The Secrets of the American Success Story

Of course, President Bush isn't a dolt - but other than that, I have to agree with much of what Anatole Kaletsky writes in this Times article. He addresses a number of reasons for America's greatness - almost all of which are a mystery for the German media.

The President is a dolt - so how can America be such a success story?

(...) For the past five years, America has been led by a president who is clearly not up to the job — a man who is not just inarticulate, but lacking in judgment, intelligence, integrity, charisma or staying power. Yet America as a nation seems to be stronger, more prosperous and self-confident than ever. (...)

Why does America’s prosperity and self-confidence seem to bear so little relationship to the competence of its government? The obvious answer is that America, founded on a libertarian theory of minimal government, has always had low expectations of politicians. In America, it is not just business that thrives independently of government, perhaps even in spite of government. The same is also true of other areas of excellence which in Britain are considered quintessentially in the public domain — higher education, leading-edge science, culture and academic research. Because Americans expect so little of their government, they are rarely disappointed. They do not slump into German-style angst when their governments fail to find solutions to the nation’s problems.

This anarchic spirit was summed up by Ronald Reagan: “The ten most dangerous words in the English language are ‘I’m from the government and I’m here to help you’.” In Europe, by contrast, the public expect government to solve all problems, and the media try to hold politicians accountable for everything. The result is a culture of dependency that extends far beyond the welfare state, to business and to the worlds of education, medicine, arts and science.

The American approach has a powerful advantage rooted in human nature: private sector activity is powered by economic incentives, while the State must operate by rules and sanctions. Since incentives, as Adam Smith observed, are much more likely to stimulate creativity and effort than sanctions, private

enterprise tends to achieve ambitious objectives, while government often fails. (...)

The American system recognises that a capitalist economy has areas of market failure where incentives alone will not produce socially desirable results. But American public institutions try to maximise private activity and incentives, rather than rein them in, within their realms — whether it is universities encouraging professors to start businesses, or health administrators creating incentives for drugs companies to do medical research. It is in this respect that Mr Greenspan most clearly represented the genius of the American system.

Mr Greenspan realised that his job at the Fed was not just to control inflation, the goal that other central bankers recognise. His real task, he explained last year, was “to achieve the maximum sustainable economic growth, with price stability pursued as a necessary condition to promote that goal”. Although a passionate advocate of small government, he realised that well-judged public intervention was necessary, not just to maintain stable prices but also to create the incentives for private enterprise to accelerate economic growth. He also understood that the best way to deal with the imbalances in the changing world economy was by supporting growth and allowing the greatest possible freedom for financial markets. Private investors, he believed, were more likely to find solutions to the complex challenges created by globalisation than central bankers or politicians.

But while Mr Greenspan believed that private incentives solve economic problems more successfully than government diktats, he also understood that capitalism works at its best if it operates in a sound, simple framework of ambitiously pro-growth monetary policy. His genius was to understand that public policy could be simultaneously minimalist and ambitious. In a sense, this is the genius of the American system. And this is why America does not need a genius in the White House.  (emphasis added)

In contrast, Germany just voted a genius out of office...

The next genius, bitte!

(Hat tip John Tuttle)

Comments

[joe]

Don,

You need to do a bit more reading about some of the nations you listed as doing well. You might be surprised at what you find. I realize the rage in euroland right now is to look at them for guidance.

And just an aside, Georgia is doing a lot better than the US economy as a whole. We have about 8.4 million people, which is actually almost 3 million more people than Finland has.

I would think Luxenbourg is doing well too. Why not list them but I would then compare them to Atlanta.

Oh, scale has no meaning at all, I realize.

[Don]

Joe,

I think much depends upon whom you compare the nations to. Sweden is an almost unique case in that it historically has run a true Keynesian macroeconomic policy. What this means is that it runs enormous budget deficits in recession and equally large surpluses during boom times. This means that in the course of a given business cycle Sweden will appear as an incredible success or a howling disaster depending upon when you measure.

I'm aware of the fad in euroland to use Sweden as a model - but it's not going to work. The unique thing about Sweden, Norway, Finland, and to a lesser part Denmark is the degree to which thay have managed to depoliticize economic decisions of all kinds. Anyone who believes that French farmers, German factory workers, and Italian train drivers will allow that to happen had best think again.....

I agree that scale has meaning - as does culture. I've worked with a few scandahuvians - and believe me the culture - the very way they think of workplace issues - is radically different than almost any other culture I can compare them with.

[grlzjustwant2havefun]

Via Marginal Revolution:

http://www.digitalnpq.org/archive/2006_winter/friedman.html

Free Markets and the End of History

Milton Friedman, 93, was awarded the Nobel Prize for Economics in 1976.

NPQ | The so-called “old Europe” of France, Germany and Italy has been stagnating with high levels of unemployment. Germany—one of the last bastions of the Cold War Keynesian welfare state—now has a conservative leader, Angela Merkel.

What should be done to get Germany, and by extension old Europe, back on track?

Friedman | They all ought to imitate Margaret Thatcher and Ronald Reagan; free markets in short.

