Thursday, April 26, 2012

What I Read Today - Thursday April 26, 2012

From:  The Wall Street Journal

Karl Rove: I Was Wrong About Dick Cheney . . .


. . . and other lessons I learned from vetting vice-presidential candidates.

By KARL ROVE

We've entered the silly season when vast numbers of words will be expended on who Mitt Romney's vice presidential running mate should be. Since the actual announcement is likely to be made shortly before the Aug. 31 GOP convention, we'll have to endure three-and-a-half months of pundits handicapping prospects.

This exercise is largely useless. Who thought at this point in 2000 that the vice-presidential nominees would be Dick Cheney and Joe Lieberman, or in 2008 Sarah Palin and Joe Biden?

The person who matters most in this decision, Mr. Romney, appears to be approaching it with appropriate seriousness, appointing a longtime trusted aide, Beth Myers, to vet possible running mates.

Having played a role in this process, I know that if done well this will be a political proctology exam for each individual considered. Ms. Myers and an army of lawyers, researchers and accountants will examine the person's every public statement, vote or executive decision; they will review tax returns and financial records; and they will scrutinize friends and associates. They also will ask finalists what in their background could embarrass Mr. Romney if it came out, because it will.

This is not an activity for the squeamish or reticent. Team Romney will discover that every prospect has strengths and warts. There is no perfect candidate.

Many presidential contenders view their potential vice president largely through an Electoral College prism: Who can deliver a vital state? This was John F. Kennedy's approach in 1960. He had little love for Lyndon Johnson but felt creating a Boston-Austin ticket could bring Texas into the Democratic fold. And the Lone Star State, which had twice chosen Eisenhower, went for Kennedy.

Sometimes the vice-presidential decision results from the campaign's flow. In 2008, John McCain's camp felt that while they were ahead after a better-than-expected summer, they needed to shake things up with an out-of-the-box pick. This thinking produced Sarah Palin.

That same year, Barack Obama left for a Hawaii vacation on Aug. 8 as Russia invaded Georgia. He worried about his absence of international experience and turned to Mr. Biden, chairman of the Senate Foreign Relations Committee.

But such political decisions run into one hard reality: Running mates haven't decided an election in more than a half-century. For example, research by Bernard Grofman and Reuben Kline, political scientists at the University of California, Irvine, suggests that the net impact of the vice-presidential picks in 2008 was roughly one-half of one point and is generally less than one percentage point. Presidential elections are rarely that close.

What about running mates helping to carry their home states? Political scientists Christopher Devine of Ohio State and Kyle Kopko of Elizabeth College argue the home-state advantage is often modest and almost never dispositive. Rarely does a presidential election come down to one state, as it did in 2000 (Florida) or 2004 (Ohio). In neither of those instances did either party field someone from those states.

A running mate's principal political impact is on behalf of the presidential candidate's themes or issues. The vice-presidential candidate helps reinforce what the presidential candidate is emphasizing. But if the top banana on the ballot isn't getting it done, the running mate won't be able to on his or her own.

Choosing a running mate reveals much about the presidential candidate himself. Though still only a candidate, this is his first presidential decision.

It is one best made by asking about the skills, philosophy, outlook, work ethic and chemistry of a prospective running mate. Do they have good judgment? Can they be counted on to give their unvarnished opinion? Are they loyal? Who can best help the president govern? In other words, set aside politics. Put governing first.

This was brought home to me in 2000, when then-Gov. George W. Bush was strongly leaning toward picking Dick Cheney as his VP. He knew I was opposed and invited me to make the case against his idea. I came to our meeting armed with eight political objections. Mr. Bush heard me out but with a twist: I explained my objections with Mr. Cheney sitting, mute and expressionless, next to the governor.

The next day, Mr. Bush called to say I was right. There would be real political problems if he chose Mr. Cheney. So solve them, he said. Politics was my responsibility. His job was different: to select his best partner in the White House and a person the country would have confidence in if something terrible happened to him. The country was better served by Mr. Bush's decision than by my advice.

There's a lesson there for Mr. Romney. Choose the best person for the job. Leave the politics to the staff.



