Terminating American gridlock

The pressing issues of excess debt, high unemployment and anemic economic growth have generated pessimism throughout the Western World, dividing both our governmental leaders and the public at large into warring political camps.

Right- and left-wing ideologues – in America are talking past each other in a continual “Dialogue of the Deaf.” They have insulted our intelligence and created stifling policy gridlock in Washington.

Fortunately, all is not yet lost. In my new book, "American Gridlock – Why the Left and Right are Both Wrong," I demonstrate how we can end this pointless dialogue and, at the same time, escape the current gridlock via new policies that work.

Specifically, I identify five key challenges the nation now faces and derive win-win strategies for meeting each — strategies that transcend the traditional left/right divide and render it irrelevant. These challenges are:

1) Avoiding a “lost decade” marked by permanently high unemployment;
2) Averting eventual national bankruptcy due to exploding health-care costs.
3) Preventing future “perfect financial storms” like the one that triggered the global depression in 2008.
4) Standing up to “thugocracies” that use currency manipulation and unfair trade policies to take advantage of us.
5) Confronting the increasingly heated debate over “fair shares” of wealth and income – or “Distributive Justice,” as the philosophers call it.

Without doubt, these are difficult issues – but it is possible to derive solutions to each, solutions that transcend stale left/right ideologies.

The key is to apply deductive logic in identifying wholly new policy solutions – solutions based on new and unfamiliar types of logic such as game theory and the economics of uncertainty.

This method stands in stark contrast to today’s more common approach, based on bastardized inductive logic in which data are cherry-picked to support pre-existing policy prejudices.

As an example, my analysis deduced that there is only one strategy that will prevent this decade from becoming a “lost” one defined by stagnation and high unemployment. This is to adopt a new Marshall Plan, investing in a variety of large-scale infrastructure projects – not mere “pothole filling” as is currently the fashion.

The catch is that these projects must be fiscally worthwhile, being funded only if independent experts certify they will earn a positive return on capital invested.

This stipulation guarantees that these projects will more than return the funds borrowed to finance them. Any short-term deficits they give rise to are thus “good deficits.”

Today’s heated debates over deficits consistently ignore this distinction between good and bad deficits. The former result from borrowing for productive investments that will pay for themselves rather than burdening our children with future debt. Bad deficits of the kind we have accumulated in recent years do not pay for themselves.

Another policy challenge lies in constraining mushrooming health care expenditures. Medical costs currently account for 18.3% of GDP and are projected to soar to 35% or more by mid-century.

Happily, this crisis can also be averted by adopting a single over-arching policy that satisfies the following three goals of health care reform:

1) Greatly expanded access to health care (in accord with ObamaCare);
2) Major increases in the supply of health care services (not in accord with supply-lite ObamaCare). 
3) A significant and ongoing reduction in total health-care expenditure as a share of GDP over time (a goal never previously proposed as it would seem too much to hope for given the first two goals).

The policy required to satisfy all three goals is to shift outward the supply curve for health care services faster than the demand curve shifts outward – a process I detail in my book, proving its validity. In short, I show exactly how we can have our cake and eat it too on this all-important issue.

With respect to preventing future “perfect financial storms” from ravaging global economies, as happened during 2007-2009, there’s only one “control variable” that can be successfully manipulated: the degree of leverage permitted in the financial system.

Drawing on a powerful new theory of market risk assessment developed at Stanford University, I demonstrate that the damage wreaked by “perfect storms” increases exponentially with greater leverage. Leverage must thus be cut much more than is proposed in current reform proposals.

The fourth challenge lies in more successfully confronting nations, such as China, that repeatedly take advantage of us in negotiations, especially over trade.

This is a many-faceted issue, but one I believe can be resolved in favor of the U.S. through the use of important new bargaining techniques derived from the theories of John F. Nash Jr., whose story was told in the film "A Beautiful Mind."

The fifth challenge is to confront two issues raised by the “Occupy” movements that have sprouted across the globe:

1) The true status of “capitalism,” a creed increasingly under attack. What passes for capitalism today is far different from what Adam Smith and early academic economists meant by the term.

In the book, I clarify these differences, showing how true capitalism can generate faster economic growth and higher living standards than any other possible system. Thus in reining in abuses in real-world capitalism, we must not throw the baby out with the bath water.

2) The concept of a “fair” distribution of wealth – a major dividing point between the left and the right. There are two fundamental norms of fair distribution – “To Each According to His Contribution,” and “To Each According to His Need” – with the capitalist right claiming contribution has primacy and the left traditionally arguing neediness has priority.

At the end of the book, I sketch out a plan for achieving a new theory of justice that incorporates – and, indeed, integrates – the two concepts of relative need and relative contribution.

Only by applying rigorous deductive logic to these five different policy arenas can we transcend today’s Left/Right divide – and, in so doing, offer hope that American gridlock can indeed be broken.

H. Woody Brock is author of  the just released book "American Gridlock." He is president and founder of Strategic Economic Decisions (SED), Inc., a firm that provides economic and financial market analysis to financial institutions, corporations, and investors. Brock was elected an Andrew Mellon Foundation Bicentennial Fellow of the Aspen Institute. Follow him on Twitter (@HWoodyBrock) and on Facebook (facebook.com/AmericanGridlock), or www.AmericanGridlock.com.