David Rohde

CHAPEL HILL, NORTH CAROLINA — At the age of 17, Holden Thorp placed fifth in a nationally televised Rubik’s cube competition on the ABC show That’s Incredible! At 24, he received a doctorate in chemistry from the California Institute of Technology after studying for three years instead of five. And at 43, he was named chancellor of the University of North Carolina at Chapel Hill, becoming one of the country’s youngest university presidents.

Today, Thorp is trying to turn this 29,000-student public university into an engine of economic innovation. A business owner who has twice launched $25 million pharmaceutical startups, Thorp has streamlined the process for faculty members to turn their discoveries into private companies. He has made “entrepreneurship” a minor for all undergraduate students.

And Thorp has co-written a book, Engines of Innovation: The Entrepreneurial University in the 21st Century, with the university’s “entrepreneur in residence” — a former venture capital banker. It calls for the top 125 U.S. research universities to revitalize the American economy.

“The jobs of the near and distant future,” he told me, “are going to be for those who create them for themselves.”

As high-paying jobs have flowed overseas, American universities are being increasingly seen as economic engines for states, regions and the country as a whole. Across the U.S., communities with universities and colleges fared better economically during the recession than those without, according to the Wall Street Journal. And as other employers have disappeared, universities and colleges are increasingly considered sources of economic — as well as intellectual –activity.

Here in Chapel Hill, UNC spends $2.4 billion a year and employs 12,000 faculty and staff. Together with nearby Duke and North Carolina State, UNC completes “The Research Triangle,” a hub of universities, research parks and 30,000 small businesses that have helped make Raleigh-Durham the fastest-growing metropolitan area in the United States, increasing in population by 40 percent between 2000 and 2009. One business magazine predicted Raleigh-Durham will be the country’s fastest-growing metropolitan area through 2025.

Beneath the positive regional trend runs a grim truth. Thorp’s efforts to reimagine UNC are being driven by staggering funding cuts. Since 2008, UNC has lost $230 million in state aid, cut $50 million in costs, increased class size and frozen faculty pay. One reason for making it easier for professors to start businesses is to slow the number of faculty leaving UNC, often for better-paying private universities with multibillion-dollar endowments. As in other parts of American society, academia is splitting into the flourishing haves and the struggling have-nots.

Most troubling of all, UNC, long a model of affordability and excellence, has sharply increased tuition over the last decade. Since 2000, tuition and fees have risen by 150 percent for students across North Carolina’s university system. And despite protests from students, parents and fomer trustees, the statewide system’s board is expected to approve another tuition increase tomorrow. The situation is not unusual. Across the country, the state university funding model is collapsing.

Thorp argues that UNC and other state universities play a vital role in preserving the American middle class. For the 11th consecutive year, Kiplinger’s recently ranked UNC as the best-value public university in the United States. Its $7,009-a-year in-state tuition is the second lowest of leading state universities. Only 35 percent of its students take student loans. And the average post-graduation student debt burden is $15,500. UNC is an engine of social mobility, Thorp argues, that helps prevent the middle class from splitting.

“You stop it through access to education,” he said. “We’ve got the best financial aid profile in America.”

After providing billions of dollars in research grants to universities, members of Congress, foundations and taxpayers are demanding that academics do more to address real-world problems. Economists argue that the United States must combine its two strongest remaining economic assets — the world’s best research universities and venture capital system — to reinvent the American economy.

“The bill has come due,” said Buck Goldstein, Thorp’s co-author and the UNC’s “entrepreneur in residence.” “All of the stakeholders are demanding more impact.” (A business Goldstein founded was later purchased by Thomson, the parent company of Reuters.)

Some academics deride the approach. They say that encouraging professors to create “spin-off” companies is the latest example of a gluttonous private sector devouring public resources. Business pursuits divert resources from pure scientific research, graduate students are used to help professors start businesses and researchers distort studies involving subjects where they have a financial interest.

Thorp and Goldstein insist they are not backing the commercialization of academia. Their definition of entrepreneurship is a broad one, they say, that includes social entrepreneurship.

“It’s not Donald Trump,” Goldstein said.

Former Harvard University President Derek Bok, whose book “Universities in the Marketplace: the Commercialization of Higher Education,” looked at the phenomenon, said those abuses have so far occurred only on a small scale. He called for strict vigilance of faculty business ventures — but also for a lowering of expectations. Bok cautioned that universities are not “some kind of magic bullet that is going to do a whole lot for America’s competitive position” in the world economy.

Private companies started by professors and researchers fail at the same rate as other firms, according to Bok. Universities receive royalties for intellectual property developed by their staff, but aside from MIT and Stanford, the payments total only a few million dollars a year. Thorp’s first $25 million startup, in fact, went out of business.

A handful of academic blockbusters do exist. The top earner is an anti-AIDS drug developed by professors at Emory University. Second is Gatorade, a drink developed by professors at the University of Florida to hydrate its football players.

Thorp cited UNC chemistry professor Joe DeSimone as a best-case scenario. Last year, a private company DeSimone founded with the help of his university research received a $10 million investment from the Bill and Melinda Gates Foundation. The funding will help the company, Liquidia Technologies, develop new vaccines for malaria and other diseases. The startup also works with Procter & Gamble and other multinationals.

