Chrystia Freeland

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.

ASPEN, COLORADO — Once upon a time, the car was the key to understanding the U.S. economy. Then it was the family home. Nowadays, it is any device created by Steven P. Jobs. Call it the Apple economy, and if you can figure out how it works, you will have a good handle on how technology and globalization are redistributing money and jobs around the world.

That was the epiphany of Greg Linden, Jason Dedrick and Kenneth L. Kraemer, a troika of scholars who have made a careful study in a pair of recent papers of how the iPod has created jobs and profits around the world. The latest paper, “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod,” was published last month in The Journal of International Commerce and Economics.

One of their findings is that in 2006 the iPod employed nearly twice as many people outside the United States as it did in the country where it was invented — 13,920 in the United States, and 27,250 abroad.

You probably aren’t surprised by that result, but if you are American, you should be a little worried. That is because Apple is the quintessential example of the Yankee magic everyone from Barack Obama to Michele Bachmann insists will pull America out of its job crisis — the remarkable ability to produce innovators and entrepreneurs. But today those thinkers and tinkerers turn out to be more effective drivers of job growth outside the United States than they are at home.

You don’t need to read the iPod study to know that a lot of those overseas workers are in China. But, given how large China currently looms in the U.S. psyche, it is worth noting that fewer than half of the foreign iPod jobs — 12,270 — are in the Middle Kingdom. An additional 4,750 are in the Philippines, which, with a population of just 102 million compared with China’s 1.3 billion, has in relative terms been a much bigger beneficiary of Mr. Jobs’s genius.

This is a point worth underscoring, because some American pundits and politicians like to blame their country’s economic woes on China’s undervalued currency and its strategy of export-led growth. In the case of the Apple economy, that is less than half the story.

Now come what might be the surprises. The first is that even though most of the iPod jobs are outside the United States, the lion’s share of the iPod salaries are in America. Those 13,920 American workers earned nearly $750 million. By contrast, the 27,250 non-American Apple employees took home less than $320 million.

That disparity is even more significant when you look at the composition of America’s iPod workforce. More than half the U.S. jobs — 7,789 — went to retail and other nonprofessional workers, like office support staff and freight and distribution workers. But those workers earned just $220 million.

The big winners from Apple’s innovation were the 6,101 engineers and other professional workers in the United States, who made more than $525 million. That’s more than double what the U.S. nonprofessionals made, and significantly more than the total earnings of all of Apple’s foreign employees.

Here in microcosm is why America is so ambivalent about globalization and the technology revolution. The populist fear that even America’s most brilliant innovations are creating more jobs abroad than they are at home is clearly true. In fact, the reality may be even grimmer than the Tea Party realizes, since more than half the American iPod jobs are relatively poorly paid and low-skilled.

But America has winners, too: the engineers and other American professionals who work for Apple, whose healthy paychecks are partly due to the bottom-line benefit the company gains from cheap foreign labor. Apple’s shareholders have done even better. In the first of their pair of iPod papers, published in 2009, Mr. Linden, Mr. Dedrick and Mr. Kraemer found that the largest share of financial value created by the iPod went to Apple. Even though the devices are made in China, the financial value added there is “very low.”

In an essay to be published in the July/August issue of Foreign Affairs magazine, the Nobel economics laureate A. Michael Spence describes the same phenomenon: “Globalization hurts some subgroups within some countries, including the advanced economies.

“The result is growing disparities in income and employment across the U.S. economy, with highly educated workers enjoying more opportunities and workers with less education facing declining employment prospects and stagnant incomes.”

These contradictions of the Apple economy help to explain the defining paradox of the Aspen Ideas Festival this week, an annual gathering of business people, politicians and writers in the Colorado Rockies.

On one hand, the assembled cognoscenti took a rather bleak view of the U.S. economy. Justin Wolfers, an economist at the Wharton School at the University of Pennsylvania, captured the collective concern, when he told me America was already halfway through a “lost decade” and warned that it was a mistake to assume that the economy would heal of its own accord.

But, in contrast with 2008, when America’s affluent were collectively terrified, the festivalgoers this summer are in high spirits. They should be. Keith Banks, president of U.S. Trust, the private wealth management arm of Bank of America, said that for his millionaire and billionaire clients, the recession was over.

