9780133829150

If you think the current administration is mismanaging the economy straight towards disaster, you're not alone: so do two top economists from both sides of the political aisle. In Seeds of Destruction, former Bush chief White House economist R. Glenn Hubbard and well-known CNBC commentator Peter Navarro explain why current economic policy is a catastrophic failure. Then, they offer a comprehensive, bipartisan blueprint for reversing the decline of America's currency, manufacturing base, and standard of living - setting the stage for the epic policy debates that will precede the 2010 elections. Hubbard and Navarro begin with a "checklist" of what it takes to be a prosperous, democratic nation - and show why Obama's policies (some of Bush's also) fail on every level. They explain why the activist Federal Reserve and Obama fiscal stimulus policies are doing far more harm than good... why we must restore the U.S. manufacturing base, whatever China says about it... how to transform tax policy into an engine of growth and innovation... how to apply the "tough love" needed to save Social Security, Medicare, and Medicaid... why America must resign the job of world policeman... how market-based solutions can finally deliver real energy independence... how to reform our antique financial regulatory system without imposing heavy-handed rules that cause even more trouble.

Glenn Hubbard, Dean of Columbia Business School, served in the Bush White House from February 2001 until March 2003 as the Chairman of the Council of Economic Advisers and the OECD’s Economic Policy Committee. He also was the Deputy Assistant Secretary of the U.S. Treasury Department for Tax Analysis from 1991 to 1993. His commentaries appear frequently in the “Nightly Business Report,” “Marketplace,” The Wall Street Journal, and the Financial Times.

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Peter Navarro is a business professor at UC Irvine, CNBC contributor, and a widely sought-after speaker. He has appeared on Bloomberg TV and radio, CNN, NPR, and 60 Minutes. His books include Always a Winner and The Coming China Wars. His Web site is www.peternavarro.com.

Foreword . . . xii

About the Authors . . . xviii

Introduction: The White House Plants Its Seeds of Destruction . . . 1

Part I Getting from Seeds of Destruction to Seeds of Prosperity . . . 7

Chapter 1 America’s Four Growth Drivers Stall and Our Economy Stagnates . . . 9

The GDP Growth Drivers Equation . . . 11

GDP Growth Has Been Well Below Potential Growth . . . 12

The American Consumer’s Roller Coaster . . . 15

Where Has All the Business Investment Gone?. . . 19

There’s Too Much Government Spending . . . 21

Net Exports Are a Net Negative . . . 25

Conclusion . . . 27

Chapter 2 How to Lift the American Economy with the Ten Levers of Growth . . . 29

Lever One: Free Markets Free of Corruption and Monopoly Best Promote Growth . . . 29

Lever Two: Free and Fair Trade Helps All Countries Grow . . . 31

Lever Three: Entrepreneurship Is the Linchpin of Long-Term Growth . . . 33

Lever Four: Without Savings, There Can Be No Investment and Growth . . . 34

Lever Five: Without a Stable Banking System and Strong Financial Markets, Savings Can’t Be Transformed into Investment . . . 35

Lever Six: Innovation and Technological Change Matter More Than Machines and Workers . . . 36

Lever Seven: “Human Capital” Matters as Much as Physical Capital . . . 38

Lever Eight: Oil Price Shocks Stunt the Growth of Oil-Import-Dependent Nations . . . 39