Germany’s problem, in part, is that it went into the euro at the wrong exchange rate that overvalued the deutsche mark. So you have a situation in the eurozone where Ireland has inflation and rapid expansion while Germany and France have stalled and had the difficulties of adjusting.

The euro is going to be a big source of problems, not a source of help. The euro has no precedent. To the best of my knowledge, there has never been a monetary union, putting out a fiat currency, composed of independent states.

There have been unions based on gold or silver, but not on fiat money—money tempted to inflate—put out by politically independent entities.

At the moment, of course, Germany cannot get out of the euro. What it has to do, therefore, is make the economy more flexible—to eliminate the restrictions on prices, on wages and on employment; in short, the regulations that keep 10 percent of the German workforce unemployed. This is far more urgent than it would otherwise be if Germany were not in the euro.....

[joe]

Don,

Just a couple of asides on Norway, Finland and Sweden.

These nations are rich in natural resources. They also have not become part of the euro giving them more control of their monetary policy.

Equally if you do some more digging you will find they are not quite what they appear to be. There are some very good studies on the economies of these particular nations which challenge what is believed.

[Don]

Joe,

Norway, Finland, and Sweden are rich in natural resources. So are the US, Canada, Australia, Russia, Kuwait, and Saudi Arabia. Even Holland had harge petrochemical reserves at one point. Management is important. Perhaps even more important is not to allow 'free' money to take over your economy and system of government. Natural resources should be (at best) a nice bonus. Not the way you really earn your bread.

I think you can find studies on both sides of the question. You can of course find similar studies 'showing' that the US is living on borrowed time and are a bunch of lemmings about to go over the cliff.

Milton Friedman gave a recent interview which touched on the Scandanavian countries which I think is good sense:

NPQ Perhaps the Scandinavian countries are a model to look at. They are high-tax but also high-employment societies. And they have freed up their labor markets much more than in Italy, France or Germany.

Friedman Though it is not as true now as it used to be with the influx of immigration, the Scandinavian countries have a very small, homogeneous population. That enables them to get away with a good deal they couldn’t otherwise get away with.

What works for Sweden wouldn’t work for France or Germany or Italy. In a small state, you can reach outside for many of your activities. In a homogeneous culture, they are willing to pay higher taxes in order to achieve commonly held goals. But “common goals” are much harder to come by in larger, more heterogeneous populations.

The great virtue of a free market is that it enables people who hate each other, or who are from vastly different religious or ethnic backgrounds, to cooperate economically. Government intervention can’t do that. Politics exacerbates and magnifies differences.

http://www.digitalnpq.org/archive/2006_winter/friedman.html

[Rofe]

joe,

I'm tempted to apologize for being pedantic, but then again I think I'll just confront you with a fact.

Finland has been part of the Euro zone since Day 1.

Maybe you meant Denmark. Except for the natural resources.

I'm sure the studies you cite are robust, however.

Cheers,

[joe]

Rofe,

Thanks for pointing out my mistake.

You are so correct about Finland. I realized that as soon as I hit the post button.

One think tank which has done a lot of work on the Nordic model is Timbro. I do not think anyone finds fault with their work other than they do not like the results.

There really do not seem to be a lot of answers there or at least I would not think for Germany. It is like some who think Austria might be a model to follow but Austria is almost a subset of Germany.

Again too you are dealing with scale. In the case scale works against Germany and not in it favor.

[Don]

That we agree on, joe. As I have written several times, the 'nordic model' won't work in Germany, France, or Italy. There is some reason to think it works in the Scandanavian countries to some degree. Or at least did.

[James]

@Rolf

Nor would Ireland be considered adversely effected by it's entry into the EMU. However, growth in this country is strongly due to:

1) Massive infrastructure investment by the EU
2) High standard of education and hence
3) Foreign direct investment coming from the US/Canada/UK
4) Changes in Irish tax laws to entice #3
5) Fluid workforce

It has been said that it is easier to get a camel through the eye of a needle than to reform the German economy.

[grlzjustwant2havefun]

Via Bros. Judd:

GERMAN BRAIN DRAIN

Sick of Bad Pay, Doctors Flee Germany

By Udo Ludwig

German doctors are packing their scalpels and seeking their fortunes abroad, lured by the prospect of far higher pay and driven away by stifling bureaucracy in their country's health service.

http://service.spiegel.de/cache/international/0,1518,399537,00.html

[LC Mamapajamas]

@Don: Clinton didn't have a rural Arkansas accent, though I'm sure he could and did fake one as needed. He grew up in Hot Springs and spent years in places like Georgetown, Oxford, and New Haven polishing his accent and behavior. Bush never did. I'm not criticizing Bush for that as I believe there are qualities far more important than polish for a US president. Nevertheless Clinton's polish did help him to be a more effective President than he otherwise might of been, and I recognize that.

And this is something I take issue with. Yes, I agree that Europe often mistakes accent for something that actually matters. However, what Clinton had was glibness, something he shares with many a used car salesman. That isn't necessarily a good thing.

I think Europeans have difficulty understanding that in the US, we often find Bush's tendency to twist words and mix metaphores as an endearing trait after eight years of Clinton's "nuance" and glibness.