Tuesday, April 24, 2012

What I Read Today - Tuesday April 24, 2012

From: The New York Times



The Creative Monopoly

By DAVID BROOKS

Published: April 23, 2012

As a young man, Peter Thiel competed to get into Stanford. Then he competed to get into Stanford Law School. Then he competed to become a clerk for a federal judge. Thiel won all those competitions. But then he competed to get a Supreme Court clerkship.

Thiel lost that one. So instead of being a clerk, he went out and founded PayPal. Then he became an early investor in Facebook and many other celebrated technology firms. Somebody later asked him. “So, aren’t you glad you didn’t get that Supreme Court clerkship?”

The question got Thiel thinking. His thoughts are now incorporated into a course he is teaching in the Stanford Computer Science Department. (A student named Blake Masters posted outstanding notes online, and Thiel has confirmed their accuracy.)

One of his core points is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value.

In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too.

Now to be clear: When Thiel is talking about a “monopoly,” he isn’t talking about the illegal eliminate-your-rivals kind. He’s talking about doing something so creative that you establish a distinct market, niche and identity. You’ve established a creative monopoly and everybody has to come to you if they want that service, at least for a time.

His lecture points to a provocative possibility: that the competitive spirit capitalism engenders can sometimes inhibit the creativity it requires.

Think about the traits that creative people possess. Creative people don’t follow the crowds; they seek out the blank spots on the map. Creative people wander through faraway and forgotten traditions and then integrate marginal perspectives back to the mainstream. Instead of being fastest around the tracks everybody knows, creative people move adaptively through wildernesses nobody knows.

Now think about the competitive environment that confronts the most fortunate people today and how it undermines those mind-sets.

First, students have to jump through ever-more demanding, preassigned academic hoops. Instead of developing a passion for one subject, they’re rewarded for becoming professional students, getting great grades across all subjects, regardless of their intrinsic interests. Instead of wandering across strange domains, they have to prudentially apportion their time, making productive use of each hour.

Then they move into a ranking system in which the most competitive college, program and employment opportunity is deemed to be the best. There is a status funnel pointing to the most competitive colleges and banks and companies, regardless of their appropriateness.

Then they move into businesses in which the main point is to beat the competition, in which the competitive juices take control and gradually obliterate other goals. I see this in politics all the time. Candidates enter politics wanting to be authentic and change things. But once the candidates enter the campaign, they stop focusing on how to be change-agents. They and their staff spend all their time focusing on beating the other guy. They hone the skills of one-upsmanship. They get engulfed in a tit-for-tat competition to win the news cycle. Instead of being new and authentic, they become artificial mirror opposites of their opponents. Instead of providing the value voters want — change — they become canned tacticians, hoping to eke out a slight win over the other side.

Competition has trumped value-creation. In this and other ways, the competitive arena undermines innovation.

You know somebody has been sucked into the competitive myopia when they start using sports or war metaphors. Sports and war are competitive enterprises. If somebody hits three home runs against you in the top of the inning, your job is to go hit four home runs in the bottom of the inning.

But business, politics, intellectual life and most other realms are not like that. In most realms, if somebody hits three home runs against you in one inning, you have the option of picking up your equipment and inventing a different game. You don’t have to compete; you can invent.

We live in a culture that nurtures competitive skills. And they are necessary: discipline, rigor and reliability. But it’s probably a good idea to try to supplement them with the skills of the creative monopolist: alertness, independence and the ability to reclaim forgotten traditions.

Everybody worries about American competitiveness. That may be the wrong problem. The future of the country will probably be determined by how well Americans can succeed at being monopolists.

Wednesday, April 18, 2012

What I Read Today - Wednesday April 18, 2012

From: TaxVox Blog

The Turbo Tax Paradox


Howard Gleckman
Posted on April 17, 2012, 1:23 pm

Like many of you, I just finished my 2011 tax return. Counting worksheets, it was 59 pages long.

It occurs to me that our current insanely complex tax rules are made possible by technology. Yes, computer software makes filing easier (both for professionals and civilians). But that may be the problem.

The relative ease of filing, made possible by programs such as Intuit’s Turbo Tax, also makes it easier for Congress to write incomprehensible tax law.

