Chrystia Freeland

We all know there are three important things about real estate: location, location, location. That double repetition, which the late and great word sleuth William Safire traced back to a 1926 Chicago Tribune classified ad, is still with us because it is succinct and true.

You can think about the economic and political woes of the Western world today in the same way. It’s all about jobs, jobs, jobs.

But over the past two weeks the political battles over government debt in Washington and Frankfurt, the street battles in Britain, and the volatility of markets everywhere have obscured that reality. The talk instead has been about share prices, credit ratings, police tactics and political dysfunction.

That’s why Pinched, a book about unemployment published this week by the American journalist Don Peck is so timely and important. Mr. Peck’s central message is that all recessions are not the same. Prolonged slowdowns, like the one the Western world is experiencing today, make their mark not only through the pain they cause while we are in the middle of them. They have a permanent, and largely malignant, impact.

As Mr. Peck argues: “When jobs are scarce, incomes flat, and debts heavy for protracted periods, people, communities and even whole generations can be left permanently scarred.”

Mr. Peck’s warning, which is based on the lingering effects of previous deep recessions, runs counter to the intuitions of the postwar generations in Western Europe and North America whose lives have been a story of fairly steady economic growth.

“The problems that we face are even bigger than we think right now,” Mr. Peck told me. “People assume that, ‘Well, it will be bad for a while, but then it will get better.”’

The sort of metaphors we tend to reach for, to borrow one from the White House, are of the car that was driven into the ditch. It is unpleasant to be stuck in the mud, and pushing it out is hard work, but once we are back on the road it will be full speed ahead.

The better, but grimmer, comparison is to infant malnutrition. Even if that child grows into a well-fed adult, her early experience of deprivation will do lasting damage.

That ugly image is particularly apt because the hardest hit will probably be young people. Mr. Peck spoke to Lisa Kahn, a Yale economist, who found that getting your first job during a deep recession meant a starting salary 25 percent lower than during a boom, and an income 10 percent less 17 years later. Even mid-career, the recession generation not only takes home a thinner paycheck, it is lower down the corporate hierarchy and more professionally timorous.

Mr. Peck’s second key point is that deep downturns don’t just — though no human life is a “just” — blight individual lives or even the lifetime job prospects of a single generation. Living through a lot of lean years changes the entire culture, and not for the best.

Most of his book was written last year and it is largely about the United States, but Mr. Peck’s prediction of societies turned nasty and brutish by hard times will have particular resonance this week in Britain.

“What we know for sure is that politics will become more contentious and life will become more mean-spirited,” Mr. Peck said. “The great risk, I think, is a poisoning of politics, which will create a foreshortening of political action, where any sort of bold plan simply becomes impossible.”

What is important about Mr. Peck’s analysis is that he puts what happens in people’s lives — their job prospects, their lifetime earnings, the shift in family dynamics when one parent is unemployed — at the center of his thinking about economic policy. He really does think the urgent issue today is jobs, jobs, jobs, because the personal catastrophe of unemployment, multiplied a millionfold, becomes a national catastrophe.

All of which may make you assume that Mr. Peck is a deficit dove. While it is true that in the short term he is worried that premature austerity is the greatest danger, he thinks that too much government debt matters as well: “To restore confidence in the federal government without undermining the recovery, we must tie current deficits to binding measures that will close the budget gap and stabilize the national debt in the near future.”

That is the real tragedy of the poisoned political debate Mr. Peck predicts — and which is already paralyzing so much of the developed world. We argue bitterly about jobs versus deficits. But the best — and probably only — way to solve both problems is with a double-barreled strategic approach.

Robert E. Rubin, a former secretary of the Treasury and currently the co-chairman of the Council on Foreign Relations, told me: “A lot of the commentary distinguishes between addressing the deficit and addressing jobs. I think they are actually one issue.”

Like Mr. Peck, Mr. Rubin believes that an agreed plan to close the deficit in the medium term would actually make a job-creating stimulus program in the short term both more feasible and more effective.

“You can put in place a serious fiscal program, which would generate job-creating confidence, but defer the implementation date,” he said. “In that context you could do a fiscal stimulus, and at much less risk of it being materially offset by an adverse effect on confidence.”

We need to create jobs today — and commit to tightening our belts when the economy starts to recover. It is a simple plan that makes sense to a lot of us. But in the scared, beggar-thy-neighbor world Mr. Peck describes, the public-spirited middle ground this approach embodies may no longer exist.

Tolstoy thought unhappy families were unique in their unhappiness.

But when it comes to countries, these days the world’s gloomy ones have a lot in common. From Fukushima to Athens, and from Washington to Wenzhou, China, the collective refrain is that government doesn’t work.

“2011 will be the year of distrust in government,” said Richard Edelman, president and chief executive of Edelman, the world’s largest independent public relations firm.

