June 7th, 2012 // 2:23 pm @ Oliver DeMille
Raghuram Rajan of the University of Chicago recently said in Foreign Affairs (May/June 2012):
For decades before the financial crisis of 2008, advanced economies were losing their ability to grow by making useful things.
“But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations.
“So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same.
“The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.”
Now many of the nations in Europe, North America and leading Asian countries are facing the consequences of their reliance on debt.
We call it the economic crisis of 2008, or the Great Recession, but it began long before the Bush or Obama administrations.
Indeed, during the Ford and Carter eras of the late 1970s, constitutional scholars widely warned of this very problem.
Sadly, their recommendations went unheeded.
It now falls to our generation to deal with the realities of over forty years of bad policy, and the economic challenges ahead will likely be worse than economists are admitting.
The problems will likely still plague our children and grandchildren in their earning years.
Raghuram Rajan suggests the following fixes:
- Stop using debt as the solution to increasing demands for government and private spending
- Educate or retrain the sectors of workers whose jobs are being mechanized, replaced, or sent abroad
- Create government policies that encourage entrepreneurship and innovation
- Reduce regulations that hurt competition
- Shrink government as needed to reduce unnecessary and unproductive functions
- Move beyond attacks on bonuses and “the one percent” and emphasize the need to provide more entrepreneurial opportunity
- Avoid calls for stimulus
Of course, not all nations will follow identical policies, but these are the general principles of overcoming our economic challenges. Rajan’s article outlines needed changed in more detail, and one quote is worth repeating:
Americans should remain alert to the reality that regulations are shaped by incumbents to benefit themselves.
If only we could stitch this quote in needlepoint, frame it and hang it in every American living room.
And get every voting citizen to read each issue of Foreign Affairs.
We have less of a Washington problem and more of a citizen problem. Too many citizens are on vacation from our duties. We want to be Type B citizens who vote, attend jury duty and watch the news, and to look down on Type C citizens who don’t do any of these.
But freedom depends on Type A citizens, who closely watch what government does and make their influence felt.
Imagine an America where the first branch of government consists of thousands of unelected citizens who study history and the great classics, read proposed treaties, important court cases, executive orders, budgets, and top bills proposed at the local, state and Congressional levels. That’s the formula for freedom, and no other formula has ever worked—in America or in all of history.
When the people don’t actively watch out for their freedoms, they lose them.
When Presidents, Senators, Governors, Justices and CEOs have an entirely different level of education than the average citizens, freedom will decline.
Again, there are no exceptions in history. In fact, there is a word for such a divide between the education of the leaders and the education of the masses. The word is Oligarchy.
As Christopher Hayes wrote in Twilight of the Elites, “In reality our meritocracy has failed not because it’s too meritocratic, but because in practice, it isn’t very meritocratic at all…. In other words: ‘Who says meritocracy says oligarchy.’”
Hayes also noted that, according to Pew Research, Canada is almost 2.5 times more economically mobile than the United States, Germany is 1.5 times as mobile, and Denmark is 3 times as mobile.
So a young person in Denmark is three times as likely to rise from the middle to the upper class as our children in America. Indeed, the only advanced nation where such progress is less likely than in the U.S. is Britain—the modern icon of class divides.
Again, the solutions are relatively simple: reduce regulation that dis-incentivizes economic growth, adopt policies that encourage entrepreneurship and innovation, and stop relying on debt.
This will cause governments and households to tighten their belts in the short term, but long-term free enterprise will rekindle economic growth and widespread prosperity.
If only our leaders would take notice. As Hayes wrote in dystopian terms:
It would be a society with extremely high and rising inequality yet little circulation of elites.
“A society in which the pillar institutions were populated by and presided over by a group of hyper-educated, ambitious overachievers who enjoyed tremendous monetary rewards as well as unparalleled political power and prestige…, a group of people who could more or less rest assured that now that they have achieved their status, now that they have scaled to the top of the pyramid, they, their peers, and their progeny will stay there.
“Such a ruling class would have all the competitive ferocity inculcated by the ceaseless jockeying within the institutions that produce meritocratic elites, but face no actual sanctions for failing at their duties or succumbing to the temptations of corruption….
“In the way bailouts combined the worst aspects of capitalism and socialism, such a social order would fuse the worst aspects of meritocracy and bureaucracy.
“It would, in other words, look a lot like the American elite circa 2012.”
All of that would be fine, if the rest of the people lived in a society with true free enterprise. Let the super-elite act like elites always have, but let the regular people live in freedom.
Over time, freedom creates growth, opportunity, socio-economic mobility and widespread prosperity.
Alas, the elites seldom ever make such changes on behalf of the people. If we want to be free, regular people must start behaving like Type A citizens.
He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.
Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.