It's 1928 Again: Prepare To Change Your Thinking
Politico, February 11, 2009
Between 1928 and 1940 the way we viewed eveything changed. In the next few years it will again.
In 1928, if you had asked people whether the federal government should take aggressive steps to fight economic downturns, or to help senior citizens avoid poverty in old age, or to ease the pain until jobless Americans could get back on their feet, most would have said no. "Rugged individualism" was the ethic of the age. By 1940, however, these propositions were considered common sense. The climate of opinion had been transformed by events.
We're not going to have another Great Depression; with government throwing trillions in spaghetti against the wall via new stimulus and bank rescue plans, enough will stick, however imperfectly, to avoid calamity. But the current crisis has nonetheless brought us to the cusp of another revolution in the way we think about economic life, and thus in how we view the role of government and the role of corporations in ensuring opportunity and security in a global age.
This rethinking can't happen fast enough. Our blind adherence to the idea that financial markets can regulate themselves got us into this ditch (as even Alan Greenspan, the leading apostle of that perverse notion, now admits). Yet unless we bury other dead ideas still threatening our economy, we'll never find our way back to a durable prosperity.
"Devotees of capitalism are often unduly conservative," John Maynard Keynes wrote in 1926, "and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be first steps away from capitalism itself." Eight decades later, Keynes' insight still holds. As today's downturn makes clear, the most striking example is corporate America's wrongheaded belief that business should continue to be responsible for the financing and provision of most Americans' health coverage.
Our employer-based health care system may have made sense 50 years ago, when health care cost far less and most families relied on a single bread winner who worked at a large company for decades. In our grandfather's economy, when American business stood astride the world, corporations could pass on through higher prices the cost of much of our welfare state.
Today, however, our unique scheme of corporately organized benefits makes business less competitive even as it leaves nearly 50 million people uninsured and everyone else fearful of being a pink slip away from medical bankruptcy. Only in America must a president like Barack Obama call for emergency funding so that millions who have lost their jobs in today's recession don't lose their family's health coverage as well.
Yet even as CEOs seek an "exit strategy" from soaring health costs, most resist the idea that government should assume more of the burden. Who else do they think is available?
The worker anxiety assured by such ideological blindness may soon provoke a protectionist backlash that makes today's downturn far worse. Similar dead ideas block progress on schools, trade, taxes and more. The adjustment America faces in today's crisis, and as countries like China and India continue their rise, is similar to that faced by businesses that have long had dominant market positions but which suddenly stumble in the face of real competition. The days of being fat and happy are gone; the sudden exposure to competition exposes myriad inefficiencies if not downright craziness in "the way things have always been done." A period of painful rethinking ensues if the firm is to survive and thrive in its new environment. For the entire U.S. economy today, the need and the psychological adjustment this entails are the same.
That's why, beyond the urgent stimulus and banking fixes he must orchestrate, Obama's most important task is to clear out the cobwebs in the American mind. Whether it's a local approach to funding schools that made perfect sense in the 19th century but dooms millions of children today, or an archaic dependence on job-killing, regressive payroll taxes, our old ways of thinking are letting conditions fester that will undermine faith in capitalism's ability to improve the lives of ordinary people.
The paradox of our time is that the blind spots of the world's leading capitalist nation are now the biggest risk to the future of capitalism, and therefore to the well-being not only of the United States but also of billions of people across the globe. We're in a race between capitalism's tendency in this era to wreck so many lives that it loses standing with the public, and Obama's ability to awaken us to the stakes, open our minds and lead us toward new ways of thinking that make American-style capitalism safe for the 21st century.