Last week, I delivered the annual Thomas Ewing lecture at Millikin University in Decatur, Illinois.
Thomas Ewing served for many years in the Illinois state legislature, then in Congress in the 1990s. He was a Republican of course – in fact a namesake ancestor was one of the founders of the Republican party in Illinois in the 1850s.
The lecture was partly inspired by Herman Cain’s comment that if you are unemployed, you should blame yourself. The text of the lecture follows in full below.
It’s been aptly said: Americans admire underdogs - and despise losers.
So many other cultures have jokes that express an ethic of resentment.
There’s the Russian joke about the peasant who has a single cow and is envious that his neighbor has two. The local sorcerer offers the unhappy peasant a magic wish. He wishes, “Kill one of my neighbor’s cows.”
There’s an Arab joke about a peasant who finds a magic lamp. A genie appears and offers him anything his heart desires, on condition that his neighbor will receive double the same wish. The lucky man considers then asks: “Poke out one of my eyes.”
In my own native Canada there’s a joke that a Canadian lobster pot does not need a lid: if any of the lobsters tries to climb out of the boiling water, the others will drag him back in.
I can’t think of an American equivalent of these jokes. The American attitude to success has always been summed up for me by a true story, not a joke, told by my wife. When she and I were still courting, she worked at a Los Angeles television production company. The company parking lot was taken over each night at 6 by the valet parkers of a nearby restaurant, a very expensive restaurant. Emerging late from work, my future wife noticed one of the attendants gazing lovingly at a magnificent car. I forget what it was, let’s say a Bentley. “It’s beautiful,” my wife said. “Yes,” he answered. “But it’s not the car I’d buy if I had the money.” And he proceeded to detail the car of his dreams.
That was a long time ago – let’s hope that he gained his success, and that’s he driving that very car home tonight up the Pasadena Freeway.
The American respect for individual success contributes enormously to the American national success. Russia, the Arab world, other places gripped by an ethic of resentment tend not to do very well.
People who believe they can succeed if they invest the effort are more likely to invest the effort in the first place – and people who invest the effort are more likely to succeed.
The American belief that it’s up to each of us to achieve our own success inspires Americans to do the work that will enhance their chances of success. Most of them. Most of the time.
But what happens to that American belief in success in a time of severe, prolonged, and widespread economic depression – a time like now?
Retired businessman Herman Cain currently leads the polls in the race for the Republican presidential nomination. Two weeks ago, interviewed by the Wall Street Journal, Cain was asked about the Occupy Wall Street demonstration. He had this to say:
“Don’t blame Wall Street. Don’t blame the big banks. If you don’t have a job and you’re not rich, blame yourself.”
That would be a pardonable thing to say when the unemployment rate was near 3%. But when unemployment is 9% by the official measure, and much higher when you count all those who want full-time work but can only find part-time – it’s just not reasonable to tell those who don’t have a job to blame themselves.
Right now, if you aggregated all the people in the country who are seeking full-time work over here – and totaled all the current job vacancies over there – you’d have a ratio of about 5 job-seekers for every job possibility. I graduated from college in another very tough economic year, 1982. But even then the ratio of job-seekers to jobs was about half what it is now. Seniors, I hate to be the one to tell you this – but then you probably already know – you are about to graduate into the worst job market since the Great Depression.
And it’s not your fault.
On my website, FrumForum.com, we’ve hosted dozens of young contributors talking about your generation’s job crisis. Every time we do, we hear from commentators about how the young are the authors of their own misfortunes. They studied the wrong subjects in school. They are slackers who waste too much time playing video games. They’re entitled products of indulgent parents. You’ve heard it all yourselves I’m sure.
I agree: slacking is bad. Don’t overdo it on the video games. If any of you feel entitled, stop it.
It’s also true however that when your economy slumps into the worst collapse in output since the Great Depression, jobs disappear for physicists as well as poets – for grinds as well as slackers.
It’s wrong and unjust to blame most the generation that has suffered most from the catastrophe, but that did least to create the catastrophe from which they suffer. Your near neighbor Abraham Lincoln posed a better challenge:
“If we could first know where we are, and whither we are tending, we could then better judge what to do, and how to do it.”
Let me try here a short history of the crisis and an outline of the right response.
Over the past generation, the US economy grew strongly. Comparatively few of the gains reached the typical American worker or family. In the summer of 2007 – that is, before the onset of the current crisis – the typical American worker was actually earning less after inflation than the typical worker earned seven years before.
Yet at the same time as wages were stagnating, housing prices were rising, and credit was being made more easily available to more people.
You all know what happened next.
