The Myth of American Decline: An Interview with Author Daniel Gross

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You don’t have to look very hard to find proof that over the past five years Americans have evolved into a very pessimistic bunch. Far more of us think the country is headed in the wrong direction than think it’s on the right track. Every month there is another book published about America’s precipitous decline, and what we can do to change course. Perhaps most tellingly, a majority of Americans erroneously believe that China — and not the U.S. — is the world’s leading economy. A combination of an economic malaise, stagnant or non-existant growth in wealth and wages, and an acrimonious political climate have combined to cause Americans to vastly overestimate the problems of our admittedly troubled economy.

Enter journalist and author Daniel Gross’ latest book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy. Better, Stronger, Faster attempts to dismantle the common arguments for why America’s economic and political decline has already begun.  The book would have been a pleasant read for no other reason than it represents a change of pace from the constant despair that dominates the political discourse in America today, but it has more charms to offer than simple contrarianism. Gross systematically and cogently lays out his argument for why America is still top dog in the global economy, and why we’re poised to capitalize on our strengths as the world becomes wealthier and more interconnected.

From the federal response to the Panic of 2008, to consumer deleveraging, to corporate America ramping up efficiency and productivity, Gross presents his case for why the conventional wisdom about the American economy is wrong. Sure the bank bailouts were anathema to free-market-loving Americans, but were you aware that America’s intervention was much quicker and less expensive than any other advanced economy’s? Yes, American consumers went on a debt-fueled spending binge in the years leading up to the crisis, but they’ve also been quick to pay down a lot of that debt and start saving once again.  And in the face of new economic pressures, corporations have been remarkably deft at slimming down and shaping up for a new era of fierce global competition.

Not that Gross believes it’s all sunshine and roses for the American economy. He explicitly calls for Congress to get its act together and start seriously investing in infrastructure – something that used to be a bipartisan no-brainer. In a recent interview, which has been edited and condensed, I asked Gross about some of the other challenges the American and global economies face in years ahead.

TIME: While it is true that the global economy isn’t a zero sum game,the gains made in recent generations by workers abroad have, to some extent, come at the expense of American workers. Are you as optimistic about the fate of the average American worker as you are about the American economy as a whole?

I see tough times ahead for American workers, but the notion that things were great and now we’re doomed is wrong. Unemployment used to be 5%, but it was at 5% because we had this insane housing bubble where 45% of the jobs created in the private sector from 2001 to 2005 were related to real estate or finance. Those were not jobs; those were borrowed bubble jobs. Things have actually been difficult for workers for the past thirty years. If there’s this war between management and labor, management has been kicking the crap out of labor going on a few decades now. And that has to do with globalization, it has to do with the decline of unions, it has to do with policy from both parties, but in particular Republicans. That’s not something that is easily reversed with four quarters of three percent growth. But if our economy grows 3% for several years, the slack in the labor market will get taken up, and then people will be in a better position to bargain for better benefits and wages.

It also has to do with social norms and what is expected and what is acceptable from companies. Corporations have had a near-death experience, and they came back. They’re really very lean and they’re kicking a lot of butt, but for the recovery to really get going they’ve got to give it up. They’ve got to start paying dividends if we want the stock market to continue to do well – we’re not going to get 15% earnings growth for the next couple years, but many of these companies have the capacity to increase their dividends. They’re going to have to give it up on paying taxes. And they’re going to have to start giving it up on wages. This notion that it’s okay to pay people 8 bucks an hour, 9 bucks an hour while your CEOs and top managers get paid a ton, that should not be okay. Unfortunately, our system has been sending the signal to them that it is okay, and they’ve internalized that. It has to do with policy and norms. It goes back to the famous example of Henry Ford saying, “I want to pay my workers enough so that they can afford to buy the products I make.” Imagine if more people said that.

TIME: What finally gets companies to flip that switch?

First of all, sustained growth and less slack in our labor market. Secondly, as the rest of the world gets richer, the rest of the world will become a more expensive place to do business. In manufacturing for instance, labor costs aren’t the only input. There are inventory costs, transport, and security to name a few. So when you figure all those costs in, the differences between the Southern U.S. and the coastal parts of China aren’t so great. The process of forcing workers into competition with ever-cheaper labor is running out of steam a little bit. We’re not going to make t-shirts here again, but at the margins, jobs will start to come back and those types of jobs tend to pay better than service jobs. This isn’t enough in and of itself to solve the employment problem, but it’s an example of how global growth will help America too.

TIME: Are you concerned about the ability of the environment to sustain the kind of global growth that your book envisions?

I am concerned about the environment, but what’s the alternative? Are you going to tell the people in Sub-Saharan Africa that they have to live off two dollars a day for the rest of their life and have an infant mortality rate that’s fifty times what it is here and a much lower life expectancy? We have the tools to grow in an environmentally responsible way. In the U.S. emissions actually fell last year. Why? It’s not because our economy shrunk. It grew. It’s not because industrial production declined. It grew. It’s not because we had some very sophisticated carbon-pricing Kyoto accord, we don’t have that. It happened because natural gas is displacing coal to a very large degree in electricity generation and because the typical car sold today is 15% more fuel efficient than the typical car sold 5 years ago, and people have been focusing on efficiency.  Our economy grew, we added several hundred billion new dollars in economic activity while emissions declined. And it happened without some major, successful policy. So it’s doable.

TIME: You seem take the attitude that the Panic of 2008 was actually a wake up call that the American economy needed, and we’re responding well to that call.

It’s like you smoke two packs a day, and you think that you should stop. One day you have a heart attack and you’re near death and you’re in the emergency room and guess what? You’ve stopped smoking. And by the way, because you’re not spending $1,000 dollars a day on cigarettes, you have cash to spend on keeping current on your debt and you’re more healthy. And I think that’s what 2008 and 2009 was for a lot of people and companies.