National Long-Range Thinking

David Brooks had a particularly insightful column today, explaining why Germany's economy is rebounding while America's isn't:

The situation can be expressed this way: German policy makers inherited a certain consensus-based economic model. That model has advantages. It fosters gradual innovation (of the sort useful in metallurgy). It also has disadvantages. It sometimes leads to rigidity and high unemployment.

Over the past few years, the Germans have built on their advantages. They effectively support basic research and worker training. They have also taken brave measures to minimize their disadvantages. As an editorial from the superb online think tank e21 reminds us, the Germans have recently reduced labor market regulation, increased wage flexibility and taken strong measures to balance budgets.

In the U.S., policy makers inherited a different economic model, one that also has certain advantages. It fosters disruptive innovation (of the sort useful in Silicon Valley). It also has certain disadvantages — a penchant for over-consumption and short term thinking.

In the past decade, American policy makers have done little to maximize their model’s natural advantages or address its problems. Indeed, they’ve only made the short-term thinking problem worse, with monetary, fiscal and home-ownership policies encouraging even more borrowing and consumption.

Nations rise and fall on the intertwined strength of their cultures and governing institutions. Despite all the normal shortcomings, German governing institutions have functioned reasonably well, ushering in painful but necessary reforms. The U.S. has a phenomenally creative culture, but right now it’s an institutional weakling.

If you look around the world today, you see that a two-class system is coming into being. Some countries are undertaking fundamental reforms. In those places, weaknesses have been exposed. Orthodoxies have been shattered. New coalitions have formed.

This is happening in Britain, where a center-right government is reining in a government that had spun out of control. It’s also true in Sweden and other consensus-based countries, where there is so much emphasis on consistent, long-range thinking.

In other countries, political division frustrates long-range thinking. The emphasis is on fixing things for next month or next quarter. The U.S., unfortunately, is struggling to get out of Group 2.