People borrowed against their home equity to pay the bills their stagnant incomes couldn’t cover: things like college tuition for their children.
The American family sank ever deeper into debt.
Between 1986 and 2006, American households doubled their debt level relative to income – with the larger part of the increase coming after 1996.
Then the housing market collapsed.
And we discovered it was not only households who had borrowed heavily. Financial institutions had been incurring huge risks undetected by their regulators, borrowing 20, 30, 40, 50 to 1 against their capital. When the housing market went wrong, so did their bets. Great names like Citibank, AIG, and other colossal firms teetered on the verge of failure.
For a moment in October 2008, the entire commercial paper threatened to stop dead, sweeing away the banking industry, and plunging the country and the world into a new great depression.
The government intervened to rescue the financial industry. But as the gambling stopped, so did the flow of credit that had ballooned the economy – and the US economy plunged into the deepest recession since World War II. 8 million jobs were lost between the fall of 2008 and the spring of 2009.
Since the spring of 2009, the economy has recovered, but only very weakly. The private sector has added about 2 million jobs. State and local governments have cut about 500,000.
As you’d expect, wages are falling behind. The typical American family today has a lower income after inflation than in 1997. Job creation lags. Young people starting their lives face daunting obstacles.
In the first year after the disaster, the Obama administration took bold action to jump-start the US economy. The results have disappointed almost everybody. Now we seem locked in a state of paralysis
Despite stable prices and record-low interest rates, the Federal Reserve hesitates to act for fear of creating inflation – to my mind, the equivalent of refusing to use the fire extinguishers as the house burns down because you fear that you might flood the basement.
The Obama administration is proposing a new round of stimulus spending joined to higher taxes on high-income earners – a combination that looks designed to offend Republicans. The idea seems to be to force Republicans to vote no – and thus give a president who failed to achieve economic recovery a line of attack against his opponents in the election year ahead.
As policy fails, and the unemployed languish, a generation loses its start in life. It’s startling to think that this year’s graduating class entered school as Lehman Brothers failed. Those freshmen must have assumed that things had to return to normal by the time they completed their degrees. Instead, even if we started creating jobs tomorrow at the best rate of the 1990s, we would not see normal employment again until the class of 2016 receives their diplomas.
In a crisis this bad, it’s clear what the political parties in Washington must do: argue ferociously over who is to blame.
I don’t see why they bother. There’s enough blame for everybody. More challenging is to discern the correct answer.
Let me give you an example of why this is difficult.
As the US economy has plunged into recession, the national debt has exploded, from some $6 trillion three years ago to $14 trillion. This debt is dismaying. But it raises a question: is the public debt a cause of the nation’s economic troubles – or a symptom of those troubles?
Many on the Tea Party right arraign the debt as the cause , and then conclude that cutting the debt by cutting government spending must be the solution.
Others – and I put myself in this group – dispute the Tea Party’s economics and its math. President Obama’s $800 billion stimulus cannot have caused an $8 trillion debt increase. The debt is caused by the collapse of government revenues – as a share of GDP, the federal government is now collecting less than at any time since the Truman administration. Government revenues collapsed because the economy is so weak. When the economy recovers, revenues will increase, and the deficit will shrink. Recovery alone will not do the full job – some spending cuts and some tax increases will still be required – but trying to balance the budget before the economy recovers will only make problems worse.
So there are analyses to reach and decisions to make before anything positive can be accomplished.
Yet even before this, we have a more fundamental level of problem to address – a problem that prevents the US government, especially the federal government, from acting even when a decision is made.
Some of you may know the name Tip O’Neill, former Speaker of the US House of Representatives. O’Neill served in Congress for more than 30 years. After his retirement in 1987, he was asked how Washington had changed since he arrived in 1953. He answered, “The people are better. The results are worse.”
What he meant: There are many fewer drunks in government than there used to be. Fewer crooks. Fewer cheaters and sexual harassers. More educated people, more people who have traveled or lived abroad. Yet back when Congress contained many more drunks and crooks and cheaters, back when the members were less educated and less traveled, nobody doubted that Congress would vote to pay the American national debt. This summer, a better educated, more sober, more honest, and probably less adulterous Congress pushed the United States to the verge of national default.
Every new president appoints about 10,000 people to staff his or her administration. That staffing process takes longer and longer with each new presidency, as we impose ever stricter disclosure rules. It’s like a watch winding down: Obama slower than George W. Bush, George W. Bush slower than Clinton, Clinton slower than George HW Bush, and so on.
In the 1980s, important measures often passed the Senate by majority vote, 53 to 47 or something like that. Today, we have a de facto 60 vote requirement.