Lever Nine: A Healthy Nation Is a Productive and Prosperous Nation . . . 40

Lever Ten: A Solid Manufacturing Base Makes for a Strong Economy . . . 41

Part II Fixing America’s Destructive Duo: Monetary and Fiscal Policy . . . 47

Chapter 3 Why an Easy-Money Street Is a Dead End . . . 49

The Return of Fed Activism . . . 52

The Maestro or a Bubble Maker? . . . 53

President Obama Crosses the Activist Rubicon . . . 54

The Road to American Prosperity Cannot Be Paved with a Cheap Dollar . . . 57

Where Have You Gone, William McChesney Martin? . . . 60

Chapter 4 Why You Can’t Stimulate Your Way to Prosperity . . . 63

From John Maynard Keynes to the Kennedy Tax Cut Revolution . . . 66

Part III Getting the “Big Three” Right: Tax, Trade, and Energy Policy . . . 83

Chapter 5 Why Raising Taxes Lowers America’s Growth Rate . . . 85

Ideological Gridlock Over Broad-based Tax Reform . . . 88

From a “Class Tax” to a “Mass Tax” . . . 91

From Double Taxation to Double Whammies . . . 93

Income Tax Evolution or Consumption Tax Revolution? . . . 95

Meeting on the Middle Ground . . . 97

Chapter 6 Why the Best “Jobs Program” May Be Trade Reform . . . 101

The 2000s: A Decade of Large and Chronic Trade Deficits . . . 103

America’s Trade Deficits Cause Inflation and Loss of Political Sovereignty. . . 104

The World’s Poster Child for the Modern Protectionist-Mercantilist State . . . 104

China’s Great Wall of Protectionism . . . 106

China’s Eighteenth Century Mercantilism . . . 111

Chapter 7 Why America’s Foreign Oil Addiction Stunts Our Growth . . . 125

How Does America’s Oil Import Addiction Harm Our Economy? Let Us Count the Ways . . . 128

Risky Business . . . 130

Moving Toward Forging a Political Consensus on Reducing Oil Import Dependency. . . 132

The Smart Path Embraces Both Soft- and Hard-Path Options . . . 133

The Folly of Energy Independence Redux . . . 136

Achieving a Targeted Reduction in Oil Dependence . . . 137

Why This Proposal Has Economic and Political Merit . . . 140

The Thorny Politics of Oil Import Fees . . . 142

Part IV Good Politics Usually Makes for Bad Economics . . . 147

Chapter 8 Cutting the Gordian Knot of Entitlements . . . 149

The Imperative of an Economic Rather Than Accounting Solution . . . 151

Why Social Security Is Easier to Fix Than Medicare and Medicaid . . . 153

Saving Social Security in Two Easy Pieces . . . 154

Closing the Social Security Spending Gap: What Won’t Work . . . 158

Closing the Social Security Spending Gap: What Can Work . . . 161

Forging a Political Consensus . . . 165

Saving Medicare and Medicaid: Mission Impossible? . . . 167

A Flexible and Focused Way Forward . . . 168

Chapter 9 Why ObamaCare Makes Our Economy Sick . . . 173

The Big Health Care Picture . . . 174

Are We Getting What We Are Paying For? . . . 176

ObamaCare Puts the Coverage Cart Before the Cost Horse . . . 178

ObamaCare Provides a Far-Too-Sweet Entitlement . . . 180

Truth or Consequences . . . 181

ObamaCare and the Law of Unintended Consequences . . . 183

Toward a More Market-Driven Health Care System . . . 184

What Can Be Done? . . . 191

Conclusion. . . . 192

Part V The American Economy at a Crossroads . . . 197

Chapter 10 How to Prevent Another Financial Crisis–and Housing Bubble. . . 199

#1: Easy Money . . . 201

#2: Not Enough “Skin in the Game” for American Home Buyers . . . 202

#3: Not Enough “Skin in the Game” for Mortgage Lenders . . . 203

#4: Way-Too-Exotic Mortgages for Borrowers . . . 205

#5: The Mortgage-Backed Securities Meltdown . . . 208

#6: The Collateralized Debt Obligations Credit Rating Debacle . . . 211

#7: A Flawed Insurance Market: Credit Default Swaps . . . 213

#8: Inflexible Bank Capital . . . 216

#9: Too Big to Fail: Last Rites for Financial Dinosaurs . . . 218

#10: A Fragmented and Sectoral Model of Regulation . . . 219

#11: Subsidies for Nonproductive Investment, Taxes for Productive Investment . . . 221

The New Law as the End of the Beginning . . . 222

Chapter 11 How to Implement Our Seeds of Prosperity Policy Blueprint . . . 229

Our Seeds of Destruction Problem . . . 230

Our Seeds of Prosperity Solution . . . 231

Conclusion . . . 248

Index . . . 251

Additional Bonus Material for eVersion Only:

An Interview with Glenn Hubbard About His Time in the White House . . . 269

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Seeds of Destruction Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Properity (paperback)

Seeds of Destruction Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Properity (paperback)

0133829154

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