A visit to the company’s gleaming, new high-tech offices provides a glimpse of the potential of UNC’s model. Ben Maynor, a 37-year-old North Carolina native with a Harvard undergraduate degree and a doctorate from Duke in chemistry, said he assumed he would have to move to Boston or Silicon Valley to find work. Instead, Liquidia allowed him to stay home. The company employs 50 people and hopes to expand in North Carolina, not overseas.

“We have a new social contract with society,” said DeSimone, referring to the federal research grants universities receive. “Those dollars are precious. We’ve got to funnel them into solving some of the world’s biggest problems.”

Thorp is right. Universities must change. We can no longer afford to have our greatest thinkers enjoy the “life of the mind” in isolation. The question is whether their gifts can meet the needs of a beleaguered society.

PHOTO: University of North Carolina at Chapel Hill Chancellor Holden Thorp, center, participates in a Digital Town Hall event in Washington, DC.

Mitt Romney’s declaration that he wasn’t concerned about “the very poor” was lampooned by Republicans and Democrats alike this week. But his next statement in a CNN interview is the one that could determine the fate of his candidacy.

“I’m concerned about the very heart of America,” Romney said, adding later: “My focus is on middle-income Americans.”

With astonishing speed, the 2012 presidential election is becoming a referendum on how best to help the American middle class. So far, Romney’s solutions are likely to be far more pleasing to the Republican base than the general electorate.

Reduce corporate taxes by 25 percent. Increase oil and gas drilling. Repeal Obamacare and Dodd-Frank. Cut non-security discretionary spending by 5 percent. Weaken unions. And reduce the federal workforce by 10 percent.

Where, Democrats contend, is the benefit to the middle class?

The conservative answer reflects the yawning ideological gap that will become more apparent in the months ahead. While Obama and Democrats call for the federal government — and society as a whole — to ensure that individuals have the opportunity to increase their social mobility, Romney and Republicans concentrate on broad economic growth.

“Republicans are focused much more on having a rising tide that lifts all boats, even if it lifts more yachts than dinghies,” said Scott Winship, a fellow at the Brookings Institution. “It’s very striking when compared to Obama’s very individual focus on human capital and a federal role in increasing it.”

As he has done in his approach to foreign policy, Romney is trying to channel his inner Reagan in economic policy. While Democrats contend that George W. Bush’s use of supply-side, unregulated, trickle-down economics caused the Great Recession, Reagan’s economic doctrine is alive and well on the right.

“Most of our problems now relate to this asset bubble that formed; it wasn’t so much what Bush did or didn’t do,” Winship argued. “The ’80s in retrospect were not a bad period economically. I think it’s hard to argue that trickle-down will end up hurting the poor or reducing middle-class opportunities.”

Winship and some conservative economists also go a step further. In a series of recent posts, they question a central liberal narrative: that middle-class wages have stagnated since Reagan’s presidency. Terry Fitzgerald, an economist at the Federal Reserve Bank of Minneapolis, has argued that the rapid postwar growth of the American middle class has slowed over the last 30 years, but the middle class has still increased in size.

“From 1947 to 1975, was very fast growth,” Fitzgerald told me. “It was slower since then, but it hasn’t been stagnation.”

Fitzgerald argued that economic studies showing little increase in the median income of American households are skewed by social changes, not only economic ones. Beginning in the late 1970s, high divorce rates reduced the percentage of American households made up of married couples from 63 percent in 1976 to 50 percent in 2006. Single-parent families earn far less than two-parent families, Fitzgerald argues, and drive down the median income.

Richard Burkhauser, a Cornell University economist, contends that the value of benefits families receive from the government and employers are also not included in studies showing meager increases. When the value of these benefits is included, he argues, the stagnation of middle-class incomes disappears.

Liberal economists scoff at such findings. They say a comprehensive study by the non-partisan Congressional Budget Office included such factors and still found tepid middle-class wage growth since 1979. Jared Bernstein, a former chief economic adviser to Vice-President Joseph R. Biden Jr., said supply-side economics failed in the 1980s and the 2000s and would fail again.

“Not only did it fail to reach the vast majority of American families, it actually contributed to the worst recession since the Great Depression,” Bernstein told me. “I can say with complete confidence that the supply-side, deregulate, trickle-down model is a failed model.”

“When I look at all the Republican candidates,” he added, “this is still at the heart of their thinking.”

Meanwhile, Romney, who is trying to unseat an incumbent, embraces a suffering-middle-class narrative. Doing otherwise would be political suicide. The bogey-man, he argues, is government intervention. Top-down economic growth will ease Middle America’s woes, not government programs.

Obama, on the other hand, regularly unveils new federal initiatives that he says will reduce the cost of college, make it easier for homeowners to refinance, and return manufacturing jobs to the United States. The philosophical difference could not be more profound — or more reminiscent of the 1980s.

One or two of Romney’s ideas are close to those of Obama. Unlike every other Republican candidate, the former Massachusetts governor supports instituting automatic increases in the federal minimum wage to keep pace with inflation. And he talks about the central role that increasing American exports and retraining workers could have in reviving the middle class in a globalized economy. But the similarities end there.