Nor, Mr. Banks told me, were they overly worried by the lackluster U.S. economy or Europe’s even weaker performance. That’s because the global economy overall — powered by the emerging markets — continues to grow strongly, and Mr. Banks’s American “high net worth individuals” are not just U.S. citizens, but global capitalists.

A second theme of the festival is hand-wringing about the overly polarized American political debate. The worriers are referring to the divide between Republicans and Democrats. But the truth is that not much separates the Republicans and Democrats gathered here.

The summer issue of Aspen Magazine called these affluent festivalgoers “internationalists.” They are the winners in the Apple economy, and the reason American politics is becoming so raucous is that the gap between them and the losers is growing.

Keith Banks is the president of U.S. Trust, the private wealth management arm of Bank of America. He stopped by the Reuters studio in Aspen to chat with Chrystia about the resurgent risk appetite among the world’s super-wealthy investors, his tripartite outlook for the global economy and the alternative asset classes that are currently in vogue. Here is a transcript of some of the highlights of their discussion:

The super-wealthy have gotten their groove back:

KEITH BANKS: The thing that was very interesting to me was even the super wealthy, people with hundreds of millions of dollars, how impacted they were psychologically by the crisis. So even though arguably their standard of living didn’t change, yeah their net worth was down, but it was not down to a point where they had to change their lifestyle. But psychologically, they were very impacted by it. If they happened to be business owners on top of that, they were really feeling pretty beaten up, because not only were they dealing with the personal aspects of that, but they were running businesses that were looking at higher taxes, more regulation, higher health care costs, and a lot of uncertainty and generals. They were getting kind of a double whammy. So I would say our clients came out of the crisis really hunkered down, were really impacted psychologically. And what it really changed was their thinking about what they wanted to do from an investment standpoint… I’d say about six, nine months ago, we slowly began to see that shift where clients began to engage. We’re able to engage clients more in a discussion about areas they should be thinking about moving their assets into to get somewhat higher returns, still managing the risk. So I think the psyche has improved. They’re doing more and they’re more willing to move money around, whereas 12 months ago, not interested.

A tale of three cities in the global economy:

There’s a tale of three cities going on.  Number one is the U.S.  And the U.S. — think about right now is a two to three percent grower, okay.  Not what we want to see, but certainly not the worst-case scenario.  The– the second city is Europe, Eurozone.  Now it’s going to be a one to two percent growth, right, even more anemic, with a very wide range of outcomes by country.  But again pretty anemic stuff.  And then the stars of the show continue to be the emerging markets. In general, China and Asia in particular.  But when you blend that all together, we’re still looking at growth north of four percent globally.  That’s a fantastic number.  And a lot of our– our multinational firms, the S&P 500 types of companies get as much of 50 percent or more of sales [abroad]… So if you’re a company that has a global market place that you’re serving, you’re probably looking out there saying this is pretty good, right.  I’m seeing good growth, I’m seeing good sales, I’m seeing good profits because I have the streamlined core structure.  So those companies and those executives are feeling good about things.  If you’re a smaller company that’s pretty much a U.S. domiciled, U.S.-centric company in terms of who your customers are, you’re probably not feeling nearly as buoyant, [or] nearly as robust because you’re feeling more the effects of that two percent, two and a half percent growth dynamic that we’re seeing just here in the U.S.  And obviously, if you’re U.S. and Europe, then you’re really not too pumped up because then you’re too mired in two of the areas that again are seeing the least robust growth.  So it really depends on what your market is, who you’re serving, where your sales come from.

The smart money bets the farm:

KEITH BANKS: And so now the question’s going to be how fast can we grow, both in the U.S. and globally, what opportunities does that create for them both from a business standpoint as well as a personal investment standpoint, and then positioning them accordingly. One thing that’s also very interesting is our clients, in addition to the traditional financial assets, stocks, bonds, all that, they’re getting increasingly interested in hard assets.  Hard assets to find as timberland, farmland, oil and gas properties.  We have the ability–

CHRYSTIA FREELAND: Real estate?

