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1997: The Year In Ideas

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ANNOUNCER: Think Tank is made possible by AMGEN, recipient ofthe Presidential National Medal of Technology. AMGEN, helping cancerpatients through cellular and molecular biology. Improving livestoday and bringing hope for tomorrow.

Additional funding is provided by the John M. Olin Foundation,the Lilly Endowment, the Lynde and Harry Bradley Foundation, theUnited States-Japan Foundation, and the Donner Canadian Foundation

(Musical break.)

MR. WATTENBERG: Hello, I'm Ben Wattenberg. For America, 1997was a year of economic prosperity and domestic tranquility. In someplaces abroad, however, it was a year of economic nervousness anddomestic instability. The events and conditions of the

past year at home and abroad have generated some provocativeideas. Joining us to provoke us are James Fallows, Editor of U.S.News and World Report, and author of Looking at the Sun; Jodie Allen,Washington Editor of Slate Magazine, and former Editor

of the Washington Post Outlook Section; and Christopher DeMuth,President of the American Enterprise Institute. The topic before thehouse, 1997 the year in ideas, this week on Think Tank.

(Musical break.)

MR. WATTENBERG: At Think Tank at the close of each year, wetry to bring together prominent polemics to consider what has changedand what we may have learned. Welcome, polemics. We begin withJodie Allen, who says signals matter.

The controversial Welfare Reform Act passed in 1996 madewelfare more difficult to get. Welfare rates have since come waydown. More good news, crime rates in urban areas have plummeted to20-year lows. New York City has led the way, after adopting toughpolicies on petty crimes such as subway turnstile jumping andvandalism. Does this properly introduce your thought?

MS. ALLEN: It does, indeed, Ben. And my idea really is onethat's driven more by the facts on the ground that you point to thanideas coming out of the ivory tower. But it does look as if when asociety just sends loud and clear signals, that it's possible tochange human behavior much faster and more dramatically than theexperts thought.

You point to the two cases that I want to highlight. The verysharp drop in welfare rolls. They're down 30 percent from their '94peak. Now, obviously, a lot of things contribute both to welfaredrop, and to the decline in murder rates. We've had a very goodeconomy, we've had tougher policing.

MR. WATTENBERG: Not just murder rates, violent crimegenerally.

MS. ALLEN: Violent crime generally, the murder rates are mostdramatic, but all violent crime. We've had tougher policing, longersentences. And, of course, we've had the passage of the welfare lawon the other side.

But the experts agree that these factors, when they look atthem, these objective factors, don't explain either the bigness orthe suddenness of the improvements. As I say, welfare rolls are down30 percent from their '94 peak. We've never had such a big drop inhistory. And while reporters have been out looking for horror cases,and surely they will find some as the reforms take hold, mostlythey're finding people who are saying that with all the difficultiesinvolved, they're glad for the push for independence. And the drophas occurred in many areas where the welfare law really hasn't goneinto effect yet.

But there's one last second turn of the good news notch, and Iknow that you are a pioneer in stressing good news. So, you shouldlike this. And that is that contrary to what a lot of people hadworried about, we've seen an upsurge in civic commitment. That whilewe've been worrying about the rich and even the middle class turningtheir backs on communities and withdrawing behind gates and bowlingalone, and so on, we've seen an outpouring of civic boosterism. Now,New York, of course, is the case in point despite their fallingbuildings and collapsing avenues, they are barely tolerable they'reso celebratory.

But, I was surprised to read that even in places like Alabama,thought to be very conservative, and Mississippi, there's been a --communities, individuals, businesses, and even the local governmentsare pitching in to help welfare recipients. They've changed theirattitudes. I think this is a remarkable happening, even if, youknow, old numbers crunchers like me can't explain it by our computermodels.

MR. WATTENBERG: Right. So, is it fair to summarize whatyou're saying as, signals matter?

MS. ALLEN: Yes. Signals matter, and produce an outcome thatis much larger than what any single objective factor alone or evenjust taken together could produce.