For the past decade, Mr. Edelman has conducted a global survey of which institutions we have confidence in and which ones are in the doghouse. In 2010, the villains were in the private sector — from BP, to Toyota, to Goldman Sachs, corporations and their executives were the ones behaving badly.

But this year, Mr. Edelman said, we are losing faith in the state: “From the sovereign debt crisis in Europe, to the government’s response to the earthquake in Japan, from the high-speed rail crash in China, to the debt ceiling fight in Washington, people around the world are losing faith in their governments.”

Even the Arab Spring, Mr. Edelman mused, was an extreme expression of the same breakdown in the people’s support for those who rule them.

After that, though, the global parallels start to break down. In our kitchens, on Facebook, and in our public squares, a lot of us, in a lot of places, are talking about how we long to kick the bastards out. But how we act on that angry impulse varies widely. Figuring out when and how our private anger translates into public action, and of what kind, is one of the big questions in the world today.

One answer comes from Ivan Krastev, a Bulgarian political scientist. One of Mr. Krastev’s special interests is in the resilience of authoritarian regimes in the 21st century. To understand why they endure, Mr. Krastev has turned to the thinking of the economist Albert O. Hirschman, who was born in Berlin in 1915 and eventually became one of America’s seminal thinkers.

In 1970, while at Harvard, Mr. Hirschman wrote an influential meditation on how people respond to the decline of firms, organizations and states. He concluded that there are two options: exit — stop shopping at the store, quit your job, leave your country; and voice — speak to the manager, complain to your boss, or join the political opposition.

For Mr. Krastev, this idea — the trade-off between exit and voice — is the key to understanding what he describes as the “perverse” stability of Vladimir V. Putin’s Russia. For all the prime minister’s bare-chested public displays of machismo, his version of authoritarianism, in Mr. Krastev’s view, is “vegetarian.”

“It is fair to say that most Russians today are freer than in any other period of their history,” he wrote in an essay published this spring. But Mr. Krastev argues that it is precisely this “user-friendly” character of Mr. Putin’s authoritarianism that makes Russia stable. That is because Russia’s relatively porous dictatorship effectively encourages those people who dislike the regime most, and have the most capacity to resist it, to leave the country. They choose exit rather than voice, and the result is the death of political opposition: “Leaving the country in which they live is easier than reforming it.”

Nowadays, the Chinese find little to emulate in Russia. That includes flavors of authoritarianism: Theirs is the more carnivorous variety, including locking up dissidents, rather than encouraging them to leave, and censoring the Internet, rather than allowing the intelligentsia to be free but ignored.

Mr. Krastev’s thinking suggests a perverse possibility — that Mr. Putin’s slacker authoritarianism, while less able to deliver effective governance than the stricter Chinese version, may actually prove to be more enduring. The recent outburst of public rage in China over the high-speed rail crash is one piece of supporting evidence.

Mr. Hirschman came up with his theory of exit and voice in the United States, and he believed that exit had been accorded “an extraordinarily privileged position in the American political tradition.” That was partly because the United States was populated by exiters and their descendants — immigrants who chose to leave home rather than reform it — and partly because for much of American history the frontier made it possible to choose exit without even leaving the country.

For Americans, that sort of internal exit is no longer an option. Whatever you may think of the political agenda of the Tea Party, or of its wealthy supporters and media facilitators, it is at heart an ardent grass-roots movement whose angry and engaged participants have chosen voice over exit or apathy.

But when you look at what they are using that voice to advocate, you may decide that Mr. Hirschman was right after all about the American national romance with exit. The Tea Party’s engaged citizens aren’t so much trying to reform government as to get rid of it — the only possible version of exit when the frontier is gone and you already live in the best country on earth.

There is something, as Mr. Hirschman understood, particularly American about that impulse. But it may also be rooted in a theory about how to reform government that has been popular on both sides of the Atlantic in recent decades. That is the idea that creating competing, private-sector-operated alternatives to the public sector is a good way to force the state to raise its game. The charter school movement in the United States is one example. Prime Minister David Cameron’s advocacy of the Big Society is another.

Looked at through Mr. Hirschman’s lens, however, these private providers of formerly state services may have quite a different effect. If they allow the best and the most disgruntled citizens to exit the state, they might make the state-supplied option worse, rather than better. As Mr. Hirschman argued: “This may be the reason public enterprise … has strangely been at its weakest in sectors such as transportation and education where it is subjected to competition: The presence of a ready and satisfactory substitute for the services public enterprise offers merely deprives it of a precious feedback mechanism that operates at its best when the customers are securely locked in.”

The 21st century is the era of mass travel, open borders, instant communication and the affluent citizen-consumer. Russian oligarchs aren’t the only ones who can exit — a lot of us can. It is no wonder so many of us distrust our governments. But in this age of exit, do we have much chance of reforming them?

