New powers are rising, and if America wants to maintain its economic competitive edge, it needs to make major changes – fast. But does America have the political will to act? Are Americans willing to sacrifice short-term consumption for long-term investment?
On Sunday night, Fareed Zakaria GPS aired a one-hour special on “Restoring the American Dream,” with scholars Niall Ferguson, Jeffrey Sachs, Dambisa Moyo and Joseph Nye (who will be taking your questions online this week).
I asked Fareed about the U.S. budget and America's future if we don't change course. Check out the interview below, and see Fareed’s cover story in Time Magazine.
Bakshi: Is today’s budget battle on Capitol Hill addressing real issues?
Zakaria: I think the budget battle is incredibly disheartening because what we’re talking about is trivial. We are talking about cutting the budget but not actually dealing with any of the major programs that are going to be the big drivers of cost – Medicare, Medicaid, Social Security. Meanwhile, we’re cutting everything else – all discretionary spending, which is infrastructure, education, air traffic control, NASA, scientific research.
So if you think about it, what we’re doing as a country is continuing to subsidize consumption – which is pensions, healthcare, all of these kinds of things – and we’re doing it not just in the budget but through very low interest rates. We’re continuing to subsidize consumption while we’re starving investment.
This is exactly the opposite of what produces long-term growth. There is very strong historical data that suggests the way societies grow is by making large, long-term investments. That’s how China is growing today. That’s how we grew for most of our history. That’s how Germany is growing today.
It feels like in Washington, for political reasons, the only thing that people can agree on is to cut the investment part of the budget and no one dares touch the consumption part of the budget. The net effect is that we’re subsidizing consumption and starving investment, which is a recipe for failure.
Bakshi: What do you think it would take to change the political dynamics that are leading to this?
Zakaria: Probably, it would take a crisis. And I say that but I sometimes think to myself, “Wait a minute, we had a crisis; we had the greatest financial crisis since the Great Depression!” And somehow it didn’t wake us up. In fact it resulted in a good set of emergency measures taken by both the Bush and Obama Administrations and I applaud them for it, but it didn’t make anyone stop and say, “Wait a minute, what are the underlying causes of this crisis and how do we make sure that we’re not on that trajectory again?”
The underlying causes of the crisis are cheap money, too much spending, too much borrowing, and too little investment. We haven’t solved any of those problems. We’ve done the emergency Band-Aid to the banks, which is fine – I agree with it, I think we had to do it – but nobody is sitting there trying to figure out, “OK, how do we make sure in the next 20 years we have a very different growth trajectory.
Bakshi: If the situation stays the same – if America doesn’t make significant changes – what lies ahead in 5 to 10 years for the U.S.?
Zakaria: I think it would be a period of very slow growth, very slow employment growth. I don’t want to paint a picture of total gloom and doom. The United States is going to be a rich country, it is going to be prosperous, but it is not going to be able to take the lead in the next phase of global economic development.
Look at what happened to Japan. Look at what happened to Britain in the 1950s. You can be a very rich country, very prosperous, very advanced, but if you get off the groove, it becomes very difficult to come back sometimes.
Bakshi: It’s not the Titanic dropping to the bottom of the ocean – it’d be a slow decline?
Zakaria: It’d be a slow decline. We will be a very rich country. We will continue to thrive. There will be pockets of incredible excellence. One of the great dilemmas for America will be that American companies will do very well while American workers might not.
There will be a class of Americans – the globalized, “knowledge workers”, if you want to call them that – who will do very well. But the average American will face very, very significant pressures because the work he or she does is not going to be competitive in this new world, and we are not making the investments we need to to help make it competitive. We’re not upgrading the educational system. We’re not upgrading the infrastructure. We’re not upgrading all the areas where you can take that American worker and make him or her super-competitive and super-productive.
For more from Fareed, check out his cover story in Time Magazine.