Monday, April 4, 2016

Toward A New Paradigm: Growth, Equality, Accountability, Morality

“The Big Idea” Seminar
New York, NY
February 23, 2016


by Daniel Rose


When educated rich people who used to vote Republican now increasingly lean toward Democrats and older working class whites who were staunch Democrats now cheer Donald Trump, when traditional American optimism has given way to fear for the future and 49% of the public say “America’s best days are behind us,” social scientists are hard-pressed to understand the spirit of the times.  What is worse, they fail to understand either the causes or remedies of the problems that face us.

            American airports, bridges and highways, once a source of national pride, are now a cause of embarrassment.  American primary and secondary education, once the world’s best, now rate poorly.  America’s health care expenditures, the world’s highest per capita, show unimpressive results.  The deforming role that gerrymandering and unlimited campaign contributions play in political life is clear.  Unfunded pension liabilities of U.S. states exceed $3 trillion and estimates of unfunded federal liabilities on Social Security, Medicare and Medicaid go as high as $100 trillion.  Foreign economies like China and India, once patronized, are now regarded with apprehension.  Viewing the world morosely, the American public has lost confidence in its political leaders and trust in our ‘establishment.’

            To what extent are public anger and feelings of betrayal justified?  The record is mixed.  America has recovered from the Great Recession of 2008-2009 better than all other advanced economies and its growth rate, a feeble 2%, is higher.  Its unemployment rate (below 5%) is low and its violent crime rates are declining.

            On the other hand, median wages stagnate even as incomes at the top soar.  Blue collar workers feel displaced by globalization and no longer feel catered to by politicians.  Millennials face rising college debt and diminishing employment opportunities.  White Christians, now a minority, feel they have ‘lost their country.’  Wars in Iraq and Afghanistan have been inconclusive.  Fear of terrorism has grown and America is no longer the sole superpower it was after the collapse of the Soviet Union.

            The traditional view Americans had of themselves — cheerful, optimistic, hardworking, ambitious and family- minded in a society that essentially worked well and would be even better for their children — no longer applies.

            Fearful, threatened societies often turn to demagogues as saviors — Mussolini made the trains run on time, Huey Long proclaimed ‘every man a king!’  But such times can also produce a Lincoln or an FDR, who strengthen institutions and rally the public around shared goals for the common good.  They can create a ‘new normal’ that works, one that draws on our own experience and on the lessons to be learned from the experience of other nations.  (For example, the criminal justice system of every other advanced nation focuses on crime prevention and the rehabilitation of malefactors.  Only the U.S. focuses on imprisonment and punishment, with off-the-scale mass incarceration and horrendous recidivism rates.)

            Our ‘new normal’— barring unforeseen factors — can be what we make it.  Pessimists predict continuing stagnation; others (I am among them) believe future American economic growth, greater social equality, greater operational efficiency, restored confidence in our institutions and revived public morality can be ours, if we make a national commitment to achieve them.   Not big government nor small government but smart government and fair government is what the public demands.

A prime requisite will be an end to the paralyzing political polarization that has made Congressional governance ineffective and has accounted for our disappointing economic performance.  ‘Dysfunctional’ is the term commonly applied to Congress today, where efforts to build consensus around shared national goals seem futile.  Any compromise is considered a betrayal of fundamental principles, and extremists believe it better to shut down government rather than permit objectionable legislation to pass.  Opposing parties don’t meet together or eat together and do not work together on common goals.  Two separate visions, two separate agendas are prevalent, with vitriolic attack and counter-attack and zero effort at national problem solving.

It was not that way in the past and need not be that way in the future.

Our first President had liberal Thomas Jefferson whispering in his left ear and conservative Alexander Hamilton whispering in his right ear as they worked together to create our nation. In 1981, Republican President Ronald Reagan and a Democratic-controlled Congress passed the Economic Recovery Act, which dropped the top tax rate from 70% to 50%; they later worked together to reduce the top rate to 28%.  More recently, President George H.W. Bush negotiated the North American Free Trade Agreement (NAFTA) and his successor, President Clinton, was determined to see it through.  In a famous Rose Garden event, Presidents Carter, Bush and Clinton stood shoulder to shoulder, calling for — and achieving — NAFTA’s passage.

The governance we had in the past we can have again.  To achieve it, we must revitalize what Arthur Schlesinger Jr. called The Vital Center, consisting of ‘Citizens’ rather than ‘Taxpayers;’ and we should pledge to vote against the election of any Senator endorsed by extremists of either the Tea Party or Occupy Wall Street.  Joint problem-solving, not short-term political advantage, must be the aim of elected political figures. 

The new paradigm we need will reflect the achievable goals of continuing economic growth, increasing economic and social equality, personal accountability of individuals responsible for ‘making things work,’ renewed confidence in our institutions and a renewed spirit of public morality. With fresh ‘outside the box’ thinking, our new paradigm could be:
           
A)          Increased Economic Growth Through Productivity

A society cannot indefinitely spend what it does not produce; and productivity — the output each worker generates — is a crucial factor in growth.  Without increases in efficiency and productivity, workers can’t get paid more and the economy cannot expand. 
Increased investment — of human capital, industrial capital, financial capital and social capital — must be focused on increased productivity, with national investment in education and training heading the list.  By 2020, it is estimated, 65% of U.S. jobs will require post-secondary education, and we must be ready.