You all know about the filibuster, and how 40 senators can stop things from happening. But oftentimes it takes only 1. A single senator has the power to delay indefinitely a vote on any presidential nominee – until recently, that single senator could even do it secretly. This power is not found in the Constitution. It’s not found in any law of the United States. It’s not even found in the written rules of the Senate. It’s a custom and convention that has grown up over time – and that now prevents President Obama from filling two vacancies on the Federal Reserve, the most important economic agency of the US government.
As you we all know, the federal government has already put $800 billion to use to stimulate the economy. The Obama administration is now requesting another $450 billion. Similar programs in the 1930s financed public works still visible to this day: the present Chicago waterfront, New York’s East River Drive, Philadelphia’s railway terminal, the embankment of the Los Angeles River. Where are our projects? Some roads and bridges have been improved, but there are no big signature projects. In fact, less than 1 dollar in 8 of the stimulus funds went to infrastructure at all – despite the economic studies that show that infrastructure spending is the very most effective form of stimulus.
Why so little? One important reason: unlike in the 1930s, modern infrastructure programs just move too slow. Environmental assessment, administrative review, notice and comment – we’ve built an entire legal and regulatory structure to ensure that every project is checked and double-checked. Result: while New York’s East River drive was finished in half a dozen years from proposal to paving, the equivalent road up the west side is still unfinished half a century after the first proposals.
Nobody wants to return to the old days when highway engineers could bulldoze half a city without anyone able to stop them. But years from now, when America looks back at our time with 9% unemployment, the federal government able to borrow for 10 years at an interest rate of 1.5%, it will say: this disaster was also an opportunity to build and rebuild your airports, your highways, your rail networks, your sewer systems, your data networks – and what did you do with it? I don’t think we’ll be very proud of the answer.
Where does the answer begin?
I’d suggest: the answer begins with you and me – and especially with you, the students in this room.
Your parents and grandparents have strained American system of government. They inherited a system of government that can only work if infused with an ethic of compromise and negotiation –and they broke that system with a radical refusal to live up to that ethic.
Most democracies are parliamentary systems of one kind or another. In Britain for example, the party that wins the most seats in the House of Commons forms a government. A majority government in Britain is very powerful, it can do almost anything it wants. The opposition’s job is to try to mobilize public opinion against the government – in hopes of persuading voters to replace the government.
If the US had a British system of government, the current leader of the country would be Prime Minister John Boehner. But the US has a very different system, in which Speaker John Boehner and President Barack Obama must find ways to share power, not only amongst themselves but with the Senate and the Supreme Court too.
Everybody must agree if anything is to happen. Remove the spirit of give-and-take from the system and the system breaks down – as it seems to be breaking down today.
Let me point to 3 examples of the system break-down that should matter to people in this room.
1) The United States pays more to treat sickness than any country on earth. About 17% of national income is spent on healthcare. The next runner-up, Switzerland, spends about 13%. Most democracies spend about 11-12%. If the US could magically reduce spending to Swiss levels, it would be the equivalent of getting the US defense budget for free.
Yet the US is not healthier than countries that spend much less. Americans live two years less than Canadians – and the longevity gap is widening.
Americans don’t see the doctor more often than people in other countries. When they get sick, they don’t spend more time in hospital. If they get cancer, their odds of survival are somewhat better than Brits or Canadians, but not dramatically so.
Where does the money go? The short answer seems to be that everybody involved in American healthcare is much better compensated than their European or Canadian counterparts.
Why doesn’t some Sam Walton or Henry Ford entrepreneur come along to make a giant fortune by squeezing costs and delivering a decent product at a much lower price? The short answer is that we’ve passed a vast national system of rules and regulations to stop that healthcare Sam Walton or Henry Ford.
Health insurance is regulated by the states, not the federal government, so we have 50 marketplaces, not 1. We passed a new prescription drug benefit in Medicare, making the federal government the largest buyer of pharmaceuticals – yet it’s not allowed to use that buying power to press for discounts. Most working-age Americans receive health insurance through their jobs, in ways that conceal the true cost of that insurance, so that there’s little competitive benefit to an insurance company to squeeze providers to reduce costs.
And when I say “we” have done this, I mean both parties, acting together, to protect their industry constituencies.
2) Since 1970, the United States has admitted 40 million migrants into the country. I’m one of them, I was born in Canada. Unlike the pre-1970 immigrants- and unlike post-1970 immigrants to Canada and Australia – the post-1970 immigrants to the US are less well-educated and less-skilled than the native born population. Increasingly, immigrants arrive poor – stay poor – and have poor children and grandchildren.