Have you ever read, for example, Form 6251, the paperwork millions of middle-class households must complete just to figure out whether or not they owe the dreaded Alternative Minimum Tax? The IRS instructions for the form are 12 pages long.

Here, in part, are the instructions for Line 11:

Your ATNOL for a loss year is the excess of the deductions allowed for figuring the AMTI (excluding the ATNOLD) over the income included in the AMTI. Figure this excess with the modifications in section 172(d), taking into account your AMT adjustments and preferences (that is, the section 172(d) modifications must be separately figured for the ATNOL).

Seriously.

In truth, if voters actually had to navigate this gibberish, we’d have a revolution that would make the tea party look like the League of Women Voters. But we don’t. In 2009, 92 percent of us got help, either from a third-party preparer or tax software, the IRS estimates.

We spend $59.95 for software, mindlessly answer questions that often seem entirely disconnected from the specifics of the law, and assume the answer that comes out the other end is correct.

Or we just bundle up of our W2s and 1099s and send them to a professional preparer, who does even more opaque stuff and presents us with a return to sign. Sure, the record keeping is annoying, but we miss the real fun.

In this way, technology both inoculates us from much of the complexity of tax filing and reduces compliance costs. But, more importantly, it immunizes the politicians from the consequences of their decisions that lead to this madness.

Tax complexity isn’t just about the number of forms and their incomprehensible instructions (btw, no criticism intended towards the folks at the IRS who write them. They do the best they can, given the loony law Congress hands them).

The real price of complexity is the very opaqueness of the Tax Code itself. Because we don’t understand the law, we are convinced we are paying more than we owe and that everyone else is paying less.

Yet, tax software allows politicians to add ever more complexity, which we accept with little complaint. Think about the Buffett Rule endorsed by President Obama. The version debated in the Senate this week would create yet another minimum tax that would result in even more complex forms. But, of course, the households making $1 million or more who’d owe this tax would likely never see the forms. They’d just pay the accountant.

Often, critics of tax complexity say the pols themselves should have to fill out their own returns. I disagree. It would be much more effective if the rest of us had to do it. If we did, I predict tax simplification would be more popular than Dancing with the Stars.

So I’m starting a new movement: Ban tax software and professional preparers for just one year. And see what happens.

Happy tax day.

What I Read Today - Wednesday April 18, 2012

From: The New York Times

One for the Country


By THOMAS L. FRIEDMAN

I had to catch a train in Washington last week. The paved street in the traffic circle around Union Station was in such poor condition that I felt as though I was on a roller coaster. I traveled on the Amtrak Acela, our sorry excuse for a fast train, on which I had so many dropped calls on my cellphone that you’d have thought I was on a remote desert island, not traveling from Washington to New York City. When I got back to Union Station, the escalator in the parking garage was broken. Maybe you’ve gotten used to all this and have stopped noticing. I haven’t. Our country needs a renewal.

And that is why I still hope Michael Bloomberg will reconsider running for president as an independent candidate, if only to participate in the presidential debates and give our two-party system the shock it needs.

President Obama has significant achievements to his record. He has done a solid job stemming the economic crisis he inherited and a good job managing national security and initiating important reforms — from health care to auto mileage standards.

But with Europe in peril, China and America wobbling, the Arab world in turmoil, energy prices spiraling and the climate changing, we are facing some real storms ahead. We need to weatherproof our American house — and fast — in order to ensure that America remains a rock of stability for the world. To do that, we’ll have to make some big, hard decisions soon — and to do that successfully will require presidential leadership in the next four years of the highest caliber.

This election has to be about those hard choices, smart investments and shared sacrifices — how we set our economy on a clear-cut path of near-term, job-growing improvements in infrastructure and education and on a long-term pathway to serious fiscal, tax and entitlement reform. The next president has to have a mandate to do all of this.