MR. FALLOWS: I have a question, Jodie, about the -- certainlythe results you describe are, as you say, are very welcome andadmirable. How sure can we be about the signals causing them? Atany given time in the last, you know, century, people have been upsetabout crime, they've been upset about family dissolution, they'vebeen upset about other sorts of breakdown. Why do we say thatthere's different signals now that have led to these results?

MS. ALLEN: I think that there's -- well, partly because wecan't explain it any other way. But I also -- I look at thereporting, which -- and there's been a lot of reporting on welfareall around the country, and there's no question that when mostreporters went out originally, they were looking for trouble on thewelfare front. I mean, they had been told, there were going to bepeople starving in the streets, and so on.

But the reporting has been very responsible and very detailed. And, unfortunately you can't go out and talk to would-be murderersand say, how come you decided not to knock off your neighbor, but youcan talk to welfare recipients, and you get this message back, well,yes, in fact, they haven't cut my benefits off, but I know they'regoing to. And, anyway, I realize that it's going to be better forme, it's going to be better for my kids, if I can be independent. You just get an awful lot of talk, a response to signals.

MR. WATTENBERG: Chris.

MR. DeMUTH: It seems to me that what is different about thecurrent environment is that in the case of both welfare and crime, wehad politicians that finally got serious and did what people had onlybeen talking about for several decades. In the Welfare Reform Bill,in the famous cases of the Mayor of New York City, and some other bigcity mayors getting tough, doing things which people thought wereimpossible in controlling such things as graffiti, the squeegeepeople, and so forth. It was specific acts of political leaders thatwere the important signals, not just people writing articles ortalking on talk shows.

MR. FALLOWS: And to extend the --

MR. WATTENBERG: Hey, what's wrong with people talking on talkshows? I thought we drive the world.

MR. DeMUTH: That's right. To extend the logic one more twist,and if you take something that has not improved all that much, forexample illegal drug trafficking, what other signal by this logiccould be sent that would really make a dent in that?

MS. ALLEN: You know, we don't really know. There was a veryinteresting story --

MR. WATTENBERG: Capital punishment?

MS. ALLEN: Well, we don't really know that the drug use hasn'timproved. I think that we can conclude that as long as the demand isthere, that it's going to be serviced. I mean, I think that's aconstant of the world. And so the trafficking won't d

ecline until the demand dries up. But there was a veryinteresting sober evaluation of the drug numbers in the Post lastweek, and it turns out we really don't know much about drug use. Andit may be better than we think. A lot of these number have be

en totally blown out it. The samples are small.

In one case, the 72-year-old woman who counted for 20 percentof the increase in heroin use by misanswering a question. You know,that may not be as bad as we think. And we certainly do seereductions in crack usage in many cities.

MR. WATTENBERG: Let me ask a question. You say we got toughon crime, we got tough on welfare. Therefore, signals matter. Whycan't I say, coming from my own peculiar ideological perch, we gottough on crime, we got tough on welfare, conservatism matters? That's what conservatives were saying all along, you know, get toughon this stuff, and things will happen.

MS. ALLEN: Well, I guess you could define it that way. I'mnot going to argue over labels.

MR. WATTENBERG: Chris will certainly not argue about that.

MR. DeMUTH: Well, I think that that's fair. But, by the timewe got to the point where the political process responded, these hadbecome essentially bipartisan moves. And I think in both cases therewas a long argument, and these happened to be cases thatconservatives won.

MR. WATTENBERG: Extremely gracious.

MR. FALLOWS: And you could also say that conservatism is meantto embrace not simply these cultural signals, which I agree withChris have become bipartisan, but also economic policies which arestill more controverted. So, I would say cultural conservatism maywork.

MR. WATTENBERG: Okay. Let's go on to Chris DeMuth who haswritten about what he calls the new wealth of nations.