Theda Skocpol, Vanessa Williamson, and John Coggin’s great paper “The Tea Party and the Remaking of Republican Conservatism” formed the basis of Chrystia’s most recent column. As part of their research, Skocpol and her team embedded themselves in the Greater Boston Tea Party, the thirty-third largest Tea Party organization in the country, as measured by membership in the social-networking website MeetUp. The trio of scholars attended the group’s local rallies and conducted an extensive survey with 79 of the group’s members. The portrait of Tea Partiers that emerged from their fact-finding reinforced what many had observed anecdotally: Tea-Party members tend to be older, white males who are avid viewers of Fox News and have a history of political activism.

Like their fellow Tea Partiers across the United States, those in Massachusetts are older, white, and predominately male. 97 percent are white; 57 percent are males; and 83 percent are over forty-six years old (with more than half are older than age fifty-six). In addition, Bay State Tea Party activists envelop themselves with the same conservative news sources used by other Tea Party participants. When we asked Massachusetts Tea Party activists an open-ended question about their preferred news sources, 51 out of 69 respondents reported being Fox News watchers. As has also been found in national studies, few Massachusetts Tea Partiers are seeking out neutral or left-leaning sources of information. Only 11 of 69 respondents claim to read the Boston Globe, and only seven Massachusetts Tea Party activists report getting their news from ABC, NBC or CBS News. Like Tea Partiers nationally, many in Massachusetts are campaign veterans. In our Boston sample, 37 out of 79 respondents claimed to have previously volunteered on behalf of a candidate or political organization.

Fox News viewership in particular seemed to be an animating force for the Party and a prime topic of their conversation:

At Tea Party meetings, Fox News stories are a common currency; activists share stories reported on the network and quote the opinions of Fox News commentators. Fox News personality Glenn Beck is an especially frequent source of political opinion and historical perspective. According to Krislyn, “We’re history buffs… and [thanks to Beck] our knowledge has gone through the roof. A lot of people dismiss him as a kook, but I think he challenges you to question the status quo.” In addition to Fox News programs, most other sources of political information cited by Tea Party activists are conservative. After Fox News, conservative radio programs (such as Rush Limbaugh and Laura Ingraham), and conservative websites (such as The Drudge Report and Red State) topped the list of Tea Party news sources. Several Boston-area Tea Party participants said that it was through watching Glenn Beck’s show that they found out about the Tea Party in the first place.

As Chrystia wrote, Tea Partiers divide the U.S. population into two groups: those who work and are worthy beneficiaries of government programs, and those who don’t who they believe should get nothing. More from Skocpol, Williamson and Coggin:

The distinction between “workers” and “people who don’t work” is fundamental to Tea Party ideology on the ground. First and foremost, Tea Party activists identify themselves as productive citizens. We began our Massachusetts interviews with an open-ended question about what brought interviewees to the Tea Party. A striking percentage of Tea Party activists responded by talking about themselves as workers. Emmy says, “I’m almost 66 years old and I’m still working.” Krislyn calls herself and her husband “blue-collar working-class people” who have “had to work very hard.” This self-definition is posed in opposition to nonworkers seen as profiting from government support for whom Tea Party adherents see themselves as footing the bill. As Charles put it, “people no longer have to work for what they earn.” Robert says, “we shouldn’t be paying for other people that don’t work.” A typical sign at the April 14th rally on the Boston Common read, “Redistribute My Work Ethic,” and similar signs have appeared at rallies across the country. Tea Party anger is stoked by perceived redistributions – and the threat of future redistributions – from the deserving to the undeserving. Government programs are not intrinsically objectionable in the minds of Tea Party activists, and certainly not when they go to help them. Rather, government spending is seen as corrupted by creating benefits for people who do not contribute, who take handouts at the expense of hard-working Americans.

What’s interesting to note here is that the Tea Partiers conception of working people is fluid and not necessarily tied to whether they are currently employed. A third of the Greater Boston Tea Party members that responded to their survey were students, unemployed people, or retirees. There were two categories of people, though, that were unquestionably included in the nonworking group: young people and unauthorized immigrants.

An April 2009 blog on the Greater Boston Tea Party website entitled “Oh SNAP! Foodstamps for College Kids?” begins “Call me crazy, but when I needed money for college, I got a job.” After telling the story of her nephew, Nancy concludes, “I think that a lot of [young] people… they just feel like they are entitled.” [...]

When we polled Massachusetts Tea Partiers about the issues they thought were most important for the Tea Party to address, 62 out of 79, or 78% of respondents, thought that “Immigration and Border Security” was “very important.” In fact, immigration and border security came in a close second to the Boston Tea Partiers’ top-ranked concern about “Deficits and Spending” (rated very important by 69 of the 79 respondents). Moreover, discussions of immigration seemed to provoke an especially emotional response. One Boston member spoke of wanting to “stand on the border with a gun,” while another complained about the “free-for-all south of the border.”

