The Price of Prosperity: Why Rich Nations Fail and How to Renew Them

303 Pages·2016·1.67 MB·English

by  Todd G. Buchholz

DEDICATION
To my father, who at age seventeen joined the navy
and sailed with the Seventh Fleet to help defeat
fascism in the Second World War
CONTENTS
Dedication
Preface
INTRODUCTION
The Paradox of Prosperity
PART I: SHATTERING FORCES
CHAPTER 1
The Paradox of Borders, Diapers, and Golf Courses
CHAPTER 2
Melancholia Madeleine and the Paradox of Trade
CHAPTER 3
The Problem with Other People’s Money: Debt
CHAPTER 4
The Problem with Work: Stuck in First Gear
CHAPTER 5
Patriotism, Immigration, and Grit in the Era of the Selfie
PART II: LEADING THE CHARGE
CHAPTER 6
Alexander and the Great Empire
CHAPTER 7
The Orient Express Heads West: Atatürk
CHAPTER 8
Can East Meet West? The Meiji Revolution
CHAPTER 9
Two Audacious Leaders and No Excuses: Don Pepe and Golda
CONCLUSION
Do Not Go Gentle
Acknowledgments
Notes
Index
About the Author
Also by Todd G. Buchholz
Credits
Copyright
About the Publisher
PREFACE
A warm summer night on the Jersey Shore
I am a little kid in the backyard, swatting mosquitoes off my legs and waiting for
Dad to flip a burger onto my paper plate. A neighbor barks to my dad, “If Nixon
wins, I’m moving to Canada.” Several years later, a different guy in our
backyard threatens, “If Carter wins, I’m going to Canada.” Four summers pass.
This time a college dean asks, “You don’t think it’s possible that Ronald Reagan
could ever, ever become president, do you? I’m looking at Canada.”
I figure by now Canada must be a pretty crowded place. But it’s not.
These neighbors were just bluffing, pumped up on mai tais, whisky sours,
Rheingold beer, and whatever else people drank in the Mad Men and the disco
days. The wives were teachers and nurses. Most of the husbands had served in
World War II, Korea, or Vietnam. They were not going to give up the ship of
state. You don’t shield your buddy from bullets at Guadalcanal or Pork Chop
Hill and then bug out to the Great White North the moment the “wrong” guy
wins the vote in the Electoral College.
I hear the same kind of conversations today. Friends tell me about properties
they’ve bought in New Zealand and even Panama, “just in case.” One explained
that if she moves to New Zealand, she and her husband can raise their kids like
it’s the Eisenhower ’50s, though none of us was alive in the 1950s. I’ve heard
this kind of bluffing before. I have written this book because for the first time in
my life, I’m not sure it’s a bluff. In 2015 over forty-two hundred Americans
renounced their citizenship, quadruple the number of a few years earlier, even
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though the State Department has quintupled the filing fee to $2,350. Yes, it’s a
tiny trickle and many did so to avoid taxes, but we should feel a whiff of worry
when anyone willingly surrenders a US passport and the privileges it brings.
Throughout the twentieth century—through world wars and a cold war—the
value of a US passport was incalculable. In 1939 a Jew in Berlin with a US
passport escaped concentration camps. In 1965 a black man in Soweto evaded
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apartheid. In 1979 a Catholic in Leningrad with a US passport eluded the gulag.
Many people have written about poor countries that have fallen apart, for
example, Haiti, Syria, Sudan, and Somalia. But it occurred to me that rich
countries can fall apart, too. Many have. When was the last time you met an
Ottoman or a Habsburg? As I dove deeper into economic history, I realized that
in many cases countries were more likely to fall apart after they reached
prosperity. As an economist, an entrepreneur, and a student of history, I have
advised government leaders on policy and counseled billionaire hedge fund
managers on the latest twists in financial markets. But one cannot understand
financial twists or government policy choices without grappling with the past.
After all, today’s world economy is not simply made up of everything going on
at this precise moment—it’s also made up of everything that has ever taken
place before. In an earlier book on the history of economics, I wrote about three
intellectual giants who opined on the problem of growth: Karl Marx, John
Maynard Keynes, and Joseph Schumpeter. Marx wrote screeds, pamphlets, and a
thick tome on the inherent contradictions of capitalism. He got much of it wrong
and could not grasp, for example, the value of entrepreneurs or of intellectual
property, or the rising standard of living that capitalism would bring to
downtrodden proletarians, who now own smartphones, flatscreen TVs, and two-
car garages. In the twentieth century archrivals Keynes and Schumpeter took the
opposite tack. Keynes forecast that the economy would grow so abundant that by
2030 his grandchildren would be bored, bathed in luxury, and barely needing to
work. Keynes saw the four-hour workweek eighty years before the guy who