America continues to ride a wave of startling prosperity. Thestock market shot to record highs in 1997, with more and more peopleinvested in 401Ks, IRAs, and defined contribution retirement plans,this prosperity is being felt more broadly than ever before in ourhistory. It's been called the first mass upper class. The spread ofthis wealth raises some interesting questions. Chris DeMuth offeredsome answers in Commentary magazine.

President DeMuth of the American Enterprise Institute, myleader, sir, Your Honor, Adam Smith was not good enough for you. Hewrote, The Wealth of Nations. You have a New Wealth of Nations. What's on your mind?

MR. DeMUTH: Ben, 1997 was a terrific year for the economy. The stock market was generally booming. Unemployment and inflationwere vanishingly small. And it added to what is now a 15-yearexpansion with only one mild recession, the longest expansion we'vehad in peacetime in our history. The big story, though, was not aone-year story, or even a 15-year story. The big story is a 50-year,100-year story. Over the past century, and especially since WorldWar II, the advanced industrial nations, especially America, havebecome the wealthiest societies in the history of mankind.

Moreover, it's the broadly shared part that you mentioned thatis the important part of this story. Wealth has become -- I won'tsay wealth, I'll say material welfare, has become more widelydistributed, more equally enjoyed than at any point in human

history. And changes in markets, in the technology of production,in the pattern and effect of government expenditures, for example, oneducation, have led to a circumstance where most people above thosein serious poverty live lives that are more equal in their actualcircumstances than we've ever seen before.

MR. WATTENBERG: How does that square with everything we'vebeen reading about an increase in income inequality, the rich and thepoor spreading apart?

MR. DeMUTH: We have arrived at a point where social wealth isso considerable that income is becoming a poorer measure of realeconomic circumstances. Consumption is a much better measure, andyou often find that people will consume more than their income in agiven year. In fact, we've become so wealthy that income has becomefor very large numbers of the American people, discretionary to adegree. When you observe people retiring much earlier than they everdid 50 or more years ago, when they could continue to work and havehigher incomes, but they prefer to have more leisure time. When yousee young people deferring their entry into the workplace for many,many years after college, sometimes graduate school, sometimestravel. And when you see people during their working years spendingmuch more time than their fathers, grandfathers, grandparents everdid on community activities, sports, entertainment. You see peoplesacrificing income for other forms of wealth.

This was not an option for people 50 years ago or ever beforethat, and it is not an option that is simply being taken by verywealthy people. A lot of the increase in measured income inequalityis the result of people's voluntarily sacrificing money income in agiven year for other forms of consumption and enjoyment.

MR. FALLOWS: I guess the question I'd have, nobody woulddispute that thesis that over the last century there's been thiscontinuing increase in phenomenal wealth, especially in the Westernworld, and that especially since World War II. I mean, the U.S. andin the welfare state of Western Europe, there's been this levelingimpulse in a lot of places. But my -- I think the conventionalimpression, which I will express here, is that, say, in the 20 yearsafter World War II, there was a huge increase in the middle classAmerica driven by the GI Bill and then the post-war economicdominance of the U.S. And most of the trends in the last 20 yearsseem to be in the opposite direction.

Just anecdotally, when I was in public school 30 years ago,everybody was in public school. And there seems -- you know, thepublic school as an indicator of the thickness of the American middleclass seems to me weakening around the country, certainly inCalifornia, where I came from. Are those -- is that a misleadinganecdotal indicator of the schooling system?

MR. DeMUTH: Well, the great boom years of the '50s and the early'60s have -- we may see that being replicated right now. Wecertainly had a period in the 1970s, early 1980s, where the rate ofgrowth of productivity was high, and we have seen some effects of theincreasing importance of education in the economy, where some peoplewho have less education, who are in their 40s and 50s are notrealizing the income growth that they might have expected, peoplethat stay in school longer are doing better as a result of it. Butwe're starting to see the results of that right now. People arestaying in school longer.

