The Shaky Case for Optimism

Belief in a better tomorrow is a self-defining American characteristic. However many among us may be leading lives of quiet desperation, we insist that this is the land of, as Nellie Forbush, the heroine of South Pacific, put it, “cock-eyed optimists.”

Looking on the bright side has been a national asset. Leaps of faith inspired George Washington at Valley Forge, motivated immi- grants and pioneers, and lured investors to the high-risk capitalism that built the country’s great industrial enterprises. The liability side of the ledger—burst real estate bubbles, the dead of Vietnam, a devastated New Orleans— blurs in the dogged determination of our leaders and the willingness of our people to “move on.” The Positive Thinking industry itself is big business, packaging the happy face as a way to get rich, find love, and cure cancer to a seemingly inexhaustible supply of customers eager to have their optimism batteries recharged.

That faith is being tested these days. In the wake of the great financial meltdown/reces- sion, consumers are afraid to borrow, banks are afraid to lend, and business is afraid to in- vest. Majorities now believe that the next generation of Americans will be worse off, sus- pect that investing in a college education may not be worth it, and think that America’s power in the world will steadily weaken. Sweeping historical analogies between the present day United States and the decline and fall of earlier empires—Britain , Spain, Rome—that were once the subject of rarefied university seminars have seeped into the pop- ular media. When asked about their own per- sonal future, people are more positive. But as the foreclosures and pay cuts spread, more col- lege graduates go back to live with their par- ents, and once-middle-class people line up for food stamps and sleep in their cars, the notion that the individual working American’s future can be happily disconnected from the fate of the rest of the labor force becomes more and more tenuous.

Still, a “doom and gloom” mentality does not play well in electoral politics. Happy-go- lucky Ronald Reagan demonstrated this point in 1980 by trouncing the earnest Jimmy Carter, whom the media had savaged for his public angst about the country’s energy crisis. If the government just stopped worrying about it, Reagan chuckled, the market would take care of tomorrow just fine. Once elected, he ripped out the solar panels Carter had installed at the White House and dismantled Carter’s initiatives to turn the nation toward a sustainable energy future.

Democrats got the lesson; people want Hope—the place where Bill Clinton came from, the trait that Barack Obama had the “audacity” to have. Even the shrillest denunci- ation of American society by its native writers—left or right—invariably ends with a three-, five-, or ten-point program for the next president that will once again put the country on the right track.

Hope is not a strategy. But, it appears to be all we have left. Two years into Obama’s term—following eight years of arguably our worst presidency ever—the governing class is

WINTER 2011 Dunable to produce a credible plan for ending the recession, for changing the policies that sucked us into the quagmires of the Middle East and Afghanistan, or for dealing with the relentless deterioration of our global competi- tiveness and domestic financial security. Faced with problems on the scale of global warming, we are deer caught in the headlights.

That the populace is angry and frustrated should be no surprise. Nor that, in the confines of our two-party system, voters would turn to the Republicans. What they knew when they went to the polls in November 2010 was that the economy was worse (three million more unemployed) than it was when Barack Obama was inaugurated. So, if the smart, compassionate Democrats couldn’t deliver, maybe the mean-spirited, borderline crackpot Republicans would. No matter that the outcome will probably make things worse. It is the way Hope gets bounced back and forth in the tennis court of our politics.

Our troubles are clearly systemic. The politicians, the punditry, and the talent pool from which both parties draw is dominated by economic interests for whom the cost of needed changes is not worth the risk to their privileges.

This may seem unfair to the Democrats. Many, including the president, would certainly have pursued a more progressive agenda but for the opposition of the Republican Right. But they controlled the White House and the Congress for the last two years. They had the power, for example, to override the Senate rules that allow Republicans to demand a sixty-vote majority simply by proclaiming an intent to filibuster, to mobilize the public against the financial corporations that took the government’s money to hire lobbyists to stop effective financial reform, and to lead America to a post-Bush global policy. They didn’t do it.

Re-regulation of Wall Street, breaking the corporate stranglehold on health care, job- creating stimulus, and getting out of Afghanistan may be very important for the liberal side of our two-party democracy, but not important enough to risk a knock-down, drag out campaign against the moneyed and military interests that dominate Washington.

The most common way of dealing with the failure to do what you know you should do is to convince yourself that everything will turn out all right anyway. If the governing class is unwilling to do the “extraordinary” things that last year they told us these extraordinary times demand, then the times must not be so extraordinary after all. Thus, faced with Republican intransigence on a job stimulus in early 2010, the president, his treasury secretary, and the chair of the Federal Reserve spent the next nine months assuring us that the economy is recovering and that more jobs will be created soon. This, despite their own projections that by the election of 2012, the unemployment rate will be some 50 percent higher than it was in November 2008. When I asked a senior Obama adviser how this made sense, he shrugged and said that maybe things would turn out better than they expected. Another cock-eyed American optimist.

In effect, the Democrats have joined the Republicans and Corporate America in betting that if Americans will just suck it up and stay the course, things will turn out OK.

