On Monday night, Larry Summers and I teamed up to argue with Paul Krugman and David Rosenberg at the Munk Debates in Toronto. The event is hosted twice a year by the Aurea Foundation, a charitable organization, which provides this platform for people with provocative opinions to debate some of the most interesting questions of the day in a venue open to the public. Our topic: "Be it resolved North America faces a Japan-style era of high unemployment and slow growth."
A vote taken before the debate revealed that most of the crowd agreed with Krugman and Rosenberg on the pessimistic side of the question. Before the debate began, 56 percent voted in agreement with the proposition. 26 percent disagreed, and the rest were undecided. The vote immediately following the debate suggested that Larry and I had managed to swing all the undecideds and a few of those who had voted in favor. We narrowed the final margin to just 55-45 in favor of the proposition.
Here's Krugman's brief version of events. (He neglects to include the votes -- naughty Krugman!)
So what actually happened? Here's the full presentation (click "Watch the Debate" on the right).
These were our arguments:
1 - Contrary to popular belief, there is governance going on in the United States. There's partisan acrimony, there's political polarization, and nobody likes Congress. But the first two years of the Obama administration yielded passage of more policy than at any point since the mid-1960's, if not the early 1930s. Sure, the demands of partisan pettiness will ensure that Congress again flirts with disaster (as in the debates over the debt limit, government shutdown, and now the super-committee). But this is theatrics. Much has been and will be accomplished. Compare this with the debates ongoing in 17 eurozone parliaments or the paralysis we've seen in Japan from a Democratic Party of Japan-led government that is governing for the first time in its existence. Or in China, where the political elite knows it has to finally take on deeply entrenched interests within state-owned companies and their enormous bureaucracies in order to reform a system still far too dependent on exports to America, Europe, and Japan.
2 - America has enormous advantages. Compare US demographics with Europe, Japan, or China. Yes, the boomers are retiring, but the US workforce will expand in coming decades as others begin to shrink. (China's will shrink sharply.) Compare opportunities for women and their impact on the ability of the country to grow its way out of difficulty. Consider America's natural resource base-not just in energy, but in food. (In a world where billions are joining the middle class and consuming more calories, America's status as the world's leading agricultural exporter is important). America continues to foster innovation and entrepreneurship. The United States leads the way in the marriage of traditional and new media, and in development of unconventional oil and gas. That's why the Next Big Thing, whatever it turns out to be, will probably come from an American company.
The United States has another important asset: it continues to have advantages related to incumbency. The dollar may not maintain its reserve currency dominance forever, but for the moment, there are good reasons why no one is rushing toward yuan, euros, or yen. U.S. Treasuries are still the safest port in any storm (by far). Within existing international institutions, the U.S. still has more votes and more vetoes than any other country.
3 - Around the world, people still view the United States as the land of opportunity-and as the world's leading economy. Mexican laborers, Cuban dissidents, Saudi princes, Russian entrepreneurs, and Chinese moguls are sending their children for an American education.
4 - Since the debate question was meant to cover "North America" and not just the United States, it's worth noting that what goes for the States goes double for Canada. The country is safe and stable. It has a solid health care and pension system, less vulnerable banks, and massive natural resource stores. It can sell to both America and Asia. In a volatile global economy, that's a big advantage.
These are advantages that Japan did not/does not have. That's why North America is not particularly vulnerable to a Japanese-style "lost decade." Larry and I thought those points held up pretty well. Here's how the other side could have argued more effectively.
1 - They should have left the partisanship aside. Congress has an 11 percent approval rating in large part because loud parts of the Democratic and Republican parties blame the other side for virtually everything. Most Americans don't buy that. And neither do debate audiences when they hear a debater trying to hang so many problems on one party -- in this case Krugman focused almost exclusively on Republicans.
2 - They should have gone after special interests and corporate lobbies. The U.S. governance debate centered almost completely on Republicans versus Democrats. But vested corporate interests aren't politically loyal. Some economic sectors are profoundly difficult to reform because deep-pocketed corporate lobbies are buying votes on both sides. That's a bigger problem in the United States than in any other major developed country. We would have had a hard time countering that argument.
3 - They should have argued that there are big structural problems for the U.S. economy that make this moment more challenging than we've seen before. In other words, they could have argued that "this time, it really is different." Krugman and Rosenberg both did a great deal of this on government spending, but they left the game there. As I've said, American universities and graduate programs remain outstanding. But why not question the quality of secondary education, where the United States is truly starting to lag? Or note obesity rates and argue that Americans who don't take care of themselves won't take care of the country. Or note various measures of a declining quality of life?
4 - They also could have tried harder to say something about Canada. Paul opened his comments, in front of 2,700 Canadians in the Toronto Symphony Hall, by saying he was going to ignore the request to talk about "North America" and focus only on the United States because Canada is "small" and hasn't "messed up enough to be interesting."
Ironically, America's frequent unwillingness to see the world through the eyes of our neighbors might be one of the best arguments Krugman could've made that we're in for a long and bumpy ride.
How would you have voted on this question? And what do you think are the best arguments for and against?