Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, And How to Reclaim American Prosperity, by Glenn Hubbard and Peter Navarro, FT Press RRP£18.99, $26.99
Just now optimists about the course of US economic policy are hard to find. The imminent prospect of divided government makes gridlock in Washington, even worse than that of late, all too likely and the chances of bipartisan co-operation poor. But you never know. A handbook of intelligent centrist proposals – ideas that moderates in either party could support – would be useful in its own right, and might even start bringing the tribes together.
Glenn Hubbard and Peter Navarro say their new book, Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity, is just such a manifesto.
Hubbard, dean of Columbia Business School, was chairman of George Bush’s Council of Economic Advisers between 2001 and 2003. Navarro, a professor of business at the University of California, Irvine, “is a Democrat who ran for Congress with President Bill Clinton’s support”. It sounds promising. They are, the book says at the outset, two economists from “very different sides of the political aisle”.
As it turns out, not different enough. This is a good and useful book, but bipartisan it is not. It is decidedly conservative, and gets much of its drive, for good and ill, from the authors’ barely tempered disgust at the policies of the Obama administration.
Pitched at the lay reader, the book sketches the components of national income, explaining the connections and the need to keep them in balance. Therein, as you might expect, lies the US economic problem: the elements, say the authors, are “out of whack”. Private saving, investment and exports are too low. Government spending, tax rates and imports are too high. All this is true.
The authors, keen on capitalised lists – Thomas Friedman has much to answer for – then nominate “Ten Levers of Growth”: competition, trade that is “free and fair”, entrepreneurship, savings, strong financial markets, innovation, human capital, reduced dependence on imported oil, cost-effective healthcare, and a strong manufacturing base. The rest of the book looks at the way economic policy – on taxes, trade, energy, welfare entitlements and so on – has pushed those levers, usually in the wrong direction. (Friedman would talk about exploding the levers or vaulting over them, so it could have been worse.)
This is a big agenda for a small book. The authors are always provocative, often in a good way, but they are not always convincing. Their brevity and sometimes overzealous tone militate against it.
The attack on the Obama administration’s fiscal stimulus, for example, is far too harsh – and needlessly confusing. Number nine on another list, this time of 11 fiscal dos and don’ts, commands: “Don’t use a fiscal stimulus to fix a recession triggered by a financial crisis”. Since in the present case this would appear to decide the issue all by itself, one wonders, why bother me with the other 10 rules?
In fact, having noted how the recession started, the authors turn out to be arguing not against any fiscal stimulus, but for a different kind (help distressed homeowners, cut the payroll tax, cut taxes on investment). In other words, fiscal rule number nine is crisp, but wrong on the book’s own analysis. This is not the only place where style and content get in each other’s way.
The book is full of good ideas and wise on many of the issues it confronts. It is right about how to fix Social Security: raise the retirement age and adjust the indexing system. It is right that grappling with Medicare outlays is both more important and more difficult, and in that discussion makes a crucial point: “Support should focus on lower-income individuals, with much less assistance for more affluent seniors.” (When it comes to the politics, good luck with that.) It says sensible things about trade, energy, financial reform and much else. It is right that faster growth should be the overriding goal.
With that in view, the authors are also correct to stress reform of the US tax system. The strategy they favour is a good one: widen the base of the system so that, for any given revenue, marginal tax rates are lower; at the same time, attack the present code’s many disincentives to save. However, the message again gets muddled. The book calls for a “progressive consumption tax”, but fails to explain the idea properly. It says capital income is exempt under such a scheme. Not so: a consumption tax can and should tax capital income that is consumed.
Characteristically, the discussion is too brief. Elsewhere, too often, the tone is off-puttingly militant. This is not the way to bring Washington’s factions together.
The writer is an FT columnist