Economic growth, with the benefits more equally shared than at present, must be a major and continuing public goal.

B)                                         Increasing Equality

Economic and social disparities will exist as long as incentives and rewards are necessary to galvanize human activity.  A public sense of a fair relationship between rewards and merit (or luck or contribution to the common good) is necessary for social harmony.  The current economic imbalance between the 1% at the top and the 99% of the rest is not sustainable. Universal opinion demands that it must be re-cast.  We can grow and we can distribute increasing benefits more fairly, and the public must feel reassured that the system is not rigged against them.  As the common law phrase has it, “Justice must be done and must be seen to be done.”

Thoughtful re-examination of our tax laws, elimination of obvious loopholes (such as the widely deplored ‘carried interest’ exemptions) and consideration of new sources of revenue are widely demanded.

                        A modest Value Added Tax (V.A.T.) on consumption, in addition to a graduated income tax, is widely applied in every other advanced economy.  It is less easily evaded than other forms of taxation, and with exemptions or ‘ceilings’ for the poor on food, clothing, housing and healthcare, it is fairer.  If the proceeds from a national V.A.T. were strictly dedicated to a fund for an infrastructure bank, scientific research and advanced academic training, the benefits to society would be profound. 

Social equality is a more complex problem.  We seek a society with level playing fields in which everyone has a fair chance to achieve his or her potential.  Equality of result is impossible but equality of opportunity — primarily through education — is a realistic goal, as demonstrated today by the educational record of the Scandinavian countries.

Education is a sensitive subject, but some unpopular comments are necessary:

i)          Because American public schools are financed by local property taxes, the poorer districts that need better services do not receive them, while richer neighborhoods receive services they could afford to pay for privately.  Someone, somehow, should move to have quality public schooling paid for by state taxation rather than through the local property tax. 
Some states, like California, have made progress along these lines, but states must be ready, able and willing to spend more on education.

ii)         ‘Dumbing down’ the national educational enterprise — with lower standards, fewer Advanced Placement courses, denigration of objective student evaluation — is not the way to help disadvantaged students.  Aiding them effectively to meet the higher standards is.  Inculcating high aspirations early in life and providing the tools for their achievement should be our goal for all children.
iii)        The trade union movement has historically been a plus in American life in negotiating better pay, benefits and working conditions for its members.  It has been a minus in insisting on indefensibly low professional entry standards and impossibly high barriers for removing incompetent practitioners. For both school teachers and police, higher entry standards would increase the respect in which the union members are held (which is important to them) and would also encourage the public to approve higher pay and benefits, which good teachers deserve.  More reasonable and efficient means of eliminating the dysfunctional few (say, the worst 3%) would be a win-win game for society, as the relatively few ‘bad eggs’ have undermined public confidence in the rest. (One percent of all doctors account for 30% of all malpractice suits, and they should be disqualified as well.)

iv)        Transparency, full disclosure and common sense must prevail in dealing with education questions.  That 25% of total U.S. K-12 expenditures go for ‘special education’ for the handicapped and less than 1% for programs for gifted children demonstrates the impact of ‘special interest’ influences.  An aware, informed public might wish for a different balance. 
Finland, which boasts the world’s best performing students, also has the world’s most highly qualified and respected and most highly paid teachers, and this is not a coincidence.  Finland’s public high school teachers come from the top 10% of the national academic pool.  New York City public school teachers come from the lowest quartile of our least demanding public colleges and receive lifetime tenure two or three years after starting.  It is difficult to remove the worst, and New York’s academic results reflect it.

v)         Retraining older or displaced workers for the five million unfilled U.S. jobs must become a higher American priority.  The U.S. spends 0.1% of GDP on job retraining, apprenticeships and job search assistance, while Germany spends 0.8% of GDP and Denmark 2.3% of GDP on them.
            Improved employment prospects for older workers would have a dramatic impact on American morale.  The rising rates of depression, poor health and suicide among older workers would be reduced by the opportunity for meaningful, satisfying work and the self-respect that comes from being self-supporting.

vi)        Changing college athletics competition from inter-collegiate to intramural would dramatically improve American higher education.
No athletic scholarships to distort the college admissions process, no expensive football stadiums and huge athletic budgets to deform college economics, and less wasted time for students would provide important benefits with no loss!

vii)       The case for free quality education for the poor is a strong one, and the public must be reminded that ‘education does not cost, it pays!’
Post World War II studies of the G.I. Bill are perfect examples.  In cases of identical twins, one of whom was a G.I. Bill college graduate and the other of whom was not, the graduate’s lifetime earnings and lifetime income tax payments were greater.  The differential in tax receipts was the government’s excellent return on its tuition investment.  Only the Louisiana Purchase (1803) and the Purchase of Alaska (1867) were better federal investments.

