Reid,
I agree that competitive challenges from China pose a huge threat. And I certainly agree that the economic challenge of the next 50 years is to move workers "around the corner" to jobs that persist in a thoroughly automated world. Nonetheless, I find these two comments hard to follow.

The right response lies not in income redistribution, trade barriers, the projection of military power, or even a national strategic policy.

American workers ought to be supported by reliable public benefits as they create start-up's, move to new jobs in new firms, and intensify their personal commitment to entrepreneurship. They should have very cheap access to college educations, easy credit for starting firms, portable and individualized savings accounts, cheap and universal broadband communications.

The first of these quotes is at odds with the second: you can't pay for the second without a solid bit of taxation and government spending. Call it what you like, this is moving wealth from richer people to poorer people. You seem to be proposing a different delivery mechanism, but I'd ask this: excepting welfare/EITC because of its relatively small proportion of government expenses, when has our the government has wholesale engaged in giving money to people? So what we're talking about here is still about having the government deliver or pay for the delivery of critical public services to strengthen the "commons" and the middle class. In general, I believe exploring different ways to deliver that redistribution is an excellent idea, and something that progressives of all stripes should agree on. But let's not fool ourselves that it's not a commitment to government as an agent of redistribution. Also, you left a critical public service out: healthcare. The entrepreneurial climate you describe is profoundly stymied by the financial risks associated with health problems. Few things would liberate workers from their current jobs like universal and portable health care - this is far more important than college or access to credit. If you want a nation of entrepreneurs, keep em healthy.

I also take issue with this:

Small firms are not the end state of job creation: they are where big firms come from and it's the success of new big firms in new global markets that will determine the opportunities of American workers and the future of the American Dream.

On the subject of large firms versus small firms, a statistic I've never seen, but would find very interesting is this: what fraction of growth in large enterprises is organic/internal vs. via acquisition. My instinct is that it's much more acquisition-driven than strictly organic. Innovation really happens in SMB's. Second, the economies of scale inherent in an industrial economy are not nearly as clear in information and technology-driven economy. Large firms' standout advantage in this context is around raising money and assuming risks. And who's to say that American SMB's will not be acquired by large foreign (including Chinese) enterprises? I think an absolute dedication to free trade needs to be offset by consideration of the very real economic and security risks of not allowing businesses or even entire industries to be taken out the country. Self-sufficiency is often enough of an economic goal to merit whatever wealth sacrifices come from trade barriers.

So your model for future US economic development is the Telecom Act of 1996 and the stock bubble?

According to Common Cause, the results of that legislation have been vastly increased media concentration, a 50% increase in cable rates between 1996 and 2003, a 20% increase in local phone rates (not to mention a tremendous reduction in telecom services to poor urban and rural communities) and giving away for free $70 billion worth of digital TV licenses to broadcasters for free.

And you want to do this for health care and energy?

people acting together on the Web is the secret of survival for the American Dream

You're bad! You should stop being mean to Reed, just because of facts and things like that.

Don't you know that it people act together on the web, and I don't know, sing 'kumbaya' or something, then the American dream will survive? Follow Reed.

And oh yeah, remember to clap your hands and say you believe in fairies, or Tinkerbelle gets it!

There really is a different standard for white men, isn't there.

Basically, if you're a white guy, with a clean shirt, a necktie and good haircut... that's all thats needed.

Amazing.

I see it over and over, but it's still amazing every time.

...

China's... state-supported, mostly unplanned...

So its 'accidentally' state supported? The chinese government was walking along, tripped and it turned out there were corporations under it? Or something? It strikes me that 'unplanned state support' is something of a miracle, sort of like a two headed calf, but one of those heads being an aardvarks.

If most American firms do not defeat their Chinese rivals in the American market, their American employees will be worse off.

And if the sun does not shine, it gets dark. There's lots more of this kind of thing from Mistah Reed.