Romney argues that the federal government should get out of the job-training business, for example, and devolve all such efforts to the states. Asked for a specific step that would aid the middle class, Andrea Saul, a campaign spokesperson, cited a Romney proposal to eliminate all interest, dividend and capital-gains taxes for people earning less than $200,000. She argued that the philosophy of Barack Obama, not Ronald Reagan, was gutting America’s middle class.

“President Obama’s big government policies have been disastrous for the middle class,” Saul said in an email Thursday. “Mitt Romney is focused on helping those middle-income Americans who have been hurt worst by the Obama economy.”

In the months ahead, we’ll see if Middle America buys it.

PHOTO: U.S. Republican presidential candidate and former Massachusetts Governor Mitt Romney mingles with the crowd after speaking at a campaign stop in Eagan, Minnesota, February 1, 2012. REUTERS/Craig Lassig



It didn’t take a penny in federal bailout money. It grew throughout the financial crisis. It has consistently garnered top customer service rankings. And Fortune magazine just named it one of the 20 best companies to work for in America. Meet America’s good bank: USAA.

USAA is a San Antonio, Texas-based bank, insurance, and financial services company with 22,000 employees, serving 8 million current and former members of the military and their families. The company’s roots go back to 1922, when 25 army officers agreed to insure one another’s cars when no traditional companies would. Since then, USAA, or the United Services Automobile Association, has steadily grown.

By its very definition, USAA serves the middle class. It does business only with current and former members of the military and their families. Studies have shown that the U.S.’s all-volunteer military is dominated by members of the middle class, not the elite.

While other financial and insurance companies flirted with collapse, USAA’s net worth grew from $14.6 billion in 2008 to $19.3 billion in 2011. And it has continued lending money while other banks have tightened their loan operations despite billions in government funding to encourage liquidity. It has a free checking account, has been at the forefront of electronic banking, and reimburses up to $15 in other banks’ ATM fees. Its credit card rates are 43 percent lower than the national average.

The firm’s structure is one of its most interesting attributes. Unlike nearly every other Fortune 500 company, USAA is not a corporation.  It is an inter-insurance exchange made up of the people who have taken out policies with the firm. As a group, they are insured by each other and simultaneously own the company’s assets. Instead of paying stockholders, USAA distributes its profits to its members. In 2010, it distributed $1.3 billion.

“USAA is not publicly traded,” Nicole Alley, a company spokesperson, said in an email. “And we take a conservative approach to managing our members’ money.”

The firm is not perfect. A long list of consumer complaints can be found here. Standard& Poor’s lowered their rating of USAA from AAA to AA+ last August but still rates the firm above its peers. And my colleague Felix Salmon correctly criticized USAA’s initial reaction to the Volcker rule, which could bar the company form certain types of trading. It’s likely, though, that a simple restructuring could avoid that.

The reason I’m focusing on USAA is because it represents a different idea about the purpose of companies. It’s also run by former military members, who the last time I checked weren’t considered European style socialists.

Howard Rosen, a Visiting Fellow at the Peterson Institute for International Economics in Washington, points out that the role society expects banks to fill has changed over the last few decades. For example, the share of bank lending devoted to mortgages doubled from 30 percent to 60 percent between 1980 and 2009, squeezing out consumer loans and other bank loans. 

Mortgage lending by commercial banks grew on average by 12 percent a year between 2001 and 2007 while bank lending for business purposes, i.e. not mortgages or consumer loans, grew on average by only 3.6 percent a year. Total commercial bank assets grew on average by 8.6 percent each year over the same period.

In the two years since the end of the recession, bank lending for mortgages and business loans have actually declined, despite a slight increase in bank assets.

“It used to be that we wanted banks to be good corporate citizens with strong ties to local communities,” Rosen told me. “Now all we ask is that banks just do what they  were initially designed to do — provide capital to companies who want to invest in plant and equipment in order to create jobs — any jobs, anywhere in the United States.”

Stephen Green, the C.E.O. of the British bank HSBC, makes a related argument in his new book “Good Value: Reflections on Money, Morality and an Uncertain World.” Green is the only ordained minister who is also the chairman of a major global bank, one that dwarfs USAA and controls more than $2.5 trillion in assets worldwide.

As Stephen Fidler of The Wall Street Journal recently wrote, Green says that “finding real peace,” involves accepting three uncertainties: that the world is imperfect; that we can’t be sure of human progress; and that hope endures.

“As a matter of fact the ethics of the marketplace are almost by definition universal,” Green writes in his book. “Everyone knows about the importance of truth and honesty for a sustainable business.”

Green, the banker, is trying to decode what makes a business good. Perhaps he should look to USAA for advice. USAA isn’t a model for an entire economy. But it is an example of technical innovation and thinking outside the box. We desperately need more of that. And more good banks as well.

Update: Given yesterday’s results in South Carolina, I clearly shouldn’t have called Romney the Republican party’s “presumptive nominee.” For a critical look at a Gingrich administration foreign policy, take a look at this analysis by The Atlantic’s Max Fisher. Here’s my Jan. 20th take on Romney’s foreign policy.

Declare China a currency manipulator. Impose harsh sanctions on Iran. Build a missile shield against Russia. Keep American troops in Afghanistan. Halt negotiations with the Taliban. Visit Israel on first presidential trip. And add 100,000 soldiers to the U.S. army.

