory. Instead, we need to stop off-shoring millions of jobs ('Free Trade' benefited the U.S. greatly - when we had no strong competitors; China continues to benefit from protectionism, as did the U.S. previously) and R&D (over 1,200 multinational firms in conducting R&D in China, mostly U.S.) activities, and tolerating the millions of illegals within the U.S. We don't need more money for education (returning to 1970 levels would save nearly %500 billion/year) or R&D - just greatly improved effectiveness. We don't need more immigration of unskilled labor - just those with strong science abilities. Our reaction to 9/11 has cost nearly $4 trillion - so far. Improving our posture towards the Arab world (less bias towards Israel, leaving Iraq and Afghanistan, stop threatening Iran and Syria), reducing our military (equal the rest of the world, combined), Homeland Security and intelligence (vast duplication - 'Top Secret America') expenditures, returning to 1970 education expenditures/pupil, and eliminating incentives for excess health care utilization and overly generous provider payments ($700 billion/year for just the federal government) would save nearly $2 trillion/year - we could afford to substantially reduce our deficits, and rebuild/update our infrastructure.

Common sense is all that's required to solve America's economic problems, aided by analogy, thinking, and a little data. Treatment for serious bleeding always involves immediate use of a tourniquet or bandage to cut off the flow of blood - nobody instead tries to increase the victim's ability to manufacture blood. Why should we treat serious job losses to outsourcing and illegals any different? Simply stop the losses! Alternatively, ask yourself how could nearly three decades of large trade DEFICITS possibly improve employment in America, as claimed by many CEOs and consultants? And as for contending that Smoot-Hawley tariffs (Free Trade impediments) extended and deepened and extended the Great Depression - how could that be, given that net trade activity was then less than 1% of our economy? We can quickly cure our economic malaise by replacing 'Free Trade' with 'Balanced/Fair Trade' (Europe has done this for years), and no longer allowing millions of illegals to work in the U.S.
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