That we seem to have avoided another Great Depression doesn’t mean our economy is anywhere near as strong as it should be. In fact, most indicators—from unemployment to private investment—prove quite the opposite. What can be done? How can we ensure the U.S. enjoys not merely a modest recovery but the kind of buoyant prosperity we saw in the decades after World War II and briefly in the 1990s? We put the question to few political economists and will run their thoughts over the next couple weeks. Here is the first entry, from Clyde Prestowitz, a former Reagan administration official and the president of the Economic Strategy Institute.
The Obama administration justifiably takes credit for preventing a 1930s style economic collapse and engineering a modest recovery from the Great Recession. But, as Obama heads to Toronto Friday for the G-20 summit, the administration needs to ask itself whether that’s enough to lay “the foundations for a renewed American prosperity that is more sustainable, fairer for more of our citizens, and more competitive globally.”
In the past, the United States has pursued prosperity in two distinct ways. Over the last three decades, it has embraced globalization and sought to act as the administrative, marketing, and financial center of world capitalism as well as the consumer of last resort for the export giants in Asia. This path has led to enormous excess consumption at the expense of investment and production and to large, chronic trade deficits.
Earlier in its history, the United States prospered by building and sustaining a wealth producing base that could manufacture goods and provide sophisticated services (like software and movies) that could be sold abroad in sufficient quantities to offset our consumption of imports. That model subordinated finance to production and consumption to investment. It also maintained a large, prosperous middle class and did not suffer from periodic financial crises.
In some of its pronouncements and actions, the Obama administration has suggested it is re-embracing this model. It has called for doubling exports, initiated a number of industry specific programs like the promotion of green tech industries and bullet trains, and has appointed auto bailout adviser Ron Bloom to the newly created post of “manufacturing czar” to advocate for manufacturing within the policy process.
Yet, the administration seems ambivalent. These initiatives have not been carefully considered, and the commitment to them appears to be half-hearted. Moreover, some of the key factors necessary to renewing our prosperity have been overlooked altogether. Thus, on the present track, it’s unlikely that the administration will be able to follow through on creating the American renaissance it promised.
I agree with a lot of that Prestowitz is saying. Two comments:
1) It seems as though we are still fighting an ideological battle from the 20th Century. To wit, proving that largely unfettered market capitalism is the best system. Our tools for fighting this battle were two-fold, military and economic. We seem even now to be relying too much on the former, which was more important in the days of the Soviet Union, than on the latter. A switch to a government which fulfills its role in fostering economic power is in order. I'm not sure if the old geezers in DC are going to ever get this through their heads; it may be a generational issue.
2) I don't understand why the reaction of poli ... view full comment
I agree with a lot of that Prestowitz is saying. Two comments: 1) It seems as though we are still fighting an ideological battle from the 20th Century. To wit, proving that largely unfettered market capitalism is the best system. Our tools for fighting this battle were two-fold, military and economic. We seem even now to be relying too much on the former, which was more important in the days of the Soviet Union, than on the latter. A switch to a government which fulfills its role in fostering economic power is in order. I'm not sure if the old geezers in DC are going to ever get this through their heads; it may be a generational issue. 2) I don't understand why the reaction of policy-makers, and many economists, to China's buying Treasuries on the open market is to propose tariffs. China is able to buy our debt because we issue a lot of it, and it assumes that debt is a safe investment. Why wouldn't our response be (a) to cut government spending to a level that is more sustainable, so that further large buys of Treasuries are less appealing, (b) encourage savings, as Prestowitz advocates, and (c) failing these two, devalue our currency? (c) is a final resort, but that may be the only stick we have for discouraging China's current export policy. I would add the a devaluation in 1934 lead to a period of growth, before a tax hike and profligate government spending choked it off. So maybe it shouldn't be a last resort.
First Name
Last Name
Address 1
City
State
Zip
Andrew Sullivan: Why gay marriage is a fundamental human right.
Jonathan Chait: Carrie Prejean and the definitive case for gay marriage.
Jeffrey Rosen: Massachusetts gets it wrong on gay marriage.
Cass Sunstein: Massachusetts gets it right.
A debate with Jeffrey Rosen.
Andrew Sullivan: Why "civil union" isn't marriage.
Read Full Article »