wrote The 4-Hour Workweek. Keynes suggested his descendants take up
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gardening and admire lilies in the field. Schumpeter thought that the
grandchildren of wealthy people would turn on capitalism and twist the world to
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socialism. Sure enough, the parents of many ’60s radicals belonged to tony
country clubs and today the Occupy Movement is more popular within Oxford
University than among field hands near Oxford, Mississippi.
But as I plunged deeper into economic history, I became dissatisfied with all
three of these scholars. Marx thought capitalism’s contradictions would
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“immiserate” the majority. He was wrong. Keynes and Schumpeter surmised
that capitalism’s success would bore its beneficiaries and drive them either batty
or to pick up brickbats and hurl them in protest. Their conclusions sound more
like the musings of college dons cradling cognac snifters and less like rigorous
analysis.
In this book I search for the forces that threaten to unravel wealthy countries.
To do so, I will explore the economics and history but also the political and
cultural dynamics of other countries. Sometimes a musical note will carry more
weight than a statistic. I’ll explain how Cio-Cio-San’s high B flat in the second
act of Madame Butterfly tells us more about the Meiji Revolution in Japan than
any data point on the value of imports.
I was lucky—or not so lucky—to have a front-row seat at some of the key
economic and financial crises in recent years, at the White House, on Wall
Street, in corporate boardrooms, and in the halls of academia. In these positions,
I’ve traveled the world, seeking out ideas and trying to understand the forces that
shape nations. I’ve lectured on the beaches of Abu Dhabi, only to be interrupted
by fireworks and the arrival of the emir; and in remote Kalgoorlie, Australia,
where corrugated metal brothels have beckoned miners since the gold rush of
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1893. In Anchorage, Alaska, a spooky hotelier interrogated me about UFOs in
Area 51 (since I worked in the White House and had taught at Harvard, he
figured I was in on the conspiracy). I’ve been screamed at by a White House
chief of staff and the governor of Idaho thanked me by handing me a thirty-
pound box of raw potatoes. I hope to share with you what I’ve learned and to do
so with suitable humility.
This book is ambitious and possibly quite foolish. On the other hand, it
might just explain why those blustery neighbors who once threatened to
renounce their citizenship and skip across borders might actually mean it this
time. And it might show us what we can do to preserve and renew a nation.
INTRODUCTION: THE PARADOX OF PROSPERITY
In Casablanca, Major Heinrich Strasser invites Rick to sit down and join him for
a drink at the Café Americain.
“What is your nationality?” the Nazi commander asks.
“I’m a drunkard.”
“That makes Rick a citizen of the world,” the French captain Renault jokes.
The witty, sardonic lines fit the scene: a war-riven city in 1941 and a mass of
desperate refugees figuring out how to fake their way to freedom. Rick was, of
course, an American, but he was either too tipsy or too shrewd to cough up an
honest answer to the Nazi. Who could blame him? But what about us today, who
live in relative peacetime and prosperity? Do we feel a great emotional tug for
our country? Many Americans seem to feel a greater emotional attachment to
other things. If asked, “What are you?” their hearts might answer, “I’m an
iPhone guy.” Or “I’m a fantasy football fanatic.” Or “I’m gluten free. And
proud.” If an airplane skidded on the runway and passengers had to evacuate
quickly, how many would first save their iPhone, their football picks, or their
tasty gluten-free muffin instead of an American flag? After a burst of flag-
waving following 9/11, polls show that patriotism has drifted steadily lower,
especially among young people. While 64 percent of senior citizens say they are
extremely proud to be an American, only 43 percent of young adults agree, and
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nearly half of Millennials say the “American dream” is dead. Other wealthy
countries face the same trends.
Rick Blaine was a “citizen of the world” because he was a drunkard. But in a
globalized economy, even sober types are citizens of the world. Bono of U2,
who claims great pride in his Irish heritage and still speaks with a brogue,
skipped out of Dublin so that his band could reincorporate in the Netherlands
and pay lower taxes on their music royalties. Roger Moore—007 himself—has
mostly lived in a Swiss chalet or in tony Monaco. And the guy who funded
Facebook, Eduardo Saverin, hopscotched from Brazil to Harvard to Silicon
Valley to Singapore after renouncing his US citizenship in 2012. Not only