The right response lies not in income redistribution, trade barriers, the projection of military power, or even a national strategic policy.

A national strategic policy is Baaaaaad!

Energy and health care are the two big sectors that should be opened by law to competition from new entrants and responsive entrepreneurship from incumbents. We need a Telcom Act of 96 to be written for those industries in 2008.

Except, apparently, when it isn't.

Speaking of Energy didn't we already deregulate Energy back in the 80's and 90's. Isn't that where Enron came from? Rolling blackouts? The big power failure of 2004?

Methinks our Mistah Reed is prescribing a cure which has already cause considerable suffering to the patient.

As for Health Care, at its current level of consuming 15% of the GDP, whereas most eurosocialist nations are at 5 to 10%, I can only assume that our hero is advocating either socialized one party medicine, or to privatize and deregulate the system even further... Can America stand a partial and selective health care system that consumes 20 or 25% of the GDP? Yikes.

But wait...

There's nothing harder than passing and implementing laws that open closed, incumbent-dominated, change-resistant markets. But the architectures of law, technology, and leadership all have to be redesigned so as to be biased toward open entry, access, and competition.

But that's not a national strategic policy. No sir!

Ah well. But one thing we can say is that income redistribution is a bad thing. Or at least, income redistribution is not the way to go!

American workers ought to be supported by reliable public benefits as they create start-up's, move to new jobs in new firms, and intensify their personal commitment to entrepreneurship. They should have very cheap access to college educations, easy credit for starting firms, portable and individualized savings accounts, cheap and universal broadband communications.

Or maybe not.

Perhaps Mistah Reed is thinking of some form of reliable public benefits, cheap education, start up credit, and communications subsidies that do not amount to a redistribution of wealth.

Perhaps these things will be delivered by the Easter Bunny at no cost. You never know.

Seriously.

The Internet is the medium for firm creation and entrepreneurship in the 00's and future decades. It encourages the formation of groups and collaborative activities that can manifest and strengthen the culture of entrepreneurship.

Mistah Reed also says 'save your polyester Disco clothes, because flared pants are going to make a comeback, too!'

Not government but people acting together on the Web is the secret of survival for the American Dream.

Right on, Bro! After all, government can't do anything, its people power! Well, not people power cause that sounds vaguely communist, but you know what he means. The point is that its that Australian pluck and determination, and a few cans of 'Roo-Away' that will pull this country through (SCTV reference, don't worry about it) that will pull this country through. It's all about the Libertarianism man, Randy Weaver is the future.

But the point is that Government is completely useless, except for supporting American workers by providing reliable public benefits as they create start-up's, move to new jobs in new firms, and intensify their personal commitment to entrepreneurship, and for providing very cheap access to college educations, easy credit for starting firms, portable and individualized savings accounts, cheap and universal broadband communications, and of course passing and implementing laws that open closed, incumbent-dominated, change-resistant markets so that the architectures of law, technology, and leadership are all redesigned so as to be biased toward open entry, access, and competition, including opening markets to entrepreneurship, to start-up's, to experiment, chaos, collaboration, confusion, and creative destruction, specifically opening by law energy and health care to competition from new entrants and responsive entrepreneurship from incumbents... while at the same time avoiding income redistribution and a national strategic policy.

Hmmm... maybe that should be 'mostly useless', or 'somewhat useless', or 'useless if you squint with ideological goggles and have a concussion.'

But you know, apart from those minor things, Government has no role. It's just individual pluck and determination.

Uh huh.

Right.

I see.

I should note that these conclusions came as a surprise to Mistah Reed. They were a mighty big shock and awe you might say. He was surely bamfoozled and conflabbergasted. Yessah, it surely was a surprise to him.

...

Okay, let me be as fair as possible to read. Quite often, in making complex arguments, it is necessary to start by making very simple and clear observations which border upon being trite and obvious... as Reed seems to be doing here. Carefully setting out first principles, even obvious first principles, is a sound way to proceed. So, I guess I shouldn't really fault him for that.