The three books under review—from different analytical perspectives—try to make the case for that bet. Together they present the core arguments for the rosy scenario that ration- alizes the failure of the country’s political leaders to rethink the future, that is, to examine the assumption that the country is still rich enough to support unregulated crony capitalism, global military hegemony, and rising living standards for its people.

The authors have different analytical perspectives and ideological biases. Rose and Kotkin are neoliberal centrist Democrats, and Friedman is a somewhat neoconservative foreign policy maven. These biases are useful; they motivate the authors to provide us with the best case they can for believing it will all come out fine in the end.

Conservative columnist David Brooks of the New York Times cited Rose’s and Kotkin’s books as essential antidotes for creeping pessimism. “The fact is,” wrote Brooks, “despite all the problems, America’s future is exceedingly bright.”

Well, actually, there are no “facts” about the future. For those of us in the present, it’s a question of probabilities and the internal consistency of one’s projections. In other words, how plausible is the world that has to exist in order for the predictions to come true?

Stephen Rose’s Rebound begins his case for a sunny future with a statistical argument about living standards in the recent past. Showering the reader with graphs and tables, he writes that the middle-class squeeze of the last thirty years is a left-wing myth. (Full disclosure: he cites this writer as one of the mythmakers.)

A reader interested in the technical argument should read economist John Schmitt’s excellent analysis in the September- October 2010 issue of the economic journal Challenge. Schmitt demonstrates that Rose spends most of his time knocking down straw men that he himself has set up, ignoring the mass of evidence of both an upward redistrib- ution of wealth and a dramatically diminished growth of American incomes, opportunity, and financial security before the crash of 2008. The richest 10 percent of Americans have not received all of the income gains since 1979, Rose insists. Schmitt agrees: they just took two-thirds, compared with the previous three decades when they got one-third. Meanwhile, the rate of growth in overall income has fallen by half.

Sugarcoating yesterday allows Rose to sweeten tomorrow. The 2008 financial crash, he tells us, was an unfortunate, but correctable, one-time financial “perfect storm.” To correct it, he proposes a reasonably tough ten-point program for strict controls over Wall Street. For example, instead of having financial firms and real estate brokers pick their own accountants, bond rating agencies, and appraisers, Rose would have the government do it. Good idea. And one that is laughed out of the room in today’s Washington.

Yet, in a bravura display of naiveté, Rose assures us that reforms like this surely will be adopted because “we” have undoubtedly learned our lesson. The lesson we actually learned when the financial reform bill finally passed was that when Big Money talks, policymakers still listen.

Having erroneously forecast that our political establishment will do the right thing, Rose confidently tells the reader, “The kind of society that will emerge after the crisis passes will be very much like the one that existed before the crisis.” More irony in that than he intended.

Rose predicts that Americans will have better jobs because they will be better educated for the “office” economy. They will out-compete the world based on their renowned technological superiority. Self- directed 401(k)s will bring more security in their old age than guaranteed pensions. Unfortunately this Clintonesque future is embarrassingly dated: even before the crash, the correlation between education and income had deteriorated, the country was running a chronic deficit in high tech trade, and business schools were teaching that virtually any office function could be offshored. As for the idea that the average working person can provide for his or her old age by outsmarting the fast- buck hucksters who dominate the stock market, that too does not pass the laugh test.

Joel Kotkin’s equally upbeat The Next Hundred Million: America in 2050 is less quantitative than Rose’s book and more dynamic in its vision of the future. Kotkin’s style echoes New York Times’s Thomas Friedman—breathless anec- dotes of conversations with niche-market entrepreneurs (in both public and private sectors) who, he claims, represent broad social-economic trends. Americans will prosper, writes Kotkin, because their mobility allows them to choose the most efficient and profitable places to live and work.

Like Rose, Kotkin sees an America in 2050 that is much like America in 2010, only more so. He gives us prosperous suburbs, green industries, planned communities, extended families, wholesome religious activism, and farmers’ markets linked together by the Internet. The trend away from the cities will continue. He tells us America’s prairie heartland will be repopulated as advanced telecommunications allow families to live and work where land is cheap.

But all this, he cautions, can only happen if bottom-up local markets are left to flourish free of the heavy hand of centralizing government. Globalization, he glibly asserts, is de-centralizing.

Kotkin’s localism is more mainstream Chamber of Commerce than radical Tea Party or back-to-the-land communitarian. But he shares with them all a tendency to disparage big government while slyly depending on its benefits. Thus, for example, he tells us that suburbs and rural America spontaneously generate their own economic growth, with little reference to the massive government subsidies that support them.

Like Rose, he assumes that prosperity is America’s natural condition, and that the polity will make whatever decisions it must to keep the market healthy. His key argument is that America’s greater openness to immi- gration will keep our labor force, and therefore the economy, growing faster than Europe’s or Japan’s. This is plausible. But the scale that would be required is not consistent with rising living standards. Thus, he can envision an American heartland that might compete with India for call centers. This might bring prosperity to some investors, CEOs, and developers of commercial real estate, but is not what most American workers would regard as a happy future.

At the end of his book, Kotkin hedges a bit by telling us that America faces class divi- sions, crumbling infrastructure, and energy dependency. But these are defined as isolated problems that will surely be somehow in some way resolved, even as our national governmental functions are being redis- tributed among 150,000-odd municipalities, school districts, and zoning boards.

