James Allen Walker for World

The next 100 years

Q&A | Scholar Arthur Brooks looks beyond next year's election and toward the future of American free enterprise

Issue: "2010 The Year Ahead," Jan. 16, 2010

Arthur Brooks is the president of the American Enterprise Institute, one of Washington's leading think tanks. His books include Who Really Cares: The Surprising Truth About Compassionate Conservatism (2006) and Gross National Happiness (2008).

Q: Which economic predictions regarding 2010 should we trust? The game is completely open on what's going to happen. We all know that we're in the midst of the most severe recession in the past 50 years, and that economists didn't predict it. If you look back at the summer of 2008, you'll find the Wall Street Journal poll of economists saying we were going to experience in 2009 2.5 percent positive economic growth and 5.5 percent unemployment. It didn't exactly turn out that way, did it? It just means that nobody predicted what was going to happen. That means, of course, we can't predict going forward.

Q: Fair enough, but surely our runaway federal spending will have an impact. There's a possibility, of course, of another dip in the recession, and that would happen because American dollars had become so weak that there's a tipping point and the Chinese and others decide they don't want to be in our currency anymore. How do people buy American dollars? We have debt. The way that we finance it, to a large extent, is that we sell bonds. We're borrowing money from foreigners, but they have to show up to these auctions to buy them, and it's not unrealistic that sometime in the middle of 2010, the Chinese won't show up to buy our bonds. And if there's nobody to show up to buy them, you can't fund runaway spending the way that you did before, and that would create severe macroeconomic problems.

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Q: How's our economic reporting? We have lots of things that we're not even reading about in the press anymore. The commercial real estate market, which is five to six quarters behind the residential real estate market, is imploding. It's now more than 30 percent down nationwide in its value. What happens then? It means that a lot of people are not going to renew their leases on offices, and that's going to make a whole lot of corporate landlords go broke. We don't know if that would cause the next wave of the economic crisis.

Something else you don't read about, because it's all esoteric, is a policy called forbearance. We have lots and lots of toxic assets on the balance sheets of banks, and we're pretending they're not toxic. We're not making banks value those things that the market rates. If we did, a lot more banks-hundreds more banks-would go broke overnight. Sooner or later we're going to have to value assets that banks have at something like market rates.

The White House is banking on the idea that we're going to get pretty strong economic growth going forward, and we're going to grow our way out of this thing and it's going to be a distant memory within a year. But we just don't know if that's going to be the case.

Q: It's superficial to look at the stock market and say, "It's way up from its dismal lows," because the deeper indices are shouting trouble. Absolutely. Macro-economically we are in extremely precarious state. We could have another bad shock, and probably at best we'll have weak growth. Generally at this point in a recession, which is to say after the recession is technically over, you have 4 and 5 percent annualized economic growth for a couple of quarters later. We don't. We had a program called "Cash for Clunkers." This is the Cash for Clunkers economy. It's astonishing that we're trying to base the evidence of our success on the government buying old cars.

Q: Much of the fall was spent debating healthcare. Some people say that trip wasn't necessary. It's senseless to argue that the current American healthcare system doesn't need reform. It does. It needs reform for one really big reason and one not-so-big reason. The big reason is that a lot of people don't have healthcare coverage, and in an already rich country, that's not good. We can argue about the numbers-how many are illegal immigrants, how many are legal-but millions and millions of people in this country, which is the richest country in the history of the world, don't have basic healthcare. For a lot of people like me that's bad stewardship. So we want to fix that. We need reform.

No. 2 is that healthcare is really expensive and we have double-digit inflation. That's less of a problem because in a rich country we get to decide whether or not we want to bid up the prices of certain goods and services. Cars are a lot more expensive than they used to be, too, because they're much better products than they have been. We have wonderful healthcare in this country, and of course it costs more. Still, the fact that it's so expensive is a problem. So we need reform.


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