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March 09, 2011

US Decline - some interesting points by Zakaria

Time - It's not that America's democracy doesn't work; it's that it works only too well. American politics is now hyperresponsive to constituents' interests. And all those interests are dedicated to preserving the past rather than investing for the future. There are no lobbying groups for the next generation of industries, only for those companies that are here now with cash to spend. There are no special-interest groups for our children's economic well-being, only for people who get government benefits right now. The whole system is geared to preserve current subsidies, tax breaks and loopholes. That is why the federal government spends $4 on elderly people for every $1 it spends on those under 18. And when the time comes to make cuts, guess whose programs are first on the chopping board. That is a terrible sign of a society's priorities and outlook.

The US is too efficient in doing the wrong things. The future has no money for lobbying.


Why have our priorities become so mangled? Several decades ago, economist Mancur Olson wrote a book called The Rise and Decline of Nations.

Olson concluded that, paradoxically, it was success that hurt Britain, while failure helped Germany. British society grew comfortable, complacent and rigid, and its economic and political arrangements became ever more elaborate and costly, focused on distribution rather than growth. Labor unions, the welfare state, protectionist policies and massive borrowing all shielded Britain from the new international competition. The system became sclerotic, and over time, the economic engine of the world turned creaky and sluggish.

Germany, by contrast, was almost entirely destroyed by World War II. That gave it a chance not just to rebuild its physical infrastructure but also to revise its antiquated arrangements and institutions — the political system, the guilds, the economy — with a more modern frame of mind. Defeat made it possible to question everything and rebuild from scratch.

America's success has made it sclerotic

We have some advantages. Size matters: when crises come, they do not overwhelm a country as big as the U.S. When the financial crisis hit nations such as Greece and Ireland, it dwarfed them. In the U.S., the problems occurred within the context of a $15 trillion economy and in a country that still has the trust of the world. Over the past three years, in the wake of the financial crisis, U.S. borrowing costs have gone down, not up.

This is a powerful affirmation of America's strengths, but the problem is that they ensure that the U.S. will not really face up to its challenges. We adjust to the crisis of the moment and move on, but the underlying cancer continues to grow, eating away at the system.

A crucial aspect of beginning to turn things around would be for the U.S. to make an honest accounting of where it stands and what it can learn from other countries. This kind of benchmarking is common among businesses but is sacrilege for the country as a whole. Any politician who dares suggest that the U.S. can learn from — let alone copy — other countries is likely to be denounced instantly

We spend vast amounts of money on subsidies for housing, agriculture and health, many of which distort the economy and do little for long-term growth. We spend too little on science, technology, innovation and infrastructure, which will produce growth and jobs in the future. For the past few decades, we have been able to be wasteful and get by. But we will not be able to do it much longer. The money is running out, and we will have to marshal funds and target spending far more strategically. This is not a question of too much or too little government, too much or too little spending. We need more government and more spending in some places and less in others.


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