Both Rose and Kotkin are somewhat fuzzy on the difference between what might be good for America as a polity—and the wealth and influence of the people who manage it—and what might be good for the majority of Americans who will continue to live paycheck to paycheck. In this they reflect the national political discussion that is routinely sprinkled with references to undefined “national interests,” which, when examined, usually turn out to be the interests of people nestled in the networks that surround Wall Street and the Pentagon.

George Friedman is not confused on this point. He is a geopolitical “realist”; his unit of analysis is the nation-state, which by nature is in a constant power struggle with other nation-states. Leaving aside tactical disputes over hard and soft power, Friedman reflects the core perspective of the American foreign policy and military establishment.

The American Empire, he tells us in The Next Hundred Years is not only not declining, it is ascendant. There are two reasons for this. One is its overwhelming advantage in military technology. For the next century, says Friedman, we will dominate the seas with our high tech navy, the land with robot soldiers and aircraft, and space with solar-powered attack satellites and telecommunications systems.

What appears to many to have been a catas- trophe in Iraq and Afghanistan is, to Friedman, a sideshow. From his geopolitical perspective, the current war against Islamic terror is already over. As an imperial power, the United States does not have to actually “win” these wars against nuisances on its periphery. All it has to do is keep them off balance and divided. Al Qaeda’s goal to unite Muslims in a jihad against the United States has failed. Islam will remain in chaos and rife with religious, ethnic, and political conflict for at least another century.

The second reason that imperial America will prevail is demographic. As global birth rates decline, he predicts, there will be a worldwide labor shortage by mid-century. Like Kotkin, he believes America’s tolerance for immigration will keep it supplied with workers and low labor costs. For the nation- state, he says, what is important is not per capita income, but total income to support its military-industrial complex.

So far, so plausible, if grim. But isn’t there the problem of China? It’s got size, rapidly developing technology, and a labor supply that, even in the wake of its one-child policy, is large enough to more than match a U.S. immigration-based, low-wage agenda. Plus, the Chinese hold more than two trillion dollars in our IOUs. Not to worry, writes Friedman. China, permanently hooked on U.S. markets, will always need us. Anyway, for the next few decades, China’s navy is too weak

and its military electronics too primitive to undercut our strategic position in the Pacific. After that, it will “implode” because of internal ethnic and regional tensions.

Keep your eye on Japan, writes Friedman. Its technological prowess makes it a chal- lenger to U.S. preeminence, and its aging population will drive it to dominate neighbors that have large pools of cheap labor. Friedman projects a mid-century shooting war of the United States and a floundering China against a coalition led by Japan and Turkey, which by virtue of its own demographics and strategic position will dominate the Middle East. America triumphs, of course. North America becomes the economic and political power center of the world. And, because conflict among nation-states is a permanent condition, the century’s end sees the United States menaced by a resurgent, nationalist Mexico.

Friedman does not expect that we will swallow whole his fictional scenarios. But he reminds us that the “Black Swan” thesis of financial contrarian Nassim Nicholas Taleb teaches us to expect the improbable. And, in fairness, Friedman’s improbable future is built on assumptions about military technology, demographics, and the need to maintain global hegemony that are widely accepted in the U.S. governing class, and are perfectly compatible with the beliefs of Rose and Kotkin.

As for the domestic political economy, Friedman is certainly less naïve than the other two. He sees that the U.S. government will not or cannot regulate asset price speculation, and therefore we can expect more credit booms and busts. He also recognizes that open economic borders bring low wages and dislo-

cation. But no matter, revolt from below is “remote.” The governing class will impose open immigration on America. And a docile population grateful for cheap imports will keep coughing up the revenue to finance our super military power.

Implicit in all three of these “optimistic” fore- casts is that in order to keep Wall Street pros- perous and the Pentagon powerful the living standards of the majority of Americans will most likely have to decline. Rose, redefining stagnation as prosperity, is in denial. Kotkin acknowledges the possibility, but Photoshops it out of his sunny picture of what is to come. Friedman, like most of those who manage our foreign policy, couldn’t care less.

Still, the future is unknown. The Chinese might just keep buying the IOUs necessary to support U.S. borrowing for civilian and military overconsumption for the next hundred years. Call centers in Nebraska might find a way to compete with India while paying rising U.S. scale wages. Wall Street might suddenly surrender its political clout and submit to effective regulation. After the surprise collapse of the Soviet Union, the attacks of September 11, 2001, and the financial crash, who can be confident of what’s to come?

So, the optimists could turn out to be right after all. But on the evidence they’ve presented so far, I wouldn’t bet on it.

Books Reviewed:

Rebound: Why America Will Emerge Stronger from the Financial Crisis
by Stephen J. Rose
St Martin’s Press, 2010, 288 pp.

The Next Hundred Million: America in 2050

by Joel Kotkin Penguin Press, 2010, 320 pp.

The Next 100 Years:
A Forecast for the 21st Century by George Friedman
Doubleday, 2009, 288 pp.

Dissent Magazine, Winter, 2011.

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