To be sure, as a former moderate Governor of Massachusetts, Mitt Romney needed to out-chest-thump his Republican rivals to become the party’s presumptive nominee. But don’t expect Romney to tack to the center in this year’s general election.

A review of Romney’s foreign policy stands and an interview with one of his senior foreign policy advisers point toward a bruising battle over America’s place in the world. In the months ahead, the foreign policy debate could be just as ideologically polarized as clashes over the economy and role of government.

“Both the United States and the world are better off when the United States leads,” Richard Williamson, a senior foreign policy adviser to the Romney campaign, told me in an interview Thursday. “A stronger national defense is our best deterrent from having to go to war.”

Sound familiar? It should. Williamson, who held ambassadorial posts in the last three Republican administrations, said the Romney campaign plans to embrace a Reagan-like push for expanded American military might. While skeptics may argue that the world of 2012 is vastly different from that of 1982, Williamson insisted it was not. Increased American military power was both possible, he contended, and popular with other nations.

“In the ’30s Churchill was right, and in the ’80s Reagan was right,” he said. “Strength does deter mischief.”

Rhetorically at least, that is the polar opposite of the Obama administration. While exceptions exist, the White House has focused on reducing American troop presence around the world, relying on drones and commandos to kill terrorists, and working closely with allies. From the killing of Osama bin Laden to the withdrawal of American troops from Iraq to the ousting of Muammar Gaddafi, Obama administration officials say they have a vastly more effective, focused and pragmatic foreign policy than that of the Bush administration.

Nearly every successful presidential candidate, of course, reverses foreign policy positions after taking office. Ronald Reagan vowed to get tough with the Soviets but then signed historic arms reduction treaties with them. Bill Clinton vowed to oppose Chinese membership in the World Trade Organization and then supported it.

At the same time, campaign positions reflect a candidate’s vision of America and its role in the world. And voters should remember that foreign policy matters at home. The American economy is more intertwined with the world economy than ever. And a third of federal spending relates to foreign policy, with 20% going to defense, 8% to veterans’ benefits, and 7% to the State Department and other agencies.

Here is a rough summary of Romney’s positions, Williamson’s statements and my comments.

American leadership: On the campaign trail, Romney has repeatedly professed his belief in “American exceptionalism.” In the interview, Williamson accused Obama of trying to “manage” America’s inevitable decline. Expect Romney to accuse Obama of not believing that the U.S. is an exceptional nation that can and should lead the world. Romney will argue that the pessimism and passivity of Obama — a.k.a. Jimmy Carter – has created an unstable. Around the globe, he will contend, people welcome American leadership.

Annual worldwide polling by the Pew Research Center shows a more complex picture. Obama’s election in 2008 generally improved views of the U.S., but the financial crisis then badly damaged it. Polling in 18 countries in 2010 showed that 47% of those contacted believed China will replace — or already has replaced — the U.S. as the world’s lone superpower. Strikingly, a plurality of Americans – 43% – declared China the world’s leading economic power. Only 38% of Americans named the United States. I believe military spending alone cannot revive the U.S.’s standing. Only an American economic resurgence will.

China: Williamson accused Obama of being too “polite and patient” with China. “We all know China cheats,” he said. “Full stop.” When I visited China last fall, though, Chinese officials were infuriated by Romney’s vow to declare China a currency manipulator on his first day as president. Citing the financial crisis and Washington’s political paralysis, they argued that America’s economic decline was the U.S.’s fault. I believe declaring China a currency manipulator could result in a trade war that would devastate the fragile American economy. Getting tough with China is not as simple as it sounds.

Iran: Williamson accused Obama of wasting years on a “mother may I approach” to sanctions that involved bringing allies on board. He promised immediate unilateral sanctions by a Romney administration. Whoever is in the White House, expect Tehran to do everything it can to send oil prices skyrocketing. Iran will be a hornet’s nest for an Obama or Romney administration.

Russia: Obama’s effort to “reset” relations with Moscow has “failed,” according to Williamson. But with Putin already convinced the U.S. is trying to foment a revolution against him, more saber rattling is unlikely to have much effect. As Gaddafi, Assad and others have shown, autocrats don’t capitulate when scolded by the U.S.

Afghanistan: Romney has vowed to stop all negotiations with the Taliban. As I argued last week, tough talk is good, but the war there is unwinnable as long as the Pakistani military continues to give sanctuary to the Taliban. The only solution to the conflict is a negotiated settlement with the Taliban and its Pakistani military patrons.

Israel: Romney has accused Obama of failing to sufficiently back Israel. In reality, Israel is increasingly isolated in a rapidly changing Middle East. Pursuing a two-state solution is in the interest of Israelis, Palestinians, Americans and the region.

Adding troops: Obama is proposing an 80,000 soldier reduction in the size of the U.S. Army that would save an estimated $150 billion over 10 years. Romney’s 100,000 soldier increase would likely cost $150 billion. Williamson said a growing economy and Pentagon procurement reforms will pay for the increase.