But, today, neither party is generating that mandate — talking seriously enough about the taxes that will have to be raised or the entitlement spending that will have to be cut to put us on sustainable footing, let alone offering an inspired vision of American renewal that might motivate such sacrifice. That’s why I still believe that the national debate would benefit from the entrance of a substantial independent candidate — like the straight-talking, socially moderate and fiscally conservative Bloomberg — who could challenge, and maybe even improve, both major-party presidential candidates by speaking honestly about what is needed to restore the foundations of America’s global leadership before we implode.

Mitt Romney can’t do that because of his ludicrous opposition to any tax hikes. President Obama, who has a plan to cut, tax and invest — albeit insufficiently — could lead, but, for now, he seems preoccupied with some rather uninspiring small ball, preferring proposals like “the Buffett tax” over comprehensive tax reform that would lower all rates, eliminate deductions and raise more revenue. Sebastian Mallaby, a global economy expert, was right when he wrote in The Financial Times last week that the rich should pay higher taxes, but “a clever campaign gambit is a poor substitute for a serious proposal. By focusing his rhetoric on the Buffett tax, Mr. Obama is fumbling his best chance to win a mandate for intelligent reform — reform, moreover, that ought to be the centerpiece of a second term.”

Bloomberg doesn’t have to win to succeed — or even stay in the race to the very end. Simply by running, participating in the debates and doing respectably in the polls — 15 to 20 percent — he could change the dynamic of the election and, most importantly, the course of the next administration, no matter who heads it. By running on important issues and offering sensible programs for addressing them — and showing that he had the support of the growing number of Americans who describe themselves as independents — he would compel the two candidates to gravitate toward some of his positions as Election Day neared. And, by taking part in the televised debates, he could impose a dose of reality on the election that would otherwise be missing. Congress would have to take note.

“The right kind of independent candidate would explain that the real question on taxes, once the economy is back on track, is this: Given that taxes have to rise, how should we raise the revenue we need in ways that are best for the economy?” wrote the columnist Matt Miller in The Washington Post last week. “The answer would involve lower taxes on payrolls and corporate income, and higher taxes on dirty energy and consumption.”

After his mayoral term is over in 2013, Bloomberg will apparently spend more time running his foundation. That’s commendable. But the single greatest act of philanthropy he could do for the country is right now: run for president as an independent, at least long enough to participate in all the debates. If he doesn’t, and this turns into a presidential race to the bottom, he could donate every dollar he has to fix things in America and they’d be wasted, or, more accurately, overwhelmed by our mounting problems. The most patriotic thing Bloomberg could do is become an unpaid lobbyist for the country — and for the next generation of Americans.

Tuesday, April 17, 2012

What I Read Today - Tuesday April 17, 2012

From: The New York Times

April 16, 2012


The White House ArgumentBy DAVID BROOKS

I’ve been critical of President Obama’s budgets. I’ve argued that while I like the way Obama preserves spending on things like scientific research and programs for the vulnerable, he doesn’t do enough to avoid a debt crisis.

I’ve based that argument on certain facts. President Obama’s 2013 budget will add roughly $6 trillion to the nation’s debt over the next 10 years. By 2022, Americans will be spending $915 billion on interest payments on the debt alone, a number far larger than that year’s entire defense budget.

If you look further out, the situation is worse. According to the Committee for a Responsible Federal Budget, by 2050, Representative Paul Ryan’s budget would cut total public debt to 10 percent of G.D.P. Current law would put debt at 42 percent of G.D.P. Under the Obama budget, debt would skyrocket to 124 percent of G.D.P.

Extremely senior members of the administration believe these sorts of criticisms are completely unfair and vastly underestimate their fiscal hawkishness. In this column, I thought it only fair that I provide you with a summary of their arguments.

First, their goals. They argue that it’s foolish to try to solve the debt problem with some drastic magic bullet all at once. It’s smarter to stabilize the debt while also looking after other needs, like protecting the vulnerable and investing in things that boost growth and mobility.

They argue that the president’s 2013 budget is a step toward fiscal stability that will also pave the way for bigger steps in the years ahead. They estimate that their budget would produce $5 trillion in budget savings over a decade. It would raise $1.5 trillion in new revenue by raising taxes on those making more than $250,000 a year.