A fuller version of the researchers’ work will appear this December when Oxford University Press publishes their book, The Tea Party and the Remaking of Republican Conservatism.

Cornell University economist Robert H. Frank sat down with Chrystia at the Aspen Ideas Festival to chat about the earnings potential of superstar dentists and world-class sopranos, the unlikelihood of an Atlas Shrugged-esque strike of the elites and Charles Darwin’s contributions to economic thought. Here’s a transcript of some of the highlights of their conversation.

On the upsides and downsides of the winner-take-all phenomenon

CHRYSTIA FREELAND: If the super-talented are getting super rewards, maybe in the past they were not getting the appropriate rewards. I mean, maybe this is really American capitalism working the way most Americans want it to work.

ROBERT H. FRANK: Well there are two things in your question. One is the upside of the whole phenomenon is that we now get to listen to the best soprano rather than the hundredth best.  In 1890 there were 1,300 opera houses in the state of Iowa alone. You had to listen to music live and in-person. You couldn’t hear the best soprano because she couldn’t be everywhere at once. Now there’s a contest to see who the best soprano is.  That winner then records the master disc and get’s stamped out onto CD’s at virtually no cost so we could all listen to the best soprano.

[...]

That’s the upside.  The downside is that there’s been a huge concentration of wealth and income that’s occurred because of this.  If you thought you needed those concentrated rewards to get people to put forth effort in these domains, that would be one thing.  But there’s absolutely no evidence of that. People just want to be the best performer whether or not–

CHRYSTIA FREELAND: People don’t work for money?

ROBERT H. FRANK: They do work for money.  So if you didn’t give them any money, they — but there’s this odd vision that if the forty vice presidents of a big corporation who want to be CEO faced a slightly higher tax rate, they’d all knock off on Friday and play golf in the afternoon.  There are lots of reasons to want to be the CEO of a big company.  After-tax pay is not the primary one among them.

CHRYSTIA FREELAND: You don’t think you would have a sort of Atlas Shrugged-esque strike of the super-competent?

ROBERT H. FRANK: Absolutely you wouldn’t see that. Let one of those forty vice presidents go on strike. The other thirty-nine will silently cheer.  “That means my chances of moving up just went up a little bit,” they’ll say.

Why inequality is not a result of elites gaming the political system

CHRYSTIA FREELAND: So Larry Bartels and Jacob Hacker have been advocating a different explanation as a primary one.  Their argument is it’s much more about politics, and it’s much more about elites managing to shape the political system, to shape the legal system so that they get more of the gains.  You don’t buy that?

ROBERT H. FRANK: I think if you look specific sectors you can make a very strong case for exactly that.

CHRYSTIA FREELAND: Maybe finance?

ROBERT H. FRANK: The financial-services industry I think is people’s exhibit number 1 of that kind of phenomenon. But if you look more broadly at the data the same pattern shows up no matter how you slice it.  If you look at dentists, you see the same pattern of income shift as you’ve seen in the population at large. Stagnation–

CHRYSTIA FREELAND: And you don’t think dentists have a big lobby in Washington that is shifting the gains to–

ROBERT H. FRANK: There’s nothing you can point to with dentists. Real-estate agents, it’s the same thing.  You see it with technology experts.  You see it with English majors.

Why Charles Darwin, not Adam Smith, will be remembered as the godfather of economics in a hundred years

ROBERT H. FRANK: The reason I predict Darwin will eventually supplant Smith is that he had a subtly different but profoundly important understanding of the way the competitive process plays out.  Smith’s modern disciples, and he wasn’t really quite this narrow, but their version of his great idea was that if you turn selfish people loose and let them seek their own advantage in the marketplace you’ll get the greatest good for society as a whole.  And oftentimes we do see results like that.  Darwin’s view was that traits in evolution are selected because they help the individual survive and reproduce.  Sometimes traits that meet that test help the group as a whole, but other times they’re bad for the group as a whole.

[...]

CHRYSTIA FREELAND: And you think economists have lost sight right now of that notion of behaviors that are good for the group needing to also be favored?

ROBERT H. FRANK: Yeah, what I think economists have not recognized clearly is that when markets fail, it’s generally not because there’s not enough competition; that was Adam Smith’s view. It was because competition itself produces these failures.

What does the Tea Party want? As the debt ceiling debate rages in Washington, that should be the central question in U.S. political discourse. After all, it is the rise of the Tea Party that revitalized the Republican Party in 2009 and gave it the muscle to deliver a “shellacking” to the Democrats in the 2010 midterm elections. And it is the radicalism of the Tea Party and the freshman legislators it elected that is often blamed for the uncompromising stance of the Republicans in the current budget negotiations.

