U.S. Competitiveness in the 21st Century

Transcript

BERNARD SCHWARTZ: The purpose of this initiative is to challenge a common ideology shared by many an academic economist's viewpoint. Economists and policymakers and many of the media have adopted and made up their minds with respect to many of the big issues that face us today. That common view generally forecasts a decline in America's standard of living, an increasing imbalance in our trade accounts, and an increasing imbalance in the effect of the acceleration of outsourcing with its consequential loss of manufacturing jobs. This common wisdom cites a continuing escalation of our twin deficits, our low savings rates, the crushing liability of social security and pension costs, and the high cost of medical insurance. All of these, in short, may predict America's inability to compete in a new, flat world.

There is an optimistic school of thought, however, that rejects that conclusion as underestimating the strengths of the American society and its economy, its ability to transform science into the marketplace, the advantages of its free capital markets, its mobility of labor and capital, its intellectual property, its inventiveness, and its resilience. On the other hand, the optimists believe our competitors face immense social, political, and cultural challenges which will undermine their competitiveness.

The purpose of the effort that we are starting here today is to examine these issues with an open mind. The debate needs to be informed by answers to questions like: Why isn't our economy behaving as it is expected to? An imbalanced trade account, low savings rate, fiscal deficits as far as the eye can see, driven further by an unbudgeted war, one might expect the combination of these forces would bring about high interest rates, steep inflation, a crowding out of investment resources, and a decrease of business capital investment, but we have not seen these negative results. And, in fact, although there is some creeping up of interest rates and there are some slow inflationary pressures, the economy continues robustly with historically low interest rates, low unemployment, and high cash availability.

We should be looking at new questions that have not been asked. For example, has the magnitude of wealth creation that the world has experienced over the last 50, 40, 30, 20, 10 years, has the magnitude of that wealth creation somehow compensated for the low interest rates in the United States? Have we sufficiently accounted for the impact of transaction velocity in global economics when we talk about the normal standards of applying the economic calculus to our current situation? And just as the policymakers failed in the 1990s to understand the impact of productivity gains because they could not be measured, so, too, we must make sure that we do not fail to take the new issues that are not part of the current economic calculus to see if they have an important impact. It is imperative that our policymakers understand the forces at work and the remedies that are available. The wrong conclusions will lead to bad policy.

I also believe that we are not in a zero sum game, that the American economy has been managing globalization for 230 years, and that a prognosis that "We cannot live beyond our means; we will pay for it, but I don't know when," that is not the answer.

This initiative will bring the resources of the Brookings Institution under the leadership of Lael Brainard to bear on these issues and inform our public debate. It is both important and timely, and I am pleased to welcome Lael and our fellow panelists today to what I hope will be a very interesting discussion. Thank you.

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