There would also be a broad range of spending cuts. These include the $1.7 trillion in cuts the administration agreed to in the budget deals with Republicans over the summer, and several others (including the somewhat gimmicky $617 billion “cut” by not fighting the wars in Iraq and Afghanistan for another decade).

Further, the president is parsimonious when it comes to domestic spending. The White House has prepared a series of charts to illustrate the administration’s fiscal discipline. The most interesting concerns domestic discretionary spending, which is spending on things like education, welfare and social support. Going back to 1962, domestic spending has hovered around 3.3 percent of G.D.P. In big-spending years (the Jimmy Carter years), it rose to about 4.4 percent. In low-spending years (Ronald Reagan’s and Bill Clinton’s second terms), it fell to about 2.9 percent of G.D.P.

During Obama’s presidency, domestic spending topped out at 4 percent of G.D.P. But, in the Obama budget, over the next 10 years, that spending would fall to 2.2 percent, much lower than anything Reagan achieved. Under Paul Ryan’s budget, by the way, that spending would fall to 1.8 percent, which the Obama administration regards as savagely low.

These officials say the administration has also made modest but important progress in controlling Medicare spending, the biggest debt driver. The budget raises some Medicare premiums on high-income retirees and increases some deductibles. White House officials say they have taken enormous heat from the left for putting some structural Medicare reforms on the table — cutting benefits, raising eligibility ages and changing cost-of-living adjustments. Republican leaders, they point out, have not done anything that brave.

Over all, they continue, the president’s budget stabilizes the debt in a way that is relatively gimmick-free. Annual federal deficits, which are at about 8 percent now, would come down to around 3 percent between 2015 and 2022.

The total federal debt is now at about 74 percent of G.D.P. Under Obama’s plan, it would rise to 78.4 percent of G.D.P. in 2014 and then stabilize at about 76.5 percent from 2018 to 2022.

Basically, what we’re looking at is a period of stability, administration officials say, which would soothe credit markets and give us time to make further adjustments. This, they conclude, is responsible prudence.

I’m not going to pass my own comprehensive judgment on this here. I’ll just say that my conversations reaffirm my conviction that Obama is a pragmatic liberal who cares about fiscal sustainability, who has been willing to compromise for its sake, but who has not offered anything close to a sufficient program to avoid a debt crisis.

But we have a campaign in front of us. If the president is truly committed to a strategy for progressive fiscal stability, as Bill Clinton was, he’ll make that the center of his campaign. He’ll earn a mandate. He’ll win over independents who want fiscal discipline but worry about the way Republicans get there.

If he doesn’t have a passion for fiscal stability, he’ll campaign on side issues and try to win by scaring everybody about the other side.

We’ll see.

Friday, April 13, 2012

What I Read Today - Friday April 13, 2012

From: The Wall Street Journal

It's Over. What Have We Learned? The GOP still practices primogeniture, but much else has changed in politics.

By PEGGY NOONAN


So what have we learned? The GOP presidential contest of 2012 is over. Mitt Romney will be the Republican nominee. What do we know now that we didn't know in 2011, when the campaign began? Or what do we know that we already knew, but now we've been reminded?

We learned that primogeniture is still a force in the GOP. The next king is the firstborn son of the current king. In political terms, the guy who came in second in the last presidential cycle stands most likely to be crowned and anointed in the current one. Republicans, for all their drama, still tend toward the orderly and still credit experience.

Running for president is serious business. You need money, fund-raising networks, organization, a campaign. You have to get on the ballot in Virginia, you have to field full slates. Mitt Romney learned all this in 2008. He was the only non-newbie in 2012.

Rick Perry, Herman Cain and Michele Bachmann did not fully comprehend what goes into the process. Newt Gingrich didn't care.

We learned the system is newly open to vanity productions—Messrs. Cain and Gingrich, Donald Trump. We learned Super PACs allow freelancers, and freelancers feel no loyalty to the party brand. They'll say anything, the larger impact isn't their problem. They are there to sell books, to further their personal project. We will see more of this, on both sides. It will not leave the process ennobled.

We learned that proportional representation is a bad idea when you're up against a sitting president. It drags the system out, robs state victories of meaning, makes everything more common and dreary, and leaves serious candidates open to ceaseless attacks from all quarters. Mr. Romney's negatives are up, not down, as the contest ends.