And the world is a very complex place, so quite often phenomena feature concepts that contain apparent contradictions - 'Jumbo Shrimp' 'Little Big Horn' 'Military Intelligence' and 'Unplanned State Support.' The cognitive dissonance may be arresting, but there may be an underlying coherence.

Likewise the cognitive dissonance of Reed's calling for massive state intervention in and direction of the economy, a national strategic policy and large scale income redistribution... while at the same time claiming that these things are not the answer, may be explainable and coherent in the framework of a larger and more systematic thesis. Or may simply amount to Reed defining different things differently.

The emphasis on internet telecommunications, energy and health care may not be a sign of looking forward to the past and being hopelessly out of touch, but perhaps a recognition of untapped evolutionary potential in these fields, and the need and opportunities to solve the systemic problems therein.

If nothing else convinces you, it strikes me that nobody could spend three years working on a book and not have something useful to contribute.

So I'm prepared to give Reed some benefit of the doubt. So don't let this stop you from buying his book. In fact, I'd encourage you to buy his book.

All that said, its good to be a white guy.

I'm a free trader but am surprised myself at seeing Reed so fully embrace market solutions. I thought that the whole idea of free trade involved government policy in other areas to regulate markets, to sustain competetiveness, and support those individuals who lose along the way.

And knocking incomes policies in this context is simply gratuitous, since growing inequality in America is a serious issue in its own right, as well as not one due exclusively to foreign competition, any more than we can always conflate the national debt with the trade deficit. (Hint: guess which one the Bush tax cuts for his wealthy cronies ran up soonest.) 

John 

http://www.haberarts.com/

The critiques of the details of what Reed proposes are legitimate ones.

But... 

Reed is right on the money on this point...

Income inequality in the United States is at record levels and is increasing. If national income goes down at the same time that inequality increases, the United States will over time cease to think of itself as a middle class nation. It will be riven by class conflict. Few will continue to believe in the American Dream. Wise political decisions will be hard to come by. Free trade will be at risk; and if the American reaction to these developments is to erect tariff barriers or to use war to try to assure export markets, then national income will decline even faster and internal conflict will worsen.

Unions are being "sacrificed" at the altar of the almighty "free market".  Our employers are not giving us health benefits and covering prescription costs in order to remain "globally competitive".  And eveything in our economy is costing more even though it costs less to make in quasi-slave labor countries like China.  We end up paying more while making less.  I am no economist but it is obvious in my mind that something needs to be done or we (the American people) are going to be in deep do-do...but there is no "shared burden", the rich get what they want and for everybody else it is "everybody for themselves".  Eat or be eaten...the dialogue needs to begin to figure out what to do before it is too late.

Very true, and even a broken clock is right twice a day.

But the fact that Mr. Hundt has been courageous enough (and that's not sarcastic, he is giving voice to an issue that is often hidden or avoided) to acknowledge the problem does not in itself mean that his 'off the shelf' solutions are meaningful.

Indeed, indications are that many of his solutions helped to create that problem.

Perhaps the true value of Mr. Reed's post is not in its solutions, but in its 'wake up' call.

I agree with most of what you have to say Daniel...

I think (gasp) that we need more socialism in our culture.  Free Markets and Capitalism is amoral.  It is all about making money and the notion of the "public good" doesn't jive with the tenets of capitalism.  Part of the problem is our government has slanted the rules in favor of the US corporations.  Let's say in the global economy there are pharmacuetical companies that can provide drugs to the American consumer at a much lower cost then the US companies are willing to supply those drugs.  Will our markets be open to that competition?  Or will the domestic companies be allowed to continue to reap the windfall off the American people, while supplying drugs to the rest of the world at more competitive prices?

I am all for freedom, including in the marketplace.  But we don't have freedom in our marketplace.  Right now we are just looking for capital access for our corporations to other markets when the term "free markets" is used. 