viii)        For-profit college ‘drop-out mills’ that saddle unsophisticated students with strangling debt and worthless credentials should be severely regulated (and receive no government aid) and for-profit prisons (which bribe legislators to impose severe mandatory minimum prison sentences and anti-parole practices) should be made illegal.

ix)        Prudent ‘entitlement’ reform — reflecting wisdom, justice and thoughtful examination of who should get what and when — is long overdue.  Positive incentives and negative incentives reflecting fairness and commonsense in adjudicating between competing demands — all deserve careful consideration by panels and commissions of informed private citizens selected from our “best and brightest,” who bring to their deliberations knowledge, character and a long term perspective.

x)         The increase in U.S. heroin deaths (up 300% in the last decade) can be fought by addressing the “supply” (through police and government) or the “demand” (through community social pressure).  Police efforts have failed; now the community must become involved.
            “New users of drugs are stupid; they are killing themselves.  Drug addicts are sick; they must be helped medically.  Drug sellers are evil; they are destroying our community and they must be disgraced, humiliated, ostracized.”  These are messages that should be conveyed by teachers, ministers, journalists, public officials and emphatically by parents.  Narcotics are a curse and must be recognized as such; those who profit from them must be seen as public enemies.

                      C)  Accountability vs. Regulations Gone Wild
               

                  At a time when America’s physical infrastructure (graded D+ by the 
 American Society of Civil Engineers) is a national disgrace, when borrowing interest rates are at a historic low and our economy desperately needs jobs, our government cannot mount a major infrastructure development program.  The reason?  Paralysis by red tape has become the most serious ailment in America. 
                       
                    The average length of environmental reviews for highway projects is over eight years, according to the Regional Plan Association; and the review of the NY/NJ Goethals Bridge improvements has now taken over ten years. 

                      For reasons of national security and economic stimulus, we clearly need a new national electric grid, but there is no current plan under consideration.  Why?  New transmission lines would go through forests and across deserts and somebody is sure to object.

                        Today in America, anyone can say “no” — halt, delay, re-study.  No one can say “yes” and “I will take responsibility for a reasonable outcome.”  Other advanced nations are guided by principles enforced by commonsense.  In the U.S. ‘rule of law’ has become perverted to a regulation-bound mindset resulting in paralysis.

                        In his important book “The Rule of Nobody,” Philip Howard describes how American nursing homes and childcare facilities are strangled by regulations, whereas in Australia and in Germany agreed upon principles are interpreted by commonsense and implemented by individuals accepting responsibility for desired results.  Police in Scotland — unarmed — achieve better results through commonsense application of general principles than do American police following detailed regulations.

Two final thoughts merit serious consideration:  first, the application of ‘sunset provisions’ on all important government regulations; and secondly, the greater use of independent, impartial civilian commissions, such as those used to determine the closings of military bases.

Automatic expiration of major government regulations after 15 or 20 years and their full re-consideration before re-institution would dramatically modernize government operations, as would the appropriate use of independent civilian commissions to replace now-prevalent political log-rolling.  The increase in public confidence in government would be palpable.

C)                                   Time For A Moral Re-Awakening

                        As of February, 2016, 81% of respondents tell pollsters they believe the U.S. government is corrupt.  61% believe most Congressmen will sell their votes for cash or campaign contributions.  The New York City Council just voted itself a 32% salary increase “to remove temptations to corruption” (that’s what they said!)  and the U.S. Attorney in Manhattan has publicly called the state government in Albany ‘a cauldron of corruption’!  The United States ranks below every major European country on the Corruption Perception Index of Transparency International.  After the economic explosion of 2008, many financial institutions were fined heavily for fraud, but no one has gone to jail, and the fines are widely seen as ‘the cost of doing business.’

            An aroused public should demand a renewed sense of probity from individuals in all areas of public life, with shame, ostracism and prison for those betraying the public trust and admiration and respect for those performing “above and beyond the call of duty.”  Public officials convicted of major fraud should be dealt with as social pariahs, not merely as individuals who ‘made a bad bet.’

            America has had Great Awakenings in the past and we are ready for another.  This one must emphasize not theology but morality, not life in the next world but life in this one, not the role of the individual but a sense of community and public spirit.  Its theme can be, “Yes, I am my brother’s keeper!”

                                                \Conclusion

The strengths of American society are real, but so are its weaknesses; both can be addressed frankly and imaginatively.  We must re-think our values and our goals, re-consider the standards by which we judge ourselves and our fellows and act accordingly.  Financial corruption and spiritual corruption are cancers destroying us, but they can be overcome by an outraged public.

America’s ‘fall from grace’ has been traumatic for many, resulting in the standard reactions of denial, anger, bargaining and depression.  Acceptance, the final stage, can prove constructive if we demand it. 

Paul Valery noted that “the future is not what it used to be.”  If we apply wisdom, energy and determination, it can be better.

                       
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