KEITH BANKS: Real estate.  But not so much, not residential.  There are opportunities in the commercial side just because values have gotten depressed.  But what’s interesting is if you believe that global growth will continue at a four percent plus rate, you’re already seeing inflation picking up in those countries that are seeing the faster growth, but it’s a reflation (PH) dynamic. And so what people are saying is own — owning the hard asset is not only a good diversifier with respect to financial assets, the traditional assets, but it’s a place you want to be if ultimately inflation will begin to slowly but surely tick up.  So we have a group within U.S. Trust that can do that.  We’re engaging a lot of clients in that discussion.

At the Aspen Ideas Festival yesterday, Chrystia interviewed the iconoclastic and polymathic economist Justin Wolfers of the University of Pennsylvania’s Wharton School of Business. Here is a transcript of some of the highlights of their discussion:

On the U.S. economy’s lost half decade:

JUSTIN WOLFERS: If you go back, you look at how bad the economy’s been for so long.  So the NBER says the recession started in 2007.  Actually it may have started as early as 2006… One of the difficulties is we keep revising what happened to history. And if you look at the latest revisions of history, our current understanding is the economy actually peaked in late 2006. This I’m sure is something you’re going to hear a lot about during election season, ’cause they’re going to call this again, you know, the Bush recession. They’re going to be very keen to get that story out. But, you know, the first part of 2011 looks like it’s pretty grim. It’s very hard to see– a lot of strong growth.  And certainly, you know, things are well below potential now. You know, people talk about a lost decade, and if you think about 2006 to the present, we’re halfway there. And if you want to be the real pessimist — and I’m not — I’m not this pessimistic. But, you know, if you look at things like median family income, it actually fell during the Bush years.  Which actually means if you’re the median family– we’re well past a lost decade.

On the Fed’s need for a new marketing campaign:

JUSTIN WOLFERS: See this is where we’ve got the branding all wrong.  So QE1 and QE2, they sound complicated.  What are they, they’re the government buying bonds to reduce interest rates.  What’s monetary policy, standard run-of-the-mill monetary policy?  The government buying bonds to affect interest rates.  We’re just changing different interest rates.  So let’s change all of ‘em and let’s keep changing ‘em.  There’s nothing–

CHRYSTIA FREELAND: And you’d push ‘em down as far as you could go?

JUSTIN WOLFERS: Let’s just keep going…

CHRYSTIA FREELAND: And you would start now?

JUSTIN WOLFERS: I’d start yesterday.  And when we do this, let’s have the Fed not say we’re going to spend X billion dollars. That scares the public. The public thinks — this is like we’re building bridges or we’re throwing money away.  We’re not doing that.  We’re — we’re buying bonds.  We’re changing the structure of the balance sheet. Nothing too crazy. The same way the Fed says we’re going to set the Fed funds rate at zero percent, let’s say we are going to keep buying until the three-year Treasury is at .2.  You know, set an exact quantitative target like that, and let’s also commit.

On the “idiots in Congress” and their misguided macro policies:

JUSTIN WOLFERS: We’re in a very odd situation, which is normally we have idiots in Congress, both houses.  And that’s just a norm of political economic life… But normally it doesn’t matter because they can do idiotic things on macro policy and the Fed just undoes it.  And the people who are really setting macro policy at the Fed, the problem is the Fed’s at the zero lower bound.  Which means the idiots are now making macro policy, and it’s worse than that.  Which is Congress has a very different incentive with respect to stimulating the economy than my unemployed father-in-law and than the president.  And then, so, you know, there’s a strong bias towards inaction…  I can’t see inside the minds or hearts of these people.  But to believe that austerity is the order of the day when we have millions of people, long-term unemployed strikes me as problematic.

How money buys happiness:

JUSTIN WOLFERS: When you move from $25,000 to $30,000 you get happier.  When you go from earning $50,000 to $100,000 you get happier.  All the way.  I mean, it turns out — this is in empirical fact.  It’s not a theory.  It’s just that I stare at the data, I crunch spreadsheets.  That’s what it tells me.

CHRYSTIA FREELAND: And all over the world, it’s not just like, say, Americans really like money but.

