Monday, March 7, 2011

Don't Bet Against the United States

Poor U.S. of A., forever in decline. the arrival of public theaters in Boston circa 1790 caused Samuel Adams to despair for the cause of liberty in the face of such debauchery. "Alas!" he wrote. "Will men never be free!" Charles Lindbergh fretted, "It seems improbable that we could win a war in Europe." Long before baseball, hand-wringing was the national pastime. We've never been virtuous enough, civilized enough, smart enough or resolute enough.

I was born into a country reeling from Sputnik, which revealed to the whole world that Americans are as dumb as rocks. John F. Kennedy had just been elected President, in part by bemoaning the "missile gap" between the mighty Soviet arsenal and our paltry few bottle rockets. "The United States no longer carries the same image of a vital society on the move with its brightest days ahead," Kennedy said in his final debate with Richard M. Nixon. That's the same Nixon who declared eight years later, "We are worse off in every area of the world tonight than we were when President Eisenhower left office." Hard to believe we could sink further, but we did, as the nightmare of Vietnam segued into the nightmare of Watergate, while the Japanese exposed the insufficiency of American enterprise. As I stumbled off to college, President Jimmy Carter was warning us about "a crisis of confidence ... that strikes at the very heart and soul and spirit of our national will." Thanks to our horrible schools, we were — according to the title of a major 1983 report — "A Nation at Risk." Then our family values went down the toilet.
(See the Recession of 1958.)

You'd think America would be as washed up by now as the Captain and Tennille. So how come we're so much stronger than we were 50 years ago? Somehow, in the 235 years since we got started, Americans have weathered Boston theaters and Soviet science prodigies, violent lyrics and sex out of wedlock. We've survived a Civil War, two world wars and a Great Depression, not to mention immigrant hordes, alcohol, Freemasons and the "vast wasteland" of network television. We've dodged the population bomb, the coming ice age, acid rain and the domino effect. America is to nations what Roberto Clemente was to right fielders. The Pirates legend fretted endlessly about how poorly he felt and how sick he was — while vigorously spraying hits and vacuuming fly balls.

So don't reach for the defibrillator paddles or the rosary beads quite yet.

Overblown Symptoms
These days, the doctors diagnosing American decline tend to focus on two types of disease. Some worry about deteriorating "social capital" — inadequate education, a demoralized workforce, dysfunctional politics. Others focus on the physical fitness of our economic edifice: the scale of investment, the level of debt, the fractures in the infrastructure. If you collect enough symptoms, you can make a strong-sounding case that the country is indeed quite sick. But fallen trees don't prove the forest is dying.
(Comment on this story.)

And some of the most cited symptoms are overblown. Take the much discussed problem of income inequality. A very small number of superwealthy people are pocketing nearly all the growth in our national income. That sounds dire for a nation founded on the ideal of equality. It isn't, though, for a couple of reasons. First, a significant part of the rise in inequality is an illusion. Changes to the tax code since the 1980s have created strong incentives for owners of private businesses and certain partnerships to report their business earnings as personal income. This didn't necessarily change the amount of money in their pockets; it just meant that money is recorded in a different column of Uncle Sam's ledger. This expansion of so-called Subchapter S corporations and LLCs inflated the tax returns of the very rich — primarily the top 0.5% of all taxpayers. If the tax laws are changed again, money will shift again. Count on that.
Change could be good: a simpler tax code would be a boon for most Americans. Ideally, we could accomplish this without discouraging the private charitable giving that totals more than $300 billion per year in the U.S. But it probably wouldn't make much difference in the incomes of the less than superrich.

Why? Because the main force flattening income growth for most Americans is much bigger than the tax code. Globalization is one of those huge transformations you read about in history textbooks — and not in paragraphs but whole chapters, even whole volumes. Globalization is an epoch, as surely as the Bronze Age or the industrial age, only it is happening with unprecedented speed and scope.
(Watch TIME's video "Bill Clinton on Globalization.")

Contrary to what you may hear, the U.S. is doing pretty well at riding that whirlwind. Wages may have stagnated, but the U.S. hasn't. America's inventors, innovators, entrepreneurs and workers have answered the sudden glut of cheap labor around the world by leading an astonishing revolution in productivity. One American produces as much, per capita, as six Chinese. We outproduce Japanese and Germans by about 30% and citizens of the European Union by nearly 45%. So despite slow wage growth, our standard of living has continued to improve. The $160 that bought a portable black-and-white Admiral television set in 1971, with access to a handful of channels, will now buy (in 2011 dollars) a powerful laptop computer, with access to a world of information — more than any human could digest in a lifetime.

So yes, the world is changing, and yes, the U.S. — like all the world's countries — has a lot of hard work to do to keep up. It is deeply misleading, though, to cherry-pick dismal statistics from here and there to create an overall image of decline. To solve a problem, we must first understand it. American schools, for example, aren't lagging across the board. Where they struggle is in educating poor immigrant and minority students. Focus on that, and watch the gap close between our test scores and those of less diverse nations.
(See America's devastated retail landscape.)

Even worse than flawed statistics, though, is the tendency to interpret the gains of other countries as losses for America. It's true that the U.S. used to generate more patents than the rest of the world combined. Now we produce slightly fewer than half. It is a safe bet that we will generate a smaller and smaller proportion in the future. We're not inventing less; instead, others are being empowered to imagine and invent. Will we always have more airports than the next dozen nations combined? Will we always have three times as many miles of railroad track as China? Probably not, because the rest of the world wants to be as connected as we are.

The fact that students in Finland score well on tests is no threat to us — even as we keep trying to improve our own performance. Attempts by China and Saudi Arabia to create world-class universities don't endanger our institutions — and nothing prevents us from making better use of those resources for more and more of our people.
(Comment on this story.)

As Americans, we're in favor of creativity wherever it can be found. We're apostles of prosperity and defenders of the free exchange of ideas. When more people in more countries are free to rise, to invent, to communicate, to dissent, it's not the doom of U.S. leadership. It is the triumph of the American way. Generations have worked hard and sacrificed much for the country to reach this point, and with further hard work and sacrifice (goaded by the spur of our relentless self-doubt) the U.S. will do just fine in the world it has shaped.