The End of the American Century documents the interrelated dimensions of American social, economic, political and international decline, marking the end of a period of economic affluence and world dominance that began with World War II. The war on terror and the Iraq War exacerbated American domestic weakness and malaise, and its image and stature in the world community. Dynamic economic and political powers like China and the European Union are steadily challenging and eroding US global influence. This global shift will require substantial adjustments for U.S. citizens and leaders alike.
I added a Gallup Poll widget to the sidebar of this page (scroll down on the right), which shows the latest favorability ratings for President Obama, and has links back to the Gallup home page for results of some of Gallup's recent surveys. Interesting and nifty!
The Social Science Research Council and Columbia University Press have published a remarkable and eye-opening book, called The Measure of America: American Human Development Report 2008-2009, which could function as a companion and statistical supplement to The End of the American Century. In analyzing the domestic situation of the U.S., The Measure of America has many of the same themes, and similar (and supporting) evidence as my book. Like my book, it shows that on most measures of societal development, the U.S. has declined over recent decades, and lost ground compared to other countries.
The Measure of America is modeled on the annual Human Development Report published since 1990 by the United Nations Development Programme. That series attempted to get away from the raw economic indicator of Gross Domestic Product, and to determine the level of human development in each country. The “human development index” used by UNDP, an alternative to GDP, was “a composite index measuring average achievement in the three basic dimensions of human development—a long and healthy life, knowledge, and a decent standard of living.” (From the Human Development Report 2006).
The Nobel Prize winning economist Amartya Sen was instrumental in developing the Human Development Report, and wrote the Foreword to The Measure of America. There, he writes that
“we have to judge the success of a society, including its economy, not just in terms of national wealth or the ubiquitous GNP, but in terms of the freedoms and capabilities that people enjoy to live as they would value living” (p. xi).Sen observes that this approach has been “remarkably neglected in the United States in particular” and notes in this country “a major discrepancy between opulence and achievement.” The U.S. may be on some measures the world’s wealthiest nation, but “its accomplishments in longevity, secure health, fine education and other such basic features of good living are considerably below those of many other—often much poorer—countries.” He also notes, as I do in my book, that the position of the U.S. relative to other countries has been “steadily falling” over the years (p. xii).
The data shows the downward trend for the U.S. over time in most of these measures as well. And for the overall index, the U.S. world rank dropped from #2 in 1980 (behind only Switzerland) to #12 in 2005. Countries ahead of us include much of western Europe, Canada, Australia and Japan.
Limiting CEO pay must be in the air! I posted a blog with such a proposal on Saturday, before learning that Senator McCaskill had introduced a bill with similar provisions on Friday. Then yesterday President Obama himself announced executive pay limits, along very similar lines as my own "modest proposal." (Do you think the Prez reads my blog?!!).
According to the New York Times story, these executive pay limits "seek to alter corporate culture" which in my view is long overdue and would be a major accomplishment. According to the Times, "the new rules would set a $500,000 cap on cash compensation forthe most senior exeutives, curtail severance pay when top executives left a company,[and] restrict cashing in on stock incentives until government assistance was repaid."
President Obama observed that "This is America" and "We don't disparage wealth" or people achieving success. But "what gets people upset--and rightfully so--are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers."
"For top executives to award themselves these kinds of compensation packages," the President said, "in the midst of this economic crisis is not only in bad taste, it's a bad strategy, and I will not tolerate it as president." He pointed to this kind of CEO extravagance reflecting "a culture of narrow self-interest and short-term gain at the expense of everything else."
Bravo, Mr. President. This may be mostly a symbolic gesture, but symbols are important. What this country needs now, even more than an economic stimulus package, is a change of heart, and a change in the way we think, believe and behave. Just as when the President said "The United States does not torture," he is sending a message to Americans and to the rest of the world that the United States is changing.
(See my previous entries on CEO pay by clicking on the "CEO pay" label in the right sidebar).
President Obama called Wall Street bankers "shameful" after reports that they had given themselves some $20 billion in bonuses this year, just as the economy was deteriorating and the government spending billions to bail them out.
Here's a modest proposal: for companies receiving federal bailouts, let's limit the pay of those CEOs to what the President of the United States earns--$400,000.Once those bailout companies have repaid our tax-paid bailout money, they can return to paying themselves tens of millions of dollars yearly, as they do now.
"no C.E.O. of any corporation or business that is bailed out by us, that is rescued by American tax dollars, should receive any more than the highest paid person in the federal government.”
David Hoppe interviewed me and wrote a story on my book in the 1/28 issue of Nuvo magazine. I believe he nicely captures the essence of the book, and my thinking about the current situation and place of the U.S. The story can be found at this link.
Economists and politicians are debating whether we are in a recession or a depression, and how many months or years it will take to recover from the downturn. As I have argued on this blog and in my book, what is now happening to the economy is not typical or normal. I would call it a "retrenchment" rather than a recession. In that sense, it is a permanent correction, and will result in a substantial and long-term contraction of GDP, the standard of living and the stock market. It will take many years to return to where we were. The problem is that the U.S. government and consumer have both been living on borrowed money for a generation, so that most of the gains of that period are illusory. We were never really that wealthy, and now we have to start paying for that extravagance.
A similar argument is made in an interesting article entitled "Will There Be A Recovery?" by Paul Craig Roberts, a former Assistant Secretary of the Treasury in the Reagan administration. He also sees the current situation as different from past recessions. Recovery in the past could be stimulated by cuts in interest rates, allowing consumers to spend more against rising real wages. This would lead the economy to rebound.
Now it is different though. For one thing, for most workers, real wages have remained stagnant for almost twenty years. Consumers have maxed out their credit and can no longer borrow so freely. And interest rates are already at rock bottom levels.
"And there’s another problem," says Roberts. "Much of what American consumers purchase today is made offshore. Stimulating consumer demand in America puts factories back to work, but those factories are located elsewhere in the world." The U.S. consumed more than it produced, by borrowing from abroad. But this source of funds is also drying up now.
These are all themes that I raised in The End of the American Century. While I do not totally agree with all of Roberts' arguments, his overall point is a good one. There will not be a recovery, like recoveries in the past. The task for the U.S., and the Obama administration, is to figure out how to navigate this difficult transition, and to convince U.S. citizens that we can live a good life without all the excesses of the past.
Take a look at Roberts' essay, and offer your thoughts in the Comments section here.
Last week, John Thain, the former CEO of Merrill Lynch was sacked by the CEO of Bank of America, which recently absorbed the bankrupt brokerage firm. Thain is a prime example of the mind-boggling greed, incompetence and cluelessness of the captains of the U.S. financial services sector. I called attention to Thain in my September blog on CEO pay, where I noted that Thain was the highest paid CEO in 2007, with compensation exceeding $83 million. This was a year in which Merrill Lynch lost $7.8 billion, mind you. Granted, Thain didn’t take over Merrill until November of 2007. But 2008 was even worse. Merrill’s losses of $27 billion last year was what led to its absorption by Bank of America.
But Thain’s greed and arrogance gets even worse. He apparently demanded a bonus of $30-40 million for 2008, the year he presided over the company’s bankruptcy and collapse. This was after Merrill had already received some $10 billion from U.S. taxpayers as part of the federal government’s financial bailout. Furthermore, according to a story in the Financial Times, Merrill granted some $4 billion in bonuses to other executives in the company, just before the Bank of America takeover was finalized. As the Financial Times observers, “this was money that appeared to come directly from US government funds.”
A New York Times story says that Thain spent $1.2 million to redecorate his Merrill Lynch office last year, including an $87,000 rug and a $68,000 credenza.
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