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How Low Can We Go?

DANIEL GROSS CELEBRATES the flexibility and the robustness of the American economy, arguing that it enjoys many hidden strengths, and will expand in the future, but his book—Better, Stronger, Faster—is undermined by a crucial ambiguity. Gross sets up as his target the “declinists” who view the economy with despair, but he does not clearly explain who the declinists are or what they believe, and in the end he provides a boosterish, one-sided account of American economic advantages that relies on anecdotes and skimps on analysis. The book is less interesting for its argument than for what it reveals about how Americans might confront the pangs of national decline.

The problem starts early, in the first chapter, when Gross identifies the declinists and describes their views. The economist Nouriel Roubini predicted in July, 2009 that the economy would grow at one percent over the next few years. The historian Niall Ferguson observed that “the weight of history suggested that the United States, overextended and debt-ridden, was likely to suffer the same fate in the early twenty-first century that befell the British Empire in the mid-twentieth.” The economists Kenneth Rogoff and Carmen Reinhart wrote in 2009 that the “United States won’t be bouncing back any time soon” from the recent financial crisis. Gross says that Joseph Stiglitz believed the financial collapse “had rendered the United States irrelevant,” quoting him as saying that “the point now is that no one has respect for that kind of model anymore.”

One needs to sort out the claims here. First, one possible version of declinism is literal: that the United States will become “irrelevant.” Gross does not cite anyone as having this view. Stiglitz did not say that the United States had become irrelevant in the wake of the financial crisis; the irrelevant “model” he was referring to was the free-market model of deregulated finance that prevailed in the United States from the late 1990s to the enactment of Dodd-Frank, and he is surely correct about that. (The one commentator I can think of whose views are close to literal declinism is Tyler Cowen—not discussed by Gross—who extends a peak-oil like position to the entire economy and argues that opportunities for innovation have leveled off and hence we have entered a period he calls “The Great Stagnation.” But even Cowen believes that economic growth will continue, just at a lower rate than in the century or so that ended in the 1970s.)

Second, several of the people cited by Gross expressed doubts about the short-term prospects for economic growth. And they were right: the United States endured its most severe economic downturn since the Great Depression, and now is experiencing a weak economic recovery accompanied by still significant joblessness. Roubini underestimated the recovery by a few percentage points but was basically right, as were Rogoff and Reinhart. It is unfair to call these people declinists; one can believe that a cyclical economic downturn is especially severe without believing that it spells the end of long-term prosperity.

Third, a number of the people described by Gross believe that the United States will suffer relative economic decline. While it will continue to grow economically, it will not grow as fast as other countries, most notably China. Ferguson’s comment is characteristic of this view: Britain’s economy expanded even as British influence declined. Ferguson sees the same outcome for the United States.

The case for relative economic decline does not derive from the recent financial crisis, but rather extrapolates from trends going back several decades. In this period, the economy of the United States grew modestly, while the Chinese economy skyrocketed, and the economies of other large countries—Russia, India, Brazil—also improved significantly. The simple point is that if these trends continue, the American share of the world economy will continue to decline (although Americans will also enjoy higher standards of living thanks to absolute growth). And because China’s population is much larger than that of the United States, the size of the Chinese economy will surpass that of the United States in the coming years.

The relative declinists fall into two camps. Some take a sunny view: the United States will decline relative to China and other countries, but the advance of these countries will produce many benefits for the United States, including a larger market for American goods, which will enhance America’s absolute economic prospects. The United States will remain the richest large country on a per capita basis, and the most powerful country, for the foreseeable future, and the international order that the United States constructed—centering around free trade, economic liberalism, human rights, and security cooperation—will flourish because the rising powers see its advantages and will continue to support it.

Other relative declinists take a gloomy view. They hold that China’s rise means that American influence will wane. China rejects human rights; other countries will find China’s model appealing and loosen ties with the United States. A school of thought holds that rising powers such as China pose a threat to international order as they try to break out of structures designed to keep them down. International conflict could dampen economic growth internally, causing polarization and conflict within the United States as well.

So which view is Gross trying to refute? Gross would like us to think that the United States is “better, stronger, faster”—but better, stronger, and faster than what? The absolute decline thesis denies that we are better, stronger, or faster than we used to be; the relative decline thesis denies that we are better, stronger, and faster than other countries. But while the current worry is about relative decline, Gross offers evidence against absolute decline only. The ambiguity in the title masks the failure of the book.

Gross thinks that people who despair about the United States miss all the bright spots, and make the characteristic mistake of thinking that the current malaise must last forever. But, as he points out, past doomism—in the 1930s (Great Depression), 1950s (Sputnik), 1970s (stagflation), and 1990s (Japan)— has always proven to be misinformed or exaggerated. The American government responded quickly and (in Gross’s view) well to the financial crisis by opening credit facilities and rescuing banks, and to the recession by dousing the economy with cheap money. As a result, the economy shook off the financial crisis relatively quickly.

The bulk of the book lays out (some) statistics and (many) anecdotes to refute what Gross considers to be the clichés of declinism. The economy of the United States is not some incipient third-world backwater. Companies responded to the financial crisis and recession by cutting costs, firing workers, inventing new products, and exploiting new investment opportunities. Stripped of its fat, the economy is set to boom. Foreigners, recognizing our strengths, invest more money in the United States than they invest in any other country. The United States remains a gigantic exporter, and prospects look good for food, fuel, tourism, and higher education. American brands continue to dominate overseas. Ambitious people in other parts of the world want to immigrate to the United States, not to China or Brazil. Outsourcing has tailed off and U.S. firms are moving factories back into the United States (in large part as U.S. wages decline relative to wages in other countries).