That’s why “The Tea Party and the Remaking of Republican Conservatism,” a recent study of the Tea Party by Theda Skocpol, a Harvard political scientist, and Vanessa Williamson and John Coggin, two graduate students, is so important. An expanded version of the paper, which appeared this spring in the journal Perspectives on Politics, will be published as a book by the Oxford University Press later this year.

Ms. Skocpol is an unashamed progressive, but what is striking about her team’s work is its respect for the Tea Party and its members. “Commentators have sometimes noted the irony that these same Tea Partiers who oppose ‘government spending’ are themselves recipients of Social Security,” the paper notes. “Don’t they know these are ‘big government’ programs?”

The usual assumption of the news media elites is that the Tea Party’s worldview is inchoate or just plain uninformed. “I think the pundit class tends to treat popular ideologies as products of ignorance,” Ms. Skocpol told me. But when she and her colleagues delved deeper, including distributing questionnaires to Tea Party activists and interviewing many of them, the scholars found that, “Rather than assume ignorance, we should recognize that what appear to be contradictory or uninformed views of federal government programs make better sense once we understand how Tea Party activists view themselves in relation to other groups in society.”

When it comes to the central issue in U.S. political life today — the size of government and its proper role — Ms. Skocpol and her colleagues found the Tea Partiers had a clear and coherent point of view, but one that does not fully jibe with the orthodoxies of libertarian ideologues or of elite, ultraconservative, Republican Party doctrine.

The central tension for the Tea Party grass roots isn’t between the Big Brother state and the freedom-loving individual, or between inefficient government spending and effective free markets. Instead, Ms. Skocpol and her fellow investigators argue that “Tea Partiers judge entitlement programs not in terms of abstract free-market orthodoxy, but according to the perceived deservingness of recipients.” The fundamental distinction for them is not state vs. individual, it is the division of the United States into “workers” vs. “people who don’t work.”

Some of those “people who don’t work” are the young. Deficit hawks on the think tank circuit like to talk about ballooning government spending on Social Security and Medicare— programs that benefit the elderly — as “generational theft.” But the Tea Party rank and file, 70 percent to 75 percent of whom are over 45, are concerned about a very different generational struggle.

This is a revolt of the grandparents’ generation — at least the conservative grandparents — and they are worried the feckless youth are taking over the country and emptying the state’s coffers. These young “freeloaders” include the Tea Partiers’ own relatives. “Charles” told the researchers, “My grandson, he’s 14 and he asked, ‘Why should I work, why can’t I just get free money?”’ “Nancy” complained about a nephew who had “been on welfare his whole life.”

“The conditions for young adults to establish themselves have changed radically,” Ms. Skocpol told me. “It is harder for young adults. They may live at home longer. And that manifests itself in ways that are easy to condemn morally. The older generation is having a little trouble understanding what is happening to their children and especially grandchildren.”

The other group of government-supported nonworkers the Tea Party fears is illegal immigrants. The Harvard scholars found immigration to be a core, and highly emotive, Tea Party issue, even in Massachusetts, which has relatively low levels of illegal immigration and no foreign borders.

This impassioned opposition to illegal immigrants is often equated with racism, but Ms. Skocpol and her colleagues take great pains to point out that the Massachusetts Tea Partiers, whom they studied most closely, are vocally and actively opposed to overt racism. A racist poster to their Web site was publicly reprimanded and a plan was made to take down racist signs at a rally (though, in the event, the researchers didn’t spot any that needed removing). For the Tea Partiers, the major intellectual distinction isn’t between black and white — although that is the color of most of them — it is between deserving, hard-working citizen and unauthorized, foreign freeloader.

The Harvard scholars’ careful parsing of the thinking of the Tea Party has some important political implications. The first is that there is a latent but potentially vast divide between the grass roots and the conservative elite on the United States’ most important fiscal issue — the twin entitlements of Social Security and Medicare. Cutting these programs is a core tenet of faith for the party’s funders and its intellectuals. But the Tea Party’s rank and file views them as earned benefits that belong to hard-working Americans as surely as do their homes and private savings.

What makes this conclusion particularly persuasive is its timing — Ms. Skocpol and her team reached this view months before Kathy Hochul’s surprise victory in the May special election in New York State, an upset largely driven by the conservative base’s fears that the Republicans in Washington wanted to partially privatize Medicare.

The second take-away is for the Democrats, particularly the technocrats among them. It has become conventional wisdom, including on the left, that the way to make social welfare programs affordable is to direct them at the people who really need them. If politics were a math exercise, that view would make a lot of sense.