The tilt in US immigration policy toward the poor and unskilled imposes very large costs on the whole country. ETS – the people who write and administer the SAT – estimates that immigration decisions already made ensure that the US workforce of the 2030s will be less skilled and even less literate than the US workforce of the 1990s. Social welfare costs will rise accordingly.
How’d this happen? It happened in large part because we have taken a very permissive attitude to illegal immigration. In the decade of the 2000s, for example, more than half the immigrants to enter the US entered illegally: somewhere between 5 million and 8 million people depending on who is counting.
No other country on earth faces an illegal immigration population on anything like this scale, because most countries punish employers who use illegal labor. Enforcement is never perfect of course. Illegals still find work in small enterprises and farms. But only in the United States do you find entire industries – and major corporations – using illegal labor on a very large scale.
One short anecdote illustrates why this is so.
In the 1990s, the meatpacking industry massively shifted from legal to illegal labor. Illegal labor was preferred not only because illegals could be paid less per hour, but also because meatpacking is a very dangerous job. An injured legal worker is entitled to worker compensation, health care and other costly benefits. An injured illegal worker has no recourse.
Prodded by outraged unions, the Clinton administration launched a crackdown on the industry in the late 1990s. Packing plants were raided, accounts were audited. Some big plants were almost 90% illegal, which does not happen by accident.
The response? The meatpackers protested the crackdown and Congress defunded the enforcement program.
Through the next decade, illegal labor flowed into homebuilding, eldercare, and other major industries. It wasn’t a secret. And from the point of view of the public officials averting their eyes, it wasn’t really a policy failure either: they saw illegal immigration as an important component of America’s competitiveness strategy, a way to suppress wages and thus inflation.
Today’s debate over a fence on the Mexican border is a distraction, and I’d suggest: a deliberate distraction. Any fence will be tangled in litigation: it took 11 years of lawyering to build just 14 miles of fence between San Diego and Tijuana. Enforcement must take place in the workplace – and that is precisely where the most powerful lobbies in US society wish to prevent it from occurring. I think it is powerfully symbolic that the most strident voice demanding a fence, lethally electrified no less, is that of Republican candidate for president Herman Cain – a past chief lobbyist for the National Restaurant Association, one of the most powerful of the anti-enforcement lobbies in Washington.
3) Well before the crisis of 2008, the United States faced chronic and growing budget deficits. A budget deficit is not merely a financial problem. It’s an indicator of political failure: an inability to bring means into line with ends.
For three decades – with a brief interval in the 1990s – the United States has been unwilling or unable to reduce spending to meet revenues or to raise revenues to meet spending.
Of course when I say “the United States,” that’s just a figure of speech. What really happens is that one political coalition refuses to allow cuts in healthcare spending, another different political coalition demands a big defense budget, and a third and different coalition refuses to allow revenue increases.
In a parliamentary system, like Great Britain, these three coalitions would eventually meet in the office of the Chancellor the Exchequer, and he’d have the power to force a compromise between them
Even in the United States, there used to exist an approximation of such a coordinated system, managed by powerful figures in the White House and Congress. That system broke down in the 1970s, and has never recovered. The different coalitions snarl at each other, demanding the others retreat and surrender, in an ever-intensifying conflict with ugly racial, regional, generational, and class undertones.
These confrontations seemed intractable enough even in times of relative prosperity. They will divide the country even more painfully in the years of austerity ahead.
How do we make rational choices in a Congress where leadership has broken down, where lobbyists command so much power, and where so many members have come to disdain compromise as betrayal?
Failures to govern leave the system on automatic pilot.
Which is how it happens that Americans spend 10x as much on Medicare treatments for the last 2 months of life as on the early childhood nutrition programs that shape the chances of poor children over their entire course of life.
Which is how it happens that Americans find it easier to raise the most economically harmful taxes – payroll taxes in 1983, capital gains taxes in 1986, income taxes in 1993 and very possibly again in 2013 – than to impose economically beneficial taxes on pollution or consumption.
Which is how it happens that the demands and fears of the generation passing from the scene so displace and dominate the needs and yearnings of those arriving on the scene.
It’s not a happy story. It’s a story that you can change. Our institutions grow, but they do not grow by themselves. They are shaped by the efforts of human beings.
The bad political habits that have gathered upon us in the past generation were once novelties. They can be junked as antiques.
British Prime Minister David Cameron has movingly urged that “politics shouldn’t be so different from the rest of life, where rational people do somehow find a way of overcoming their disagreements.”It was so once. I can be so again. It must be so if we are to lead this country out of its economic crisis – and to a better future.