I agree with Romney that the United States is not in irrevocable decline. The U.S. can, and does, play a vital role in the world, particularly through the ideals it represents. But Romney’s failure to discuss the lessons of America’s trillion-dollar wars in Iraq and Afghanistan troubles me. So does his failure to seriously grapple with the deep structural changes in the world economy that have weakened the American middle class.

In the contest ahead, both candidates will hopefully offer more than platitudes about America and the world. Economic strength, alliances and choosing our fiscal priorities are the key to reinvigorating American power. Not lofty rhetoric from Obama or martial rhetoric from Romney.

In a speech in Washington on Thursday, the chairman of President Obama’s Council of Economic Advisers said that the American middle class has been shrinking since 1970. Princeton University economist Alan Krueger said the American middle class shrank from 50.3 percent of American households in 1970 to 42.2 percent in 2010. Krueger defined the middle class as households with annual incomes within 50 percent of the national median income. Here is a table presented describing his findings.

Later in the speech, Krueger cited well-known studies describing growing income inequality in the United States. His claim about a shrinking middle class, though, appears to be new. While researchers have in the past argued that the middle class is shrinking, both Democratic and Republican administrations have generally steered clear of giving an exact definition of the middle class. Apparently fearing that an exact definition could backfire on them if the economy performs poorly, administrations have vowed to defend the middle class but avoided specifics. Given the central role that the state of the middle class will play in the 2012 presidential campaign, all of that may be different this year. To me, that’s a step forward.

WASHINGTON — As American officials scramble to contain the fallout from an appalling video showing Marines urinating on dead Taliban fighters, news that the Obama administration is carrying out secret negotiations with the Taliban has barely registered on the American political landscape. The lack of interest in the talks – and public outrage at the video – reflects how little Americans apparently care about the conflict, despite its staggering human and fiscal cost.

Since 2001, the war in Afghanistan has killed at least 8,000 Afghan civilians, 5,500 Afghan police and soldiers, 1,800 American soldiers and 900 soldiers from other nations.

Thousands of Taliban fighters have died as well, according to American military estimates, but no reliable figure exists. While suffering heavy casualties in set-piece battles, the Taliban have excelled at suicide attacks, roadside bombs and propaganda that portrays American forces as abusive occupiers. The video showing Marines urinating on Taliban corpses – a hugely offensive act to Muslims and a potential war crime – will only reinforce that image.

The United States, meanwhile, has spent $345 billion in Afghanistan over the last decade, with the overwhelming majority funding U.S. military operations, not imperative but largely overlooked civilian aid efforts. The war in Iraq, by comparison, cost almost twice as much, $673 billion, and featured the same sweeping focus on military efforts.

Across the political spectrum in Washington, there is little interest in engaging with the difficult but vital questions of the post-Arab spring. How can the U.S. devise ways to more consistently, quietly and effectively back moderate Muslims? Calls from the far left and far right for completely disengaging from the Greater Middle East are a fantasy. For decades to come, the American and world economies will rely on the region’s oil.

And when it comes to Afghanistan, few are bothered by how America leaves. They just want it to happen quickly.

Opposition to the Iraq war made it chic for Democrats to be isolationist. Liberals who defend human rights glibly dismiss Afghanistan as nothing more than a quagmire. There is little acknowledgement of the gains Afghan moderates and women have made over the past decade, or the brutal payback a triumphant Taliban could mete out against them.

On the usually martial right, the Republican Party is split. John Huntsman and Ron Paul want an immediate pullout. Newt Gingrich has flip-flopped. And front-runner Mitt Romney opposes talks of any kind.

Romney is wrong. The chances of success are low, but given tepid American public support for the war, talking to the Taliban is the right step.

By any measure, many Taliban are reprehensible. They brutally ruled Afghanistan in the 1990s and sheltered Osama bin Laden and Al Qaeda members as they planned the 9/11 attacks. According to the latest United Nations figures, Taliban attacks – primarily suicide and roadside bombings – caused 80 percent of the 1,462 civilian deaths in Afghanistan in the first half of 2011.

Over the past decade, they have assassinated hundreds of moderate Afghans who were trying to stabilize the country. They have also kidnapped scores of Afghans and foreigners, including myself and two Afghan colleagues held captive for seven months in 2008 and 2009.

I despised the Taliban faction that kidnapped us — the Haqqani network — and saw them as criminals masquerading as a pious religious movement. Nonetheless, I believe negotiations represent a chance to split more moderate Taliban from hard-core supporters of Al Qaeda. If the Taliban refuse to compromise, exposing that grim truth will be valuable as well.

Obama administration officials emphasize that their goal is not a Treaty of Versailles-like agreement that will bring full-blown peace to Afghanistan. Instead, it is to begin a series of talks that might gradually reduce the overall level of violence in the country.

The latest opinion polls show that the American public has largely given up on the war. The central question, of course, is whether the Taliban have tired of the conflict as well. Despite claims that it had little effect, the Obama military surge weakened the Taliban and drove them from their strongholds in southern Afghanistan.

As I have written in past columns, the key remains the Pakistani military. As long as Pakistan’s generals continue their foolhardy policy of backing the Afghan Taliban as proxies to counter Indian encroachment in Afghanistan, no American military victory is possible. Today, the Afghan Taliban are waiting out the Obama surge in their safe havens in Pakistan. Involving the Pakistani military in the talks is critical.