But Ms. Skocpol and her colleagues’ study of the Tea Party suggests that the government spending programs that earn widespread, long-term public support, including among people with strongly conservative views, are those that are perceived to be both universal and deserved. Helping the poor is well and good, but when times get tough the institutions we are willing to pay for are those that assist virtuous, hard-working people — in other words, ourselves.

At the Aspen Ideas Festival last week, Chrystia’s discussion of war, economics and America’s role in the world featured a who’s who of leading voices: Robert Hormats, the Undersecretary of State for Economic, Business, and Agricultural Affairs; Joseph Nye, a professor at Harvard’s Kennedy School of Government; and Liaquat Ahamed, the Pulitzer-prize winning author of Lords of Finance: The Bankers Who Broke the World. Here’s a transcript of some of the highlights of their conversation.

How the deficit debate affects U.S. diplomacy:

JOSEPH NYE: In congressional discussions we get the short-, the medium-, and long-term mixed up. Here we have a problem often estimated as a $2 trillion problem about getting the debt under control, or the deficit under control, related to the debt. And what did Congress do in April when they were trying to balance the budget? They cut $8 billion out of the State Department budget and thought that that was doing something about the deficit. That is absolute nonsense. It’s like a drop in the wind that’s gone immediately. But from the point of view of the State Department where you have a $50 billion budget, that’s a huge hit.

CHRYSTIA FREELAND: Did Bob take you out to supper last night to ask you to say that?

JOSEPH NYE: No, no, this is all on my own, and I’ve actually published this in Foreign Policy.  But the point is it’s an illustration of the confusion of time horizons.  We do have to do something about the question of the deficit, but there’s an enormous confusion about time horizons.

On America’s historically low taxes:

LIAQUAT AHAMED: I do think the one striking is how low the taxes are as a percentage to GDP.

CHRYSTIA FREELAND: In America?

LIAQUAT AHAMED: In America.

CHRYSTIA FREELAND: Tell that to American voters.  They don’t seem to agree with you!

LIAQUAT AHAMED: Taxes as a percentage of GDP — federal taxes — are currently 15%. That is the lowest level–

CHRYSTIA FREELAND: That’s like Hong Kong, right?

LIAQUAT AHAMED: That’s the lowest level they’ve been in thirty, forty years.  With all the enormous commitments that our federal government has entered into, I think that’s crazy.

[...]

LIAQUAT AHAMED: I’m going to go down on this program as the high-tax guy.  If you’ve got commitments, you should pay for them, and I think it will involve raising taxes.  Britain was able to beat France during the Napoleonic wars largely because the British had higher tax rates and were able to sustain a higher tax burden than the French.

“The greatest unforced error in economic history”

JOSEPH NYE: I tend to be relatively optimistic in my book The Future of Power about the American economy in the long run.  The World Economic Forum says we’re the fourth most competitive in the entire world; China is 27.  If you look at nanotechnology, biotechnology, these are areas where we’re clearly in the lead.  The fundamentals are there; it’s just that we’re doing such a lousy job of managing it right now. We’ve got two political parties like teenagers playing a game of chicken where the cars go towards each other.  Sometimes those cars crash.

CHRYSTIA FREELAND: This would be the debt ceiling debate. Do you think there could be a crash?

JOSEPH NYE: Somebody said at the opening session of the Ideas Festival a couple of days ago, if that occurs, if we undermine the credibility of the U.S. Treasury to meet its debts, it will be the greatest unforced error in economic history.

CHRYSTIA FREELAND: Gentlemen, quick flash question: is it going to happen or not?  Likelihood of unforced error?

ROBERT HORMATS: I think it certainly can be avoided and should be avoided.  I think it is unimaginable to me that anyone would want to put the creditworthiness of the United States in doubt, much less take these kinds of actions.  And it would be harmful from a financial point-of-view; it’d be harmful from a foreign-policy point-of-view and harmful from a national security point-of-view because it would undermine faith in the United States around the world.

I dug out an odd factoid that in 1840 the country with the largest GDP was Russia, because there are so many Russians and it was larger than Britain.  But no one would have said that Russia was the leader of the world or the global economy…  Total GDP is a very poor measure [of economic power].

U.S. power under an “Eisenhower foreign policy”

JOSEPH NYE: In my book I call this an Eisenhower foreign policy.  Eisenhower said your foreign policy starts with strengthening your domestic economy; you spend too much on the military, you weaken your domestic economy.  Remember, the Russians by the time when the Soviet Union was about to collapse were spending over 22% of their GDP on the military — that’s huge. America by comparison today is 5%, so we’re a long way from a–

CHRYSTIA FREELAND: We’re not quite in a Soviet scenario — that’s reassuring!

