The American Prosperity Myth

Everyone knows the story by now. America may have its social problems, but its highly productive, job-generating, innovative economy is the envy of the world. Europeans, on the other hand, are in a despond of high unemployment and economic sclerosis. Europe's addiction to welfarism--its overcooked social contract--is killing the economic goose that lays the social egg. Americans may pay a price in inequality for their economic vitality, but when you take the country's extraordinary social mobility and opportunity into account the price is worth paying. You might want to reverse Bush's tax cuts for the very rich, but nobody sane is going to tinker with the essence of the great American Business Model that delivers so much wealth.

I contend--unfashionably and, I know, incredibly, given the consensus--almost the opposite. The American economy has great strengths, but it is not so all-conquering. And the American Business Model, with its ruthless focus on shareholder profits, has profound weaknesses. Indeed, American industry is at its strongest where it has not observed antistate, progreed precepts and operated in more European ways. Smart action by the state, a viable social contract and efforts by companies to harness human capital and serve a purpose larger than short-term profit maximization turn out to be indispensable components of successful American capitalism as well--though America's public conversation hardly concedes these points. It's a gaping omission that is costing the country dearly.

Signs of trouble are everywhere. For a start, the United States is experiencing an alarming and unsustainable growth of international indebtedness. By the end of this year the country's net liability to the rest of the world will approach $3 trillion, and it is growing exponentially. At the current rate, liabilities will double again over the next five to seven years, taking the United States into banana republic territory. At some point foreigners will cease holding dollars and instead buy the alternative world currency--the euro. The dollar will crash and interest rates will jerk upward in response.

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