“I waited for the surge, I waited to see what would happen,” Fariba Nawa, an Afghan American journalist and the author of the book “Opium Nation,” told me last week. “But now Pakistan has won the war.”

Nawa voiced the fear, anguish and despair of many Afghan moderates, who find themselves trapped between brutal Taliban, the erratic government of Afghan president Hamid Karzai, disingenuous Pakistani generals and shortsighted American political jockeying. Obama’s promise to withdraw most American forces by the end of 2014, while popular in the U.S., signaled to the Taliban and their Pakistani military patrons that America is desperate for a way out.

Completing negotiations with Karzai on the level of American forces post-2014 would improve the chances of successful talks. Showing that the United States will train and fund Afghan security forces for years to come could help bring the Taliban seriously to the table. It will also show that Afghans must lead the fight now, not Americans.

At the same time, it is vital for understandably frustrated Americans not to see the mercurial Karzai as all of Afghanistan. The end of Karzai’s second term in 2014 – and promised departure from office – presents an opportunity. After a disjointed Bush administration effort and hugely expensive but brief Obama administration effort, the U.S. should try to do less over a longer period in Afghanistan. Throwing up our hands and completely walking away will haunt us for years.

Protecting Afghan moderates should be the bottom line of American negotiators. If the Taliban refuse to make concessions, the talks should be allowed to fail.

Across the region, the negotiations will be viewed as a measure of American reliability, practicality and respect for the enormous price moderate Muslims are paying in the struggle against extremism. Americans may no longer care, but our present and future Muslim allies are watching.

PHOTO: Captured Taliban insurgents and their weapons are presented to the media in Ghazni province, December 19, 2011. REUTERS/Mustafa Andaleb

Update: The December job numbers released this morning continued the same trend described in yesterday’s column. Of the 200,000 new jobs created last month, 78,000 – or nearly 40 percent — were in transportation, warehousing and retail, sectors known for low pay and seasonal hiring. In a far more positive sign, manufacturing gained 23,000 workers in December after four months of little change. A vast expansion of that trend would benefit the middle class tremendously.

WASHINGTON — Between now and November, middle class Americans are going to hear an enormous amount of bragging about job creation.

Mitt Romney will tout his role in the creation of Staples, The Sports Authority and Domino’s, three firms that he says created 100,000 jobs. Barack Obama will say 2.9 million jobs have been created since March 2010, and highlight a surge of 140,000 new private sector jobs in November.

The central question for middle class Americans, however, is: What quality of job is being created? The November job surge, for example, occurred primarily in retail, leisure and hospitality, sectors known for low wages. The other high-growth areas were professional services and health care, where higher education is a central determinant of income. Manufacturing and construction, one of the few areas left in the American economy where members of the middle class without elite educational pedigrees can find strong wages, were moribund. The following chart from the Bureau of Labor Statistics breaks down the numbers.

In a rare moment of bipartisan agreement, Republicans and Democrats both recognize the problem. After years of Democratic politicians complaining about a lack of social mobility for Americans, The New York Times reported this morning that Republican candidates are complaining about the problem as well.

Presidential candidate and former Pennsylvania Senator Rick Santorum warned this fall that movement “up into the middle income is actually greater, the mobility in Europe, than it is in America,” according to The Times. Wisconsin Congressman Paul D. Ryan, a leading House conservative, recently wrote that “mobility from the very bottom up” is “where the United States lags behind.”

The story reported that at least five large studies in recent years have found the United States to be less mobile than comparable nations. A Swedish research project found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. In Denmark, the number was 25 percent. In Britain, it was 30 percent. At the same time, only 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.

A Canadian study found that just 16 percent of Canadian men raised in the bottom tenth of incomes stayed there as adults, compared with 22 percent of Americans, The Times reported. Similarly, 26 percent of American men raised at the top tenth stayed there, but just 18 percent of Canadians.

Economists argue that a central tool in reviving the middle class – and creating social mobility – is the creation of better-paying middle class jobs. Like so much else, that task is enormously complex. Scholars say the reduction in pay is the product of worldwide economic trends, from technological change to globalization, that are difficult to counter. Harry Holzer, an economist at Georgetown University, tracked which parts of the economy featured high paying jobs over time. The percentage of well-paying jobs provided by the manufacturing sector fell by half – from roughly 27 percent in 1992 to 13.5 percent in 2003.

Holzer notes that the nature of business in the United States changed over the last several decades. In the past, large, capital-intensive manufacturing companies faced relatively little competition from overseas and depended on workers in the United States.

“Big, stable, highly profitable and not very competitive means a bigger pie,” Holzer said in an interview. “The simplest thing to do is to cut a bigger slice of the pie for workers.”

That business model has disappeared. Globalization caused American firms to face fiercer competition from foreign companies. And technological change allowed American firms to ship manufacturing overseas but still tightly monitor quality. Overall, companies have gained the upper hand on workers, who are increasingly easy to replace.

Paul Osterman, an MIT professor, agreed that those dynamics are irreversible. But he argued that some changes in American business norms unnecessarily accelerated the elimination of middle class jobs. Executives once praised for creating jobs are now rewarded for eliminating them.