ROBERT HORMATS: Joe has made a very interesting point.  One thing that — I did a book on how we pay for our wars — of the early part of the cold war the view of Americans was that the Russians felt they could win the cold war by bankrupting the United States so that we would have such a terrible domestic scene that we would pull back from engagement from Europe and elsewhere.  It turned out exactly the opposite: the Russians bankrupted themselves and they had to pull back.

JOSEPH NYE: And the other thing of an Eisenhower foreign policy is his advice, “Don’t get involved in land wars in Asia.”  In that sense, it’s not the same as isolationism to say that we don’t have a strong enough national interest to be worth spending $110 billion a year in Afghanistan.  On the other hand, if you look at American presence in East Asia, 50,000 troops in Japan — Japan pays for most of them.  The troops in Korea — Korea pays a good chunk of that.

CHRYSTIA FREELAND: So if Afghanistan wants to pay for U.S. involvement, that’s OK?

JOSEPH NYE: No, we shouldn’t be in Afghanistan.  Now, with policy you have the problem of you start from where you are, not from where you want to be.  But I think what Obama has said is that we’re not going to make the mistake we made in Vietnam of thinking that with counterinsurgency we can suddenly make this all work out.  What we’re going to do is switch our strategy from a very expensive counterinsurgency to a much more affordable counterterrorist strategy.  And that means you have a lighter footprint which you can sustain for a longer duration.  That’s what I call a smart strategy.  And you don’t measure that by percentage of GDP spent on the military or the numbers in the defense budget. You measure it by whether it is actually accomplishing the goals you’re looking for.  I think we’re going to take 10 or 15 percent cut in the defense budget over the next several years as we work through something that looks like Simpson-Bowles [deficit commission report]. I don’t think that necessarily means a 10 or 15 percent cut in U.S. influence in the world if we use the resources in the defense budget wisely.

Steve Clemons, Washington editor at large for The Atlantic, chatted with Chrystia at the Aspen Ideas Festival about the politics of the deficit debate, the 2012 presidential race, and whether the U.S. is in a trap in Afghanistan. Here’s a transcript of some of the highlights of their conversation:

STEVE CLEMONS: When you’re in a country whose GDP is $14 billion, and we are in this next fiscal year spending $119 billion in Afghanistan — that’s only our dollars; that’s not our allies; that’s not non-military aid.  This is the military expenditure for what we’re doing. You can buy and sell Afghanistan eight times over for what we’re spending. So I’ve been, with Afghanistan Study Group which I helped create, putting on the table that there are better ways to chase al-Qaeda and to keep it from becoming a safe haven–

CHRYSTIA FREELAND: Well, hasn’t the hunt for al-Qaeda worked? Osama bin Laden has been killed, so there you go.

STEVE CLEMONS: The hunt for al-Qaeda has worked. Yeah, exactly. So you can check that box off, and this big, clunky, large-sized military footprint maybe creating other problems for us. In fact, rather than making it look like we’re leveraging and extending American power in the world, this looks like a trap. And Iran and China and other nations in the neighborhood are saying, “Wow, the United State is pretty limited, pretty constrained.” And they look like they’ve got more latitude as long as we’re stuck there. So when you take in this climate where there’s this giant spotlight on spending and people are losing teachers and police and cutting back just on all sorts of programs as we are struggling through our own budget battles here, to look at the fact that we’re spending $120 billion in this slightly irrelevant country abroad has raised a lot of issues. And so what has happened is you see — it was shocking — where Jon Huntsman and Michele Bachmann — we heard Haley Barbour earlier. You have people like Grover Norquist and Ann Coulter — Bing West, who’s no softie on the war — there’s more and more of a Republican voice, and they smell I think –

CHRYSTIA FREELAND: A Republican voice saying what?

STEVE CLEMONS: A Republican voice saying this war makes no sense.

David Rohde, the two-time Pulitzer-Prize winning foreign correspondent, is the newest member of the Reuters digital family.  He and his wife Kristen Mulvihill sat down with Chrystia at the Aspen Ideas Festival to discuss A Rope and a Prayer: A Kidnapping from Two Sides, their book about the seven months David spent in captivity Afghanistan and Pakistan.  Here’s a transcript of some of the highlights of their conversation:

On the interview he did with a Taliban commander that led to his kidnapping:

DAVID ROHDE: This young commander, he had done two interviews with other journalists. They were Europeans; he didn’t kidnap them.  In hindsight–

CHRYSTIA FREELAND: So an American guy is better?

DAVID ROHDE: Yes. I think he was gaining the trust, a good reputation among journalists that he didn’t kidnap journalists.  And then I came along and he grabbed me.  I did the interview just outside of Kabul, the Afghan capital.  I thought it would be safer there.  Again, I thought there was a safe track record.  I met with a journalist who had done two interviews with him the night before I went to my interview. She said, “You’re in more danger as an American, but I don’t think he’ll kidnap you.”  And what this young guy did was grab me and take me over the border to Pakistan to this very powerful group, the Haqqani network.  And he wanted to get money but also wanted to boost his reputation among other Taliban.