The Republican Party is a conservative party. All its front-runners held conservative views on taxing, spending, regulation, the power of the state. There is no national GOP market for liberal or liberalish Republicans. There is little market for national candidates who don't adopt the tropes, simulate the resentments, or feel some of the anguish of the base. Mr. Gingrich worked the resentments—at one point he made fun of Mr. Romney for using the word "resolute" because it's fancy and not plain like all us regular folk. (At other times he bragged of authoring 24 books. He was hard to keep up with.) Rick Santorum captured some of the anguish, both culturally and economically. Jon Huntsman was hobbled because he didn't seem to identify on any level with Republicans on the ground, or particularly like them. Voters don't take to you when they know you don't take to them. Sarcastic tweets about global warming were not the beginning of his campaign, but the end.

Affection matters.

We learned that rescue fantasies were fantasies. Mitch Daniels, Chris Christie and Jeb Bush stayed out. The people who said, "Don't look for salvation from the sidelines," were correct. Newton's third law of political physics: People running for president tend to run for president, people not running tend not to run. Believe them when they tell you for the third time that they won't.

Evangelicals are an ever-dominant part of the base, but they don't march in lockstep. Like all huge blocs they encompass all levels of affluence, education, attainment and aspiration. But one thing was clear this year: The old evangelical reserve, or animosity, toward Catholics is dead. It was the Mormon who carried the Catholic vote. The Catholic Mr. Santorum drew evangelical Protestants. America is great in part because it's always scrambling its categories and changing its clich├ęs.

We learned Mitt Romney is not a greatly improved candidate from four years ago. He has endurance and discipline: He wants this thing. The reason why is still not fully clear. His political instincts and sense of subject matter are not much better than they were in 2008. The awkwardness continues. A major if largely unspoken Republican criticism of Mr. Romney is exactly like a major if largely unspoken Democratic criticism of President Obama: He'll meet with you, he's polite and appropriate, but he gives no sign afterward that he heard you, that he absorbed or pondered what you said. Nor is his campaign greatly improved. It gets the job done but it is stolid, unimaginative, small-bore. There's a managerial tightness. People are afraid to make decisions, and pass the buck upward. A major surrogate calls the campaign "the Romney labyrinth."

Mr. Romney has a woman problem? "Romney was saved by women, and they buried Newt," notes former George H.W. Bush aide Lloyd Green, who studies voting tables. After Mr. Gingrich won his blowout in South Carolina, women went for Mr. Romney in Florida by 24 points. He won men by only five. In Ohio, women voted 40% for Romney to 37% for Mr. Santorum, who won men by one point. In Michigan, Romney won women again. "Personal probity matters in the GOP," said Green. "Newt and Herman Cain are Exhibits 1 and 2."

What is the biggest gift Romney has been given this year by the Democratic party? Hilary Rosen's ill thought, ill-spoken, snotty remark that Ann Romney "never worked a day in her life."

Ann Romney raised five children with a husband who sometimes traveled. A mother of five will be suffering from exhaustion, not laziness, and certainly not a lack of engagement in the realities and stresses of life. Where do the Democrats get these spokesmen who are so unsympathetic, so narrow in their vision and understanding of women's lives? What are they launching, a war on women?

Finally, in foreign affairs the Republican candidates staked out dangerous ground. They want to show they're strong on defense. Fine, we should have a strong defense, the best in the world. But that is different from having an aggressive foreign policy stance, and every one of the GOP candidates, with the exceptions of Ron Paul and Jon Huntsman, was aggressive. This is how their debates sounded: We should bomb Iran Thursday. No, stupid, we should bomb Iran on Wednesday. How could you be so foolish? You know we do all our bombings on Monday. You're wrong, we send in the destroyers and arm the insurgents on Monday.

There was no room for discretion, prudence, nuance, to use unjustly maligned terms. There was no room for an expressed bias toward not-fighting. But grown-ups really do have a bias toward not-fighting.