“Think about who gets their picture on the cover of Fortune.” he said. “It used to be the ones that were admired were the ones who treated their workers as a family. Now it’s all about re-engineering, downsizing and shareholder value.”

Osterman said research shows that companies have reduced the amount of training they give their workers. He advocates tax incentives that would encourage companies to retrain employees.

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former economic adviser to Vice President Joe Biden, said the U.S. should not repeat the mistake it made after the last two downturns: building a recovery on a financial bubble.

“A lot of money shuffling at the top, a lot of arbitrage, which has very little to do with adding productive capacity to your economy,” he said. “A better way would be to add jobs that produce value, manufacturing jobs.”

He advocated that the American government adopt a manufacturing policy similar to the one Germany employs, where public-private partnerships target areas where German firms could gain global market share. Such an approach is anathema to many, though not all, business leaders.

The political debate, meanwhile, remains polarized. Democrats see government jobs as a tool in strengthening the middle class, arguing that police, teachers and sanitation workers stabilize the economy. Republicans see government jobs as relentlessly growing cancer that stifles the private sector.

Bureau of Labor Statistics data shows that overall government employment steadily grew from the 1940 to the 1970s, according to Bernstein. Since then, it has declined slightly.

Chart: Jared Bernstein, Data: Bureau of Labor Statistics

Hoping for constructive debate in a presidential election year is naive. And bipartisan commissions are notoriously ineffective. But I wish the National Academy of Sciences or some other nonpolitical group could be tasked with creating a Simpson-Bowles-like effort to examine ways to create better paying jobs. GE’s Jeffrey Immelt and other American executives who have doubled-down on American manufacturing could be included. So could retired Democrats and Republicans willing to move beyond party orthodoxy.

Study after study shows that a dearth of high-paying jobs is dividing our society, politics and middle class. We are falling behind the Canadians, British, and Europeans, as well as the Chinese and Indians. An honest debate over what mix of approaches might save us would be a godsend.

Update: My apologies. I cited the wrong Census data table when describing my definition of the middle class. A corrected version is below.

Are you middle class?

For decades, praising the middle class has been a staple of American politics. Candidates vow to defend the middle class and accuse their opponents of betraying it. But what, exactly, is the “middle class”?

Since I began writing this column three months ago, readers have asked for an exact definition of the middle class. The question is a legitimate and vital one. With studies showing the American middle class in decline, understanding which policies create, expand and protect the demographic is more important than ever. But definitions vary.

Despite the incessant political lip service paid to the middle class, there is no official American government definition of the group. The middle class has been intensively studied but no political consensus exists over how it was created or how to strengthen it. Liberals credit government programs with helping create a thriving American middle class after World War II. They cite the G.I. bill, home mortgage interest deduction and state university system as examples. Conservatives credit unbridled, American free market capitalism with the feat. I believe it was both.

Within weeks of taking office, the Obama administration’s launched its own effort to help the group. Chaired by Vice President Joe Biden, the “Middle Class Task Force” was launched in January 2009 and includes the secretaries of labor, health and human services, education and commerce.

The closest the task force came to defining the middle class was a January 2010 report “Middle Class in America.” The study never gives an exact income level that is “middle class.” Instead, echoing academic studies on the subject, the document concludes that “middle class families are defined more by their aspirations than their income.”

The report lists typical American middle-class aspirations as “home ownership, a car, college education for their children, health and retirement security, and occasional family vacations.” Obtaining these goals is harder for middle class American families than it has been in decades, the report argues, because the cost of health care, higher education and housing have risen far faster than wages.

In academia, various definitions of the middle class are used. Economists generally use income as the determinant. Using census data, they break the American middle class into quintiles — groups of twenty percent — and declare the middle sixty percent of Americans the middle class. As I said in an earlier column, this is the definition I use. Based on 2010 census data, the middle class would be the sixty percent of Americans with household incomes from $20,001 $28,636 to $100,065 $79,040 a year.

Other researchers, such as sociologists, have tried to define Americans as middle class by how they self-identify. One of the odd – and I think positive – things about Americans is that they over-identify as middle class. The practice embodies an American ideal that the majority of society’s members, not the few, should benefit.

Americans themselves give varying definitions of the middle class. In a 2008 Pew survey, one-third of Americans who earned more than $150,000 a year — 11 percent of Americans overall — identified themselves as middle class. In the same survey, 40 percent of Americans who earned less than $20,000 — 25 percent — considered themselves middle class as well. The median family income in the United States was $49,445 in 2010, a lower number than many Americans think.

After Occupy Wall Street protests began this fall, The Wall Street Journal posted an online calculator that allows Americans to input their annual income and see where they stand on America’s 1 – 99 percent scale. You can try out the calculator here. Your position in America’s class hierarchy may surprise you.

In a series of interviews last week, American academics said the state of the middle class needs vastly more study. They said finding ways to aid the middle class is not possible without clearly understanding what is happening to it.

John Logan, a Brown University sociology professor, called for a large foundation to fund in-depth research on the middle class. He believes such an effort would force academics to develop a more uniform definition of middle class.

Frank Levy, an MIT economist, called for something more modest. He said surveys of Americans that gauge how many households can find affordable health care, education and housing would be more practical. Both efforts would be a step forward.