We do have a problem with India and China.  It would be less of a problem if those benefits are passed on to the American consumers...but in terms of our policies it isn't about benefit to the American people but only to American corporations...that ain't the freedom of a "global economy".  The markets are far from free from what I see.

That is my take...but again I am not an economist.

Another example of why we are losing in the global economy...insurance companies.

I used to work in "the industry" at GenRe (Warren Buffet's General Reinsurance).  The insurance industry screams about needing tort reform...but they love the big verdicts that go against their insureds.  It gives them license to jack up premiums to astronomical levels, legalized extortion.  They love when disasters strike because their insureds can be charged more because of "increased risk" they allegedly pose.  When one of their insured hospitals or doctors get hit with a big malpractice verdict they jack up med malpractice premiums on doctors, then they jack up premiums on individuals for their medical insurance.  They moan and bitch, but they make money no matter what.  There is a joke in the insurance industry that "Insurance" is just as good as making book because the insurers never lose money, just like the bookies.  And the beauty of it is that it is all legal.  The only way to make health care affordable is to take the insurance companies out of the picture or the costs will continue to sky rocket...which is a large drag on the average American's economic health and our national economy.

My point being that threats to our economy are just as much internal as they are "external"...

The tired anti-government rhetoric is even more puzzling when you think about the range of gov't policy changes the author is proposing: additional public investment in R&D and telecom, upgrade science and math education, cheap credit for small businesses, sector-specific policies for telecom, energy, health care, new social policies like portable pension plans, guaranteed health care, free education, wage insurance, reform of intellectual property law (did I miss anything).

Sounds fine to me, but you're not going to get there with CATO-style arguments.

Why not instead emphasize the importance of open, democratic government under the rule of law as a crucial institutional support to free individuals to pursue their dreams, while rebuilding the American economy at the same time?

Damn you nailed it Hoppy...

I live in the northeast and all our manufacturing jobs have gone south...literally and figuratively.  But now even the jobs that were moved south are being sent overseas.  All that matters is that the shareholders and other investors make money.  But what is happening to that money they are making?  Is it being reinvested back into our economy like we were told it would?  Hell no.

Ironically CT used to be the center of the insurance universe but even those jobs are being exported to other parts of the country.  Your points about the insurance industry are right on the money.  There are agents/brokers...primary companies...reinsurers...retrocessionaires...etc, etc, etc who all get a cut.  And what are they producing in terms of economic good?  They are just syphoning off more and more money from the economy for their shareholders while producing nothing for the economy.

The energy industry is another example too.  The companies who supply our power are given monopolistic control of markets basically setting rates however they see fit.  And then they look for rate hikes to improve their infrastructure instead of investing in infrastructure with their own capital.  Gas and Oil are the same way.  In fact their lobbyists have opposed CAFE standards and exploration of cheaper fuel sources, more effective engines that will improve milage vehicles get and even mass transit in the past.  They have good lobbyists...

But when all these examples are woven into a tapestry the picture becomes very clear what the problem with our economy is.  And the reason China/India is a threat to our economy is because our corporations are making money in these countries...so I think blaming China or India for the state of our economy is building a strawman.

I think a good healthy dose of socialism is just what this country needs but alas your "commie" comment is right on the money too.  But there needs to be balance between corporate profits and the public good...

I am not sure what you mean about the "benefits being passed on to American consumers." Isn't that why Walmart is the largest retailer in America? Americans are the ultimate consumers.

Sure Walmart is giving the American consumer products at a lower price.  Or are they?  The stuff they are peddling is being made at a fraction of the cost that it used to cost but the retail prices do not fully reflect that.  They have basically a monopoly on retail in the US which is anti-competitive.  And the cost of all the under-insured and un-insured Americans is being passed on to all of us in terms of our taxes having to be used to subsidize those people and in higher medical insurance costs.  So I am not sure that there are savings for the American consumer courtesy of Wal-Mart...