They are allowing the GOP to be painted as the war party. They are ceding all nonwar ground to the president, who can come forward as the sober, constrained, nonbellicose contender. Do they want that? Are they under the impression America is hungry for another war? Really? After the past 11 years?

The GOP used to be derided by Democrats as the John Wayne party: it loved shoot-'em-ups. Actually, John Wayne didn't ride into town itching for a fight, and he didn't ride in shooting off his mouth, either. He was laconic, observant. He rode in hoping for peace, but if something broke out he was ready. He had a gun, it was loaded, and he knew how to use it if he had to.

But he didn't want to have to. Which was part of his character's power. The GOP should go back to being John Wayne.

Tuesday, April 10, 2012

What I Read Today - Tuesday April 10, 2012

From: The New York Times

April 9, 2012


The Two Economies
By DAVID BROOKS

The creative dynamism of American business is astounding and a little terrifying. Over the past five years, amid turmoil and uncertainty, American businesses have shed employees, becoming more efficient and more productive. According to The Wall Street Journal on Monday, the revenue per employee at S.&P. 500 companies increased from $378,000 in 2007 to $420,000 in 2011.

These efficiency gains are boosting the American economy overall and American exports in particular. Two years ago, President Obama promised to double exports over the next five years. The U.S. might actually meet that target. As Tyler Cowen reports in a fantastic article in The American Interest called “What Export-Oriented America Means,” American exports are surging.

Cowen argues that America’s export strength will only build in the years ahead. He points to three trends that will boost the nation’s economic performance. First, smart machines. China and other low-wage countries have a huge advantage when factory floors are crowded with workers. But we are moving to an age of quiet factories, with more robots and better software. That reduces the importance of wage rates. It boosts American companies that make software and smart machines.

Then there is the shale oil and gas revolution. In the past year, fracking, a technology pioneered in the United States, has given us access to vast amounts of U.S. energy that can be sold abroad. Europe and Asian nations have much less capacity. As long as fracking can be done responsibly, U.S. exports should surge.

Finally, there is the growth of the global middle class. When China, India and such places were first climbing the income ladder, they imported a lot of raw materials from places like Canada, Australia and Chile to fuel the early stages of their economic growth. But, in the coming decades, as their consumers get richer, they will be importing more pharmaceuticals, semiconductors, planes and entertainment, important American products.

If Cowen’s case is right, the U.S. is not a nation in decline. We may be in the early days of an export boom that will eventually power an economic revival, including a manufacturing revival. But, as Cowen emphasizes, this does not mean nirvana is at hand.

His work leaves the impression that there are two interrelated American economies. On the one hand, there is the globalized tradable sector — companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.

On the other hand, there is a large sector of the economy that does not face this global competition — health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower.

A rift is opening up. The first, globalized sector is producing a lot of the productivity gains, but it is not producing a lot of the jobs. The second more protected sector is producing more jobs, but not as many productivity gains. The hypercompetitive globalized economy generates enormous profits, while the second, less tradable economy is where more Americans actually live.

In politics, we are beginning to see conflicts between those who live in Economy I and those who live in Economy II. Republicans often live in and love the efficient globalized sector and believe it should be a model for the entire society. They want to use private health care markets and choice-oriented education reforms to make society as dynamic, creative and efficient as Economy I.

Democrats are more likely to live in and respect the values of the second sector. They emphasize the destructive side of Economy I streamlining — the huge profits at the top and the stagnant wages at the middle. They want to tamp down some of the streamlining in the global economy sector and protect health care, education and government from its remorseless logic.

Republicans believe the globalized sector is racing far out in front of government, adapting in ways inevitable and proper. If given enough freedom, Economy I entrepreneurs will create the future jobs we need. Government should prepare people to enter that sector but get out of its way as much as possible.

Democrats are more optimistic that government can enhance the productivity of the global sectors of the economy while redirecting their benefits. They want to use Economy I to subsidize Economy II.

I don’t know which coalition will gain the upper hand. But I do think today’s arguments are rooted in growing structural rifts. There’s an urgent need to understand the interplay between the two different sectors. I’d also add that it’s not always easy to be in one of those pockets — including the media and higher education — that are making the bumpy transition from Economy II to Economy I.