The strength and the weakness of the book are its anecdotes, which entertain but do not prove anything and often fall flat. Gross loves stories about spunky innovators, ruthless cost-cutters, and visionaries with dazzling ambitions. BigBelly Solar is a company which (here is a characteristic taste of Gross’s prose) “was developing a product that could reduce budget deficits, take a meaningful bite out of global warming, reduce the trade deficit, curb excessive fuel use, improve the prospects for sidewalk cafes, demonstrate the commercial viability of green energy, and revive American manufacturing, all in one $4,000 package.” What is this wonder? A robot valet? An invisibility cloak? A personal rocket ship? It turns out to be a solar-powered trash compactor. The device features many charms and will save cities a few million dollars per year by reducing the need for garbage pickups. It will not take a meaningful bite out of global warming or make a visible impact on budget deficits.

In another chapter, Gross breathlessly describes the booming oil industry in North Dakota, which has propelled employment and economic growth in that state (and will spew forth far more greenhouse gas emissions than BigBelly digests). Gross seems to think that all of the rest of the country could be like North Dakota, but this idea is undercut by the fact that North Dakota is a tiny homogeneous state that floats on a vast pool of oil.

Another odd chapter describes how American consumers are becoming more efficient. Gross notes that Americans, in the wake of the financial collapse and the recession, slashed debt, saved more, and economized in various ways, some of them reflecting technological developments, like the practice of sharing cars via the Internet. But they had no choice: when people lose their jobs, they have less money to spend and so will spend less money. This is not much different from saying that during the Great Depression Americans ate less food. Why is this a cause for celebration? Gross’s point is possibly that clever new ways of sharing and saving have allowed many people to avoid extreme misery, but that is cold comfort.

All of this adds up to a fuzzy indictment of the declinists. But Gross does not show that growth will be robust rather than trifling. Anecdotes about technological innovation do not refute the point that technological innovation continues to exist but below the rate necessary to sustain earlier levels of economic growth. Nor does Gross’s account show that the financial crisis was anything other than significant, the Great Recession was anything other than bad, and the recovery anything other than weak.

That leaves the relative declinists. Gross’s view on relative decline is not entirely clear. Sometimes, he seems to reject this view (“Although the United States may be in bad shape, the rest of the world stinks too.”), but at other times he does not (“The United States may not have as big a role in the global economy as it had before. That’s okay too.”). Probably the fairest reading of the book is that Gross believes relative decline will take place, but that it will be modest. This puts him in the camp of sunny relative declinists. Gross may be right that the gloomy relative declinists go too far, but he does not actually marshal the type of analysis that would be needed to refute them. The statistics that he discusses (for example, the U.S. growth rate) are entirely consistent with gloomy relative decline, as they do not rule out a more assertive China or a more chaotic international sphere.

Nor does Gross spend enough time on the rest of the world to be able to comment intelligently on relative decline. After all, relative decline means that other countries will do better than the United States—but will they? These other countries are immensely complicated, and Gross’s skepticism about their prospects (“the rest of the world stinks”) is unearned. China faces environmental degradation, political unrest, and dangerous neighbors—but it has so far managed the second two problems adequately, and will be able to confront the first as it gains wealth. The European monetary union may crack up amid the sovereign debt crisis—but the member states have taken strides to share the burdens, and may well emerge from the crisis stronger than before. Both places face long-term demographic challenges as their populations age, but predictions about demographics are hazardous.

As for America’s many problems—the expensive and terrible primary school system, the expensive and mediocre health system, the wasteful and dangerous financial sector, astonishing wealth inequality, eroding social mobility, failing infrastructure, and a polarized political system that might even produce an unforced error of sovereign default or fiscal collapse—Gross has little to say about them. He acknowledges these problems, but he believes that dwelling on them distracts from America’s many advantages, notably an exciting and dynamic technology sector that guarantees America’s predominance in the future. Maybe; but a stronger case needs to be made for overthrowing the conventional wisdom.

Gross concludes by pooh-poohing the standard “goo-goo laundry list” of policy proposals that books like his are expected to advocate but that will never take place—raising taxes on the rich, imposing a carbon tax, investing in infrastructure, and improving the health care system. He thinks that these proposals are worthy but face insurmountable political opposition—which is odd, because such proposals have made some political headway and because the thrust of the book is toward complacency and quietism, not reform. Instead he provides an even goo-gooier set of hortatory “attitudes and concepts”: “aim high,” “hope for transformation but settle for improvement,” “light a candle, don’t curse the darkness,” and “get out more.” Here the book verges on territory normally occupied by self-help books, which offer bromides that are meant to inspire but cannot possibly guide behavior in a meaningful way.

And then you realize that Gross’s book is not so much about the state of the American economy but about something that he never mentions: wounded American pride. For people such as Gross, and maybe even for most Americans, self-worth is tied up with the condition of the country. If the country is no longer the best, the strongest, and the fastest, then we are not either. That is why any kind of decline, even the relative kind accompanied by greater riches, seems intolerable: greater wealth does not compensate for the pain of enduring the loss of empire.

The book might accordingly be seen not as the ten-thousandth in the exhausted genre of books analyzing American economic performance, but the first in a new genre that might be called therapeutic nationalism. It is the first self-help book written for a country rather than for people. If only we try harder, we can be “Better, Stronger, Faster.” Expect many more books like this one in the coming years. As for Gross’s contribution, it presents a characteristically American way to confront the anguish of national decline: denial. Consider, by comparison, how other countries have dealt with loss of empire. The Russians, with nostalgia; the British, with irony; the French, with despair. But I suspect that Gross is on the right track when it comes to America. Denial is just a form of optimism, which is the essential trait of the American character.

Eric A. Posner is a professor at the University of Chicago Law School.