JUSTIN WOLFERS: The Swedes love money too.  And the Australians do.  In Burundi, they love the stuff.  So, you know, it’s absolutely a global thing. there’s nothing complicated here.  It’s just richer people are happier than poorer people.  Richer countries are happier than poorer countries.  As countries get richer, they get happier.

On why having children may not make you happy and the shortcomings of happiness-targeting policies:

JUSTIN WOLFERS: When I ask other people who would say their kids had made them always happy, they’d say they’d still have kids and the reason is they get meaning from them.  Or some deeper sense of something or other.  And so it turns out there’s more to life than happiness.  That’s actually really important because if you go back and think about these happiness debates, people are saying politicians should target happiness.  Well if we really believed that, the first thing we should do is have mass sterilization policies.  Now it turns out that that’s an absurd suggestion.  And it’s absurd because there’s a whole bunch of other things we also care about. Now what that suggests is not that the happiness project is– is wrong and needs to stop, but it suggests that it needs to expand and start to take account of these other things.  These crazy things that make us do things like go out and have kids.

“Jobs! Jobs! Jobs! What can we do?” was the title of a panel Chrystia moderated at the New York Forum last week with members of President Obama’s Council on Jobs and Competitiveness.  The Council has been tasked with jump-starting the U.S. labor market and recommending changes to the nation’s education and training initiatives, and each of the panelists touched on a different aspect of the Council’s findings.

Laura Tyson, a former chief economic adviser to President Clinton and an economist at the University of California, Berkeley, stressed that infrastructure projects were the low-hanging fruit of job creation.  She argued that $1 billion in infrastructure investment could create between 11,000 and 30,000 jobs.  Many infrastructure projects have been approved and are shovel-ready — the only thing that’s holding them up is the Department of Transportation’s lengthy permitting process, Tyson noted.

Valerie Jarrett, a Senior Advisor to President Obama, added that in order to offset the rise in structural unemployment, investments in education and worker placement must be made sooner rather than later:

The President is convinced that if we’re going to win the future, we have to continue to invest in education; we have to invest in innovation; and we have to re-build and build in order for us to be competitive…  We also want to make sure that the companies who are here have the resources they need to compete globally, and that means having a trained workforce.  That means having a workforce that’s trained for the marketplace of tomorrow, not the marketplace of yesterday, and so focusing on science and technology and engineering and math and partnering with our community colleges and working with the private sector so they actually design the curriculum and offer a job when you complete a program.  So for the people who are currently unemployed, let’s get them into those programs, so when the opportunities arise because demand does increase there is actually a job waiting for you on the other end.

AOL co-founder Steve Case emphasized entrepreneurship in his remarks.  Case brought up a study from the Kauffman Foundation that found that high-growth, entrepreneurial companies created 40 million jobs in the past 25 years — that’s roughly all the net job growth the U.S. saw during that period.  Nevertheless, Case laments, the nation has taken its entrepreneurs for granted and hasn’t recognized that entrepreneurship is the “secret sauce” that flavors the U.S. economy:

Robert Wolf, chairman of UBS Americas, addressed the difficulties that small businesses facein getting loans .  On the credit demand side, uncertainty over the economy’s growth prospects have halted new investments, Wolf argued.  On the supply side, credit is constrained because one thousand banks have vanished in the past few years and because those banks that survived have been hit with higher capital requirements. One possible policy the federal government could adopt to remedy this would be to expand Small Business Administration loan guarantees. Case noted that they have a long history in allowing budding enterprises to grow and cited Under Armor, which would have never become the success it is today without an SBA loan guarantee.

Is it morning in America? Or is now a time for blood, sweat, toil and tears? As the United States warms up for the presidential elections, the choice between those two narratives will be the most important decision each party makes and may determine who wins in 2012.

Both are ways of talking about the economy — the issue that polls show overwhelmingly preoccupies U.S. voters. The morning-in-America storyline is that the financial crisis is over, the economy is healing and the country’s innate powers of renewal, reinvention and innovation are already asserting themselves. The blood, sweat, toil and tears view is that the U.S. economy is still sick and that it will take a significant, arduous and collective effort to nurse it back to health.

