The United States is becoming a Third World Country, and only aggressive industrial policy, reformed education and new uses of taxation can save it. In capsule, that provocative view is put forth by Edward Luttwak in The Endangered American Dream. Best known as an international security expert, Luttwak exhibits his usual high-octane candor in examining domestic issues. When it comes to remedies, however, he is often short on specificity and appropriateness.
Luttwak's list of American shortcomings is all-inclusive and accurate-trade and budget deficits, inadequate schools, huge income disparities and stagnating incomes. He attributes the relentless U.S. slide toward Third World status to the continued decline in per capita GNP, the deliberate undervaluation of the dollar since the 1985 Plaza Agreement and the misallocation of capital. He blames, in particular, the absence of "patient capital"-interests that don't seek short-term profits-and foreign takeovers of U.S. companies in the 1980s.
Luttwak points to what he describes as "self-inflicted wounds," such as huge budget deficits, financial deregulation, a collapsing public education system, too many lawyers and failing social programs. In harsh, populist terms he attributes the increase in crime and the decline in public education to the increasing concentration of wealth in fewer hands.
It is unfortunate that Luttwak paints these social and economic issues with such a broad brush. It is hard to find the causes of the ills he describes and to reconcile them with his suggested remedies. For instance, he claims that most of our economic ills are self-inflicted, yet he clearly attributes many of them to unfair foreign competition. He advocates higher pay and higher benefits, following the example of German economic success, yet recognizes that German factories are being transplanted to the United States because of these policies. He blames short-term speculation for many takeovers and LBOS without recognizing that some of the most egregious cases (such as RJR Nabisco) hinged on huge loan commitments from the very source of "patient capital," namely Japanese banks.
REMEDIES-REALISTIC AND OTHERWISE
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