As I said in my first column, for me and many others the creation and preservation of middle classes is vital. Before becoming a columnist, I worked as a foreign correspondent and investigative reporter for The New York Times and The Christian Science Monitor for seventeen years.

Covering political, religious and ethnic conflict around the world convinced me that the single largest instrument of stability in any society is a middle class. Whatever their nationality, ethnicity or faith, members of the middle class tend to reject extremist leaders, try to make governments more effective, and often cherish the same values, particularly merit, justice and stability.

I plan to visit communities inside the United States and around the world to examine which economic policies help create middle classes to see what lessons from abroad, if any, can be applied to the United States. (So far, I’ve reported in Kentucky, Turkey, China and Wisconsin.) Along the way I hope to determine whether growing middle classes overseas inevitably mean a shrinking middle class in the United States.

In the meantime, I agree with calls for more intensive study of the middle class. A clearer understanding of what is happening to the demographic is desperately needed. The middle class can be defined. And it can be helped.

By almost every measure, 2011 was a lost year for the American middle class. Who is to blame depends on your political view. What follows is an attempt to sum up the major developments and missed opportunities of the year gone by. For me, the following areas represent the most serious perils facing middle class Americans.

– Jobs: Economists generally agree that the single most effective way to revive the American middle class is to create more high-paying, stable private sector jobs. The unexpected emergence of 140,000 new private sector jobs in November helped drop the unemployment rate to a two-and-a-half-year low 8.6 percent, but the rosier figure was aided by 315,000 people who gave up and stopped looking for work last month. The most important factor of all — the quality of the new jobs — was unclear. Governments, meanwhile, slashed 20,000 public sector jobs across the country and deadlock in Washington blocked both Obama’s $447 billion jobs plan and Republican job creation proposals.

– Fiscal order: Economists also generally agree that a bipartisan plan to seriously address the $1.7 trillion federal deficit could increase business and consumer confidence, strengthen the economy and potentially create jobs. The year began with hopes that the bipartisan Simpson-Bowles plan might gain traction in Washington. Yet President Obama and Republican leaders both failed to embrace it. Months of disastrous partisanship followed, from the summer default brinksmanship, to the fall failure of the Congressional super-committee to the prolonged deadlock over how to fund payroll tax cut and unemployment insurance extensions.

– Housing: Home values are at an eight-year low and more than 10 million American families are underwater, or owe more than their homes are worth. The state of the housing market is yet another drag on the middle class. In October, The White House announced a change in executive branch rules designed to help families refinance at historically low interest rates, but the effort is too small to have a serious impact. Like so many other issues, legislation that might achieve more is frozen in a deadlocked Congress.

– Higher Education: Technological advances have created a global economy where members of the American middle class must adapt or fall behind. Low-skilled manufacturing jobs have left the United States and will never return. Learning high-end manufacturing skills, getting a practical college degree or looking for business in China, India and other emerging markets are all ways Americans can potentially compete in the global economy. After carrying out impressive K-12 education reforms, the White House outlined some promising reforms to reduce tuition and increase innovation in higher education at a December meeting with college presidents. Yet again, convincing an ideologically divided Congress to act will be difficult.

– Health care: A September survey found that health insurance companies raised the average annual premiums for family coverage by 9 percent in 2011, the highest increase in nearly a decade. The average annual cost of a family insurance premium was $15,073 in 2011, roughly twice the amount it was in 2001, burdening middle-class earners and the companies that employ them. Democrats blamed insurance companies. Republicans blamed Obamacare. The Supreme Court’s November decision to hear legal challenges to the administration’s health care reform law is a step forward. Whether Obamacare stands or is struck down in 2012, a Supreme court ruling will create clarity for consumers, the health care industry and voters.

– Europe: Like it or not, the American middle class now lives in an interconnected world economy. A Euro Zone debt crisis could have a devastating impact on a fragile U.S. recovery. After a glacial initial response, European leaders showed some leadership as 2011 came to a close. With any luck, it will continue in 2012.

– Occupy Wall Street: The movement that emerged this fall placed rising income inequality at the center of American debate. Over time, the disparate group seemed to lose focus and experienced a drop in public opinion polls. December efforts to seize foreclosed homes show signs of promise, but the Occupy movement needs to unite with labor unions to become a serious political force.

– The Tea Party: In its second year of existence, the movement also views itself as a defender of the middle class. Its calls for serious deficit reduction and a change in the way government operates are legitimate. But Republican presidential candidates’ absurdly simplistic pandering to the group in 2011 was counter-productive. The middle class deserves a serious debate about how to reinvent our economy, government and education system. Not false promises that government — and government alone — is responsible for every evil in America.

Advice for 2012: These are landmark elections for the American middle class. Vote for pragmatists, not partisans.

PHOTO: A placard hangs on the sign of a tent inside the Occupy DC encampment at Freedom Plaza in Washington, December 5, 2011. REUTERS/Stelios Varias

MILWAUKEE — As Washington and Madison fiddle, this city’s middle class is in slow free fall.

First, the numbers. From 1970 to 2007, the percentage of families in the Milwaukee metropolitan area that were middle class declined from 37 to 24 percent, according to a new analysis by the Southeastern Wisconsin Regional Planning Commission.

(Click on the photo above for a slideshow)