For now, the White House is committed to morning in America. That was the message of a discussion among members of the President’s Council on Jobs and Competitiveness that I moderated this week at the New York Forum, a high-powered annual gathering of CEO’s and politicians that is shaping up to be New York’s answer to Davos.

The most influential voice on my panel belonged to Valerie Jarrett, a senior adviser to President Barack Obama. Mrs. Jarrett has worked as a lawyer, chief executive and Chicago City Hall heavyweight. But her most important qualification today is as the confidante, consigliere and best friend of the Obamas, whom she first got to know two decades ago when she interviewed the future first lady for a job and wound up meeting her fiancé, too. Mrs. Jarrett has the president’s ear, and his back — and she is always on message.

That’s why her determined good cheer at the forum matters. “We have good reason to be optimistic,” she said. “We have great entrepreneurs and the capacity to reinvent ourselves. This is still the best country on earth.”

The other panelists, all members of the Jobs and Competitiveness Council, faithfully chimed in in the same key. Brian L. Roberts, chairman and chief executive of Comcast, the cable giant that recently acquired a majority stake in NBC, said a positive outlook was essential to “make America a great place to live and work. We all want that to be the outcome, so it’s critical to have a sense of optimism.”

Robert Wolf, chairman of UBS Americas, and one of Mr. Obama’s earliest supporters on Wall Street, agreed, and accused the news media of painting an overly bleak picture of the economy: “Since I sat here a year ago, we have two million jobs that have been created,” he said. “Exports have gone up by 10 percent and technology is booming, agriculture is booming. But when you look at the TV you hear what we are not doing well. I believe we have built a foundation and are on the right path.”

There are a lot of good reasons for the White House’s determination to tell us the glass is half full. For one thing, even though this president isn’t from Hope, from the very outset, hope has been central to his personal brand. That has been a smart choice — Americans are a generally cheerful folk and it has long been a political truism that the sunniest politician is the one who wins.

Perhaps more importantly, two and a half years after taking office, Mr. Obama owns the U.S. economy. That gives him and his backers a powerful incentive to cast it in the most positive light.

Finally, this is a White House of wonks and one of their chief enthusiasms is for behavioral economics. They have all read George A. Akerlof and Robert J. Shiller’s Animal Spirits — a book whose title refers to John Maynard Keynes’s famous line that markets are governed not just by hard data but also by the animal spirits of their participants — and they understand that confidence can be a self-fulfilling prophesy.

These are three powerful arguments for official optimism. But the strategy could go very badly wrong if the public doesn’t buy it. And so far, people don’t. The Rasmussen survey this week showed that just 26 percent of likely voters thought the United States was headed in the right direction; 65 percent think the country is on the wrong track.

That pessimism is the product of more than the TV shows Mr. Wolf excoriated: unemployment is still above 9 percent and more people than ever told Rasmussen that their homes were worth less than their mortgages. A separate poll, by Gallup, revealed that even people with jobs think now is a bad time to find good work: 86 percent of respondents said that now is a bad time to find a “quality” job. That number jumped to 93 percent for college graduates. Before the recession — in January 2007 — it was just 47 percent.

That grim view suggests that, notwithstanding their cultural inclination toward optimism, Americans today may not be in the market for happy talk. We may be at one of those rare historical crossroads when voters realize their country is in trouble and they prefer the leader who offers a bleakly honest diagnosis to the one who says everything is OK.

That was the magic of Winston Churchill’s famous “blood, toil, tears and sweat” speech. “We have before us an ordeal of the most grievous kind,” he said on May 13, 1940, in his first address to the House of Commons as prime minister. “We have before us many, many long months of struggle and of suffering.”

At the wrong moment, the audacity of hope can sound a lot like denial. Mitt Romney, the Republican front-runner, is already making that point. A Romney campaign video released earlier this month mocks the president’s assertion that “there are always going to be bumps on the road to recovery,” arguing that the 20 million Americans who have lost their jobs can’t be dismissed as mere bumps in the road

And so, the big question of the next year is this: do Americans want someone to reassure them they are still great or someone who admits things are awful?