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Eamonn Fingleton wrote the following book review of Pat Choate's "Saving Capitalism, Keeping America Strong". Mr. Fingleton is the author of several books and has been the featured speaker at a CPA Issues Forum event. In addition to his many other accomplishments, Mr. Choate is a member of CPA's Advisory Council.
For Americans bewildered by what's happening to their country, Pat Choate is the author to read. The doyen of Washington economic analysts has produced a succession of authoritative, well-written books that long ago identified fundamental errors in American policy -- the same errors that have resulted in the present economic train wreck. In particular, he foresaw the present fiscal and banking crises, the collapse of American manufacturing, the decay of American infrastructure, soaring trade deficits and the explosion in U.S. indebtedness to China and Japan.
So why were his warnings not heeded? The problem, as he points out in "Saving Capitalism", is that extremist free-market ideology has increasingly in recent decades subverted all common sense in American economic discourse.
He writes: "A powerful political majority over the past 30 years has held the zealous conviction that markets are self-regulating, the gains from industrial outsourcing exceeded the costs and mounting trade deficits were irrelevant because other nations would eventually adopt America's open market trade policies and trade would balance out....For almost 30 years the governing ethos has been, ‘Government is the problem, not the solution' -- hardly a suitable foundation for national economic policy."
This ideology, which Choate characterizes as "free-market absolutism," originated on the wilder shores of the far right. Already by the 1970s it was being systematically promoted by the foreign lobby and it went viral in the 1980s when Wall Street spotted the possibilities. What, after all, could be wrong with an intellectual fashion in which the greedy and unscrupulous were positively lionized for fleecing the gullible and ill-informed? Washington soon succumbed. After all, for a senator in a tight reelection race, the choice between his own commonsense and the big bucks on offer from the lobbyists was no choice at all. By the mid 1990s the media were in thrall and thereafter it became almost impossible for wiser heads to get a hearing.
The problems were particularly acute on the editorial pages of the major newspapers -- the very places where a commitment to balance and diversity of opinion was supposed to be sacrosanct. Editors increasingly screened out contributions from anyone who seemed less than positively Jacobin in his zeal for unfettered free markets.
Saving Capitalism identifies six key areas in which American economic policy has gone disastrously off the rails: taxes, trade, innovation, infrastructure, workers' pensions and other fringe benefits and job creation. Devoting a chapter to each, Choate not only skewers what is wrong with present policies but offers realistic solutions designed to win solid bipartisan support.
On trade, for instance, he points out that the basic problem is that American trade policies have been premised on the false assumption that other nations think like Americans. Of course, they don't; and the whole history of America's efforts to "show leadership" in trade policy in the last six decades provides voluminous support for this inference. Noting that the United States Trade Representative's 2009 report on foreign nations' trade barriers runs to an astounding 547 pages, he comments:
"The ways, means, and combinations foreign governments use to thwart imports of U.S. goods, services and investments are varied and numerous. The list of barriers for China took 56 pages of the USTR document. Korea and India each required 14 pages, Japan 22 pages. Strikingly, these barriers still exist despite more than 60 years of intensive post-war trade negotiations with other countries beginning in 1947.
"Despite America's spirited urging of other nations to adopt the Anglo-Saxon economic model -- open markets and deregulation -- this system has enjoyed little appeal abroad. It suits the U.S. but it would not fit most other countries. Most countries tolerate the United States' championing open market absolutism just as they would the rants of a diminished relative: They ignore it. Yet, as long as the U.S. remains ideologically blinded and does nothing about the imbalance of trade, the transfer of wealth and power will continue unimpeded. After all, it is not the responsibility of other nations to inform us of our arrogance and stupidity."
On his numbers, nations that subscribe to the American trade model -- the Anglo-Saxon model, in his terminology -- account for just 25 percent of global trade. And their share is dwindling.
He adds: "When the United States had huge trade surpluses and was the world's largest creditor, it had enough money to grant other countries special trade concessions as a means of influencing their foreign and economic policies. But now that we have accumulated a $6-trillion trade deficit over the past three decades and are the world's largest debtor, a continuation of this ‘beggar thyself' policy is so impractical it is madness."
Madness indeed. Although insanity has been most obvious in trade policy, it has also pervaded financial regulation. And almost right across the economic policy waterfront the story is of a nation that is becoming unhinged.
A disturbing picture but in his final chapter Choate holds out hope there may still be time to avert total disaster.
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