On whether the interview with the commander was worth it:

CHRYSTIA FREELAND: Did you feel guilty for letting this happen and for what it meant for Kristen?

DAVID ROHDE: Absolutely.  The moment the kidnapping happened, waves of guilt washed over me.  I was with two Afghan colleagues: an Afghan journalist, Tahir Ludin, and an Afghan driver, Asadullah Mangal.  And this interview which seemed so crucial sort of felt really foolish in that moment.  I got kind of carried away.  It was frankly competition.  I wasn’t based in the region anymore.  Dozens of journalists have safely interviewed the Taliban.  I was working on this book and I wanted it to be the best book possible, and I lost my perspective.  It’s a danger in journalism.  In a sense in terms of taking risks, it can be a race to the bottom.  Other big stories were worth it.  I took risks in Bosnia, helped expose executions there, and was detained.

CHRYSTIA FREELAND: Right, exactly.  Had you not done that, the world would be a different and maybe less good place.

DAVID ROHDE: Well, I stand by taking the risk in Bosnia.  In hindsight, getting an interview with a Taliban commander — it wasn’t worth the risk and played out disastrously.

On his treatment in captivity and the great escape:

DAVID ROHDE: We were held in this large town in Pakistan.  I was treated very well.  The tribal areas of Pakistan aren’t this sort of wild place with no infrastructure.  I was given bottled water everyday I was in captivity.  I was given copies of English-language Pakistani newspapers to read.  And we were held in the end very close to a Pakistani military base.  And throughout the seven months I never saw the Pakistani military come off that base and challenge the Taliban.  The Taliban had complete control of the town.  They taught bomb-making classes.  Huge explosions went off and nothing happened.

And essentially we decided to escape at night while our guards were asleep.  I had found a car tow-rope, and we used it to lower ourselves down a wall.  And we made it to a Pakistani army base. And this very brave and moderate Pakistani army captain let us inside and apologized to me and Tahir for what had happened and let me call home.  And all of the months of meetings in Washington paid off because Kristen reached out to all these American officials, including Holbrooke.  The Pakistani military then flew us out of this base.

NYU economist Paul Romer is what Chrystia calls an “ideas entrepreneur.” He revolutionized the study of economic growth with his research on the power of ideas. He shook up the field of higher education with his company that offered online homework problems that were graded by computer. Now Romer has set out to alleviate world poverty. For his new project, Romer set up a nonprofit organization dedicated to convincing governments across the developing world that they should cede a portion of their territory to an external authority in order to create a “charter city” in which new rules would make it attractive for skilled immigrants, unskilled migrants and businesses to come and settle.

This radical idea is slowly catching on. Honduras is poised to be the first country in the world to host a charter city after its Congress approved a constitutional amendment enabling such a plan in January.

He talked with Chrystia at the Aspen Ideas Festival about the Charter Cities project. Here’s a transcript of some of the highlights of their conversation.

CHRYSTIA FREELAND: What kind of legislation — what does it take to build these new cities, these reform zones?

PAUL ROMER: Let me give you a “for instance.”  This new zone [in Honduras] will have its own judiciary.  The hope is that a partner country will agree to let its Supreme Court act as the court of final appeal for the judiciary within this zone.  If the treaty can be negotiated soon enough, the enabling legislation will specify that country X is–

CHRYSTIA FREELAND: So subcontracting your legal system to a lovely place like Canada or the Netherlands or something like that? Is that the idea?

PAUL ROMER: That’s the principle, so that you can get instant independence for your judiciary from both the existing government in Honduras or the government that will be set up in this new zone.

CHRYSTIA FREELAND:And when you talk to the government of Honduras, don’t they sort of say, “But wait a minute, Paul.  Are you saying that we’re just terrible at governing?  And how come we shouldn’t be ruling this part of our country?”

PAUL ROMER: No. They totally get the principle which I think everybody is missing right now.  Let me go back.  If you think of the theory of economic development 40 or 50 years ago, people were obsessed about self-sufficiency, that every country had to develop its own technology.  Even not that long ago, Brazil was trying to develop their own PCs because they didn’t want to import PCs.  Everybody understands now that that’s crazy. If there’s good technology in the world, import that.  If you want–

CHRYSTIA FREELAND: If there are good judges, import them?  Is that the idea?

PAUL ROMER: It’s the same principle. Instead of just importing the best technology through DFI or capital equipment, there are good systems of governance around the world and why not take advantage of those instead of trying to develop your own.  The saying in Britain is when you’re trying to set up an institution like the legal system, the first five centuries are always the hardest. If somebody’s already gone through that process, take advantage of it. Don’t take five centuries to try and do it again.