Whatever the question, neoliberalism is the answer. Duh.

The American working class is fucked. The Democrats won't even try to help.

Not government but people acting together on the Web is the secret of survival for the American Dream

"Secret survival for the American Dream" is some over the top rhetoric, but I do think it's a fair point to make that Web 2.0/social computing and the economics of "The Long Tail" are opening up new business models for the future. 

The real question I have from this post is the notion that we need a "Telecom Act" for the energy and health care industries. That law resulted in an even greater concentration of ownership within the media industries, and helped turn news departments from public servants to profit centers. I don't see overall how it has served our interests.

News Corp. made out well, though.

Dissent Protects Democrac

On point. The telecom act was a nearly unmitigated disaster for the general American public, in that it led to concentration and actually detroyed competition in the industry, with little or no government oversight. As a side effect rational discourse and public interest in newcasting has almost completely disappeared. Same with energy deregulation which gave us a fake energy crisis in California and Enron. Taking this approach to health care is exactly what we do not need.

The problems we are facing do not come from too much government interference, but rather a lack of rational regulation and tax and social policies that do nothing to foster and protect a middle class, which is fast disappearing. The solution for these problems lies in, among other things, reinstating a fair tax structure wherein marketplace distortions can be ameliorated by redistribution and things that the market has proven it is not a very good vehicle for providing, such as health care, can be handled by non profit motivated governmental organizations.

So called free markets are the new feudalism, and we are all on the way to becoming serfs. Globalization is not the answer to anything except increased corporate profits which do not filter down to the average worker. Corporate profit should not be the goal of society, rather the welfare of its citizens should.

Corvid

It's not a matter of "cowering" but rather of playing the game with some smarts and concern to avoid hollowing out our economic and technological base. Most indicators point to widening income disparities in this country, with those who benefit from globalization running off with the bank while the most of rest of us watch our household incomes and security go slowly, slowly down the hole. But we're supposed to be happy because we can buy jeans and electronic gadgets in greater bulk than we could otherwise?
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Japan and China are both very smart and aggressive players. I don't begrudge them this. And it's not that we're stupid. No one (including the Japanese) now beats Americans at finance and logistics--extending the supply lines as far, as cost effectively and creatively as possible. This is the very reason that globalization is accelerating so smoothly. But should we be so eagerly flinging away our ability to function as a coherent political and economic entity? Is it really such a hot idea to concentrate so much of a nation's talent and wealth in the impressive but narrow task of aggregating the brute labor and technological prowess of unstable, illiberal countries directly to the detriment of our own manufacturing and technological base (albeit to the short-term benefit of consumers)?
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Other people are indeed making competition hard. And we need to compete harder, no disagreement there. To do that, though, we can't just conjure up the scientists and engineers we need unless 1) we do something about schools and 2) provide a place for the newly minted scientists and engineers to be gainfully employed when they finish they're fabulously expensive educations. And you can't do that when you're outsourcing tasks and functions and importing brains and products.
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In the end, my interests are narrower than yours, I suppose. I first want to see a restored, vibrant United States and a thriving Western world that neither exploits nor burdens nor depends on others. Then I'd like to see the seeds of democracy and prosperity dispersed to those places without them that would like to duplicate what we've accomplished. I am a partisan of Western Civilization but bear no hostility toward others.

There is very little of the econmic situation between the US and China that is truly free, and i feel that your analysis blaming free markets for Americas' woes is wrong.

 First and foremost, there can be no free market if labour is restrained by international borders, but capital is not,  This is largely the cause of capital flight to cheaper labour markets.  Almost as important as a cause of non-free capitalism are international corporations whose sales are greater than the majority of countries'  GNP, and the fact that these NGO entities, are largely dealt with as one person in courts of law.  A market can never be free with non human entities wielding this much influence over them.  This leads to the present state of crony capitalism.

I don't have solutions, but just blaming 'free markets' for the woes is disingenuous.