Chris Tolles points us to what I have to say is an absolute must read piece by Jim Manzi (who I haven’t always agreed with in the past), exploring the biggest challenge the US faces in going forward. It’s difficult to express how important and worthwhile analysis this is. I don’t agree with everything, but it frames the issues in ways that are incredibly helpful. There’s very little I disagree with in the first half, which highlights the basic struggle that the US faces in really clear terms: innovation is necessary for economic growth, and less government interference is key for the type of innovation we need. However, with such innovation comes social upheaval and disruption that creates a different set of problems that could be just as bad for the US:
Our strategic situation is shaped by three inescapable realities. First is the inherent conflict between the creative destruction involved in free-market capitalism and the innate human propensity to avoid risk and change. Second is ever-increasing international competition. And third is the growing disparity in behavioral norms and social conditions between the upper and lower income strata of American society.
These realities combine to form a daunting problem. And the task of resolving it turns out not, by and large, to be a matter of foreign policy. Rather, it compels us to consider how we balance economic dynamism and growth against the unity and stability of our society. After all, we must have continuous, rapid technological and business-model innovation to grow our economy fast enough to avoid losing power to those who do not share America’s values — and this innovation requires increasingly deregulated markets and fewer restrictions on behavior. But such deregulation would cause significant displacement and disruption that could seriously undermine America’s social cohesion — which is not only essential to a decent and just society, but also to producing the kind of skilled and responsible citizens that free markets ultimately require. Moreover, preserving the integrity of our social fabric by minimizing the divisions that can rend society often requires government policies — to reduce inequality or ensure access to jobs, education, housing, or health care — that can in turn undercut growth and prosperity. Neither innovation nor cohesion can do without the other, but neither, it seems, can avoid undermining the other.
There’s a lot in the piece that I wanted to quote, but you should just go read the whole thing yourself. Manzi basically points out the difficulty in pulling any of the levers: if you increase the pace of innovation, you also increase social upheaval at the lower end of the pyramid. But if you work to protect social upheaval, you decrease the pace of innovation, and in a global economy, that can actually lead to another set of problems that, in turn, also could result in serious problems for the economy.
It’s a really sobering picture that is inherently non-partisan, and highlights how the views and plans of both major political parties, when implemented by people who don’t understand these countervailing forces, is likely to make the overall situation worse, not better.
The only thing that leaves me wondering is the claims of stratification between the haves and the have-nots is as extreme as Manzi points out, and as big a problem. I don’t deny that there is a massive divide between the haves and the have-nots, and the situation for many in the lower strata of society is bleak with little chance for many to improve (there are, of course, exceptions, but the probability of those exceptions is low). My question is really about whether or not Manzi is only presenting the worst of the have nots and implying it runs across a much larger group. He uses out-of-wedlock birth rates as a proxy, but makes no clear indication of why that’s the proper measure. It may be, but he doesn’t present the evidence.
In fact, I’m wondering if Manzi conflates a few separate items in this part of the analysis — suggesting that it is the upheaval and creative destruction brought about by innovation that is creating this social upheaval. I’m sure it’s true in some cases, but it’s not clear that it’s the case across the board. In fact, in many cases, you could argue that the economic upheaval brought about by creative destruction has, in fact, created many new opportunities for those who were greatly limited before. This was certainly the case in the two historical shifts Manzi discusses: from a farming to industrial society, and from an industrial to service economy.
That said, I do think the larger issue that he raises is probably correct, and worth understanding. Increasing innovation and economic growth is absolutely key — but such things do displace people and jobs, and those people will fight like hell to have the government protect those jobs, and will become angry when the government fails to do so, and that can create social unrest and populist political movements that do more harm than good. But those movements aren’t necessarily driven by the same people that Manzi was discussing earlier as “have nots.” In fact, many of those movements are often engineered by the “haves” who are seeking to just have the government prop up their existing markets in the face of competition driven by innovation.
That doesn’t mean that we should ignore the displacement, or the resulting anger, but we should be careful to understand who is really impacted and how — and also where the anger is truly coming from.
He worries — correctly, in my opinion — about the overall impact of many of the policies put in place by the current administration as well as those put forth in the end of the previous administration. He feels — and again, I agree — that the efforts to “rescue” Wall Street and Detroit go way too far towards trying to limit social disruption, and in the process likely harm our ability to innovate and grow. He’s also worried that the same is true of health care reform.
From there, Manzi goes into a list of four broad proposals, though I honestly felt that they didn’t measure up to the broader thesis. Of his four broad proposals, I don’t necessarily disagree with any of them. They include (1) getting out of owning/controlling Wall Street and Detroit as quickly as possible (2) not going too far in over-regulating Wall Street, but focusing on ways to limit fallout from failed investments by trying to prevent systemic risk in the nature of too much interconnectedness (3) reforming the public education system to make it more competitive and less process oriented and (4) reforming immigration completely to focus on targeting getting highly skilled workforces to immigrate to the US, no matter in what numbers or where they come from.
Perhaps all four need to be fleshed out much more, but given how compelling the opening of the article was, those suggestions seemed to lack the overall oomph to actually make a difference. They do little to actually impact the sectors in the US where innovation is most important. The thing that seems most absent in all of this is the transparency aspect. The biggest problem wasn’t necessarily the interconnectedness of the financial sector (as Manzi states), but the lack of transparency over that interconnectedness and what it meant. The issue was that people didn’t realize how a single event (or a small group of events) might funnel through the rest of the system. The interconnectedness of it all was a symptom, but the real problem was that there was no way anyone could back out the pieces to figure it out. It was the fact that the whole system relied on obscuring what was really going on by playing a weird game of hot potato.
Still, while I think there are some issues on the margins, I have to say that Manzi’s piece puts a really fascinating perspective on the position the US is in today, and certainly got me thinking about the state of the economy from a different perspective. The battle between innovation/creative destruction and social cohesion is a really good point that deserves a lot more studying and thought — though, I doubt we’ll get that from those in power positions in either of the two major political parties.
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The house is packed, the votes are in, and it’s time to hand out some Gorillas. It’s the third annual 