MR. WATTENBERG: Your point is that in terms of, let's say,health care, with all these new drugs and new procedures, or in termsof entertainment with television and VCRs, and multiplexes and allthis kind of thing, is that the non-monetary aspects of our lives --I mean, we all see the same movies, whether you're Michael Eisner orsomebody who is an accountant or a bookkeeper.

MR. FALLOWS: Wasn't that true in the '30s, too, I mean thatpeople all spend their 10 cents and go to the -- answer that?

MR. DeMUTH: It was true in the '30s, in a world whereeverybody is poor, and if there's not much productive capacityemploying people, people have a lot of leisure time. The differencetoday is that people have the choice. People can work, earn highincomes. They can work less and devote themselves to personalpursuits, self-fulfillment.

MS. ALLEN: The Internet.

MR. DeMUTH: And so forth. Another way to say it is that,because we are richer, we are much freer. And one thing we care alot about in affluent society is education. Now, most peoplecontinue to go to public schools. And, while the public schools haveclearly failed the very poor scandalously, for most middle classpeople they're doing just fine. But education is a more variablematter now, and people will pull their kids out of school early totake them to a violin lesson. Maybe there are five kinds of violinlessons you can put your kids into. So, maybe you go to one -- yourkids go to one kind, and mine go to another. And that's true. Lifeis much more variegated and diverse than it was. We're not throwntogether into the same platoons,but that is an aspect of our wealthand freedom.

One can worry that there will be a loss of social cohesion, andyou can make abstract arguments for it. My own counsel would be towait and see.

MR. WATTENBERG: Let's move on, because what Jim Fallows wantsto talk about also relates to economic. Jim urges us to rethink therole of globalization.

America's move into the global economy brings with it newquestions and concerns. An economic crisis in Asia sent globalshockwaves felt even in America. And President Clinton's efforts toensure fast track trade authority were thwarted. It is likely

that other free trade measures, such as NAFTA expansion, willalso face strong hostility.

Jim, you're driving the bus. Go ahead.

MR. FALLOWS: What's interesting to me about this point, and Ithink has ramifications not just in the U.S. but around the world, isthat I think you see in every continent except perhaps Antarctica aquestioning about how much exactly of the social fab

ric of each country people want to expose to the forces of globalcompetition. My premise here is that in the long-run, globalizationof the economy is inevitable, and it's going to prevail. And in thelong-run, on balance, it's beneficial. It brings more efficiency, itbrings more choice.

But in the short-run, to people in many different societies, itdoesn't necessarily seem either inevitable or beneficial. I think,for example, this is part of what's going on in Asia now. For thelast 15 years, they thought they had a one-way deal wi

th globalization. They could sell to a global market, but sheltertheir own institutions from real global competition, and that's beingcalled into question now, and some of the response will be positive,and some is quite sour. You hear Dr. Mahatir, my former leader ofwhere I used to live in Malaysia, I hear ranting against theinternational cosmopolitan crises.

MR. WATTENBERG: How long did you live in Malaysia?

MR. FALLOWS: I was in Malaysia for two years, and Japan fortwo years. And I left Malaysia just before getting expelled by thesame Dr. Mahatir.

MR. WATTENBERG: And you in the, I guess, late '80s, mid tolate '80s were writing that the Asian model is one that was going tobasically eat our lunch if we weren't careful. What are your viewsnow on lunch eating with the Asians collapsing and the Americans sortof soaring at the moment, at least?

MR. FALLOWS: The fundamental point I was trying to make wasthat it was set up for different purposes from what our model was setup for. Our model was set up in the long-run to expand consumerwelfare and consumer choice. Their model, I argued, was set up tobuild industries, and that the natural interaction of these twomodels over time would be to expand their industrial share. Theirmodel has some real drawbacks, which have become more evident in thelast year or two by consumers in the financial system.

But the -- I guess that's the part of the deal the Asians arethinking through now of whether they can tolerate real engagementwith a global market. The Chinese are going to figure out how muchof their internal political system they're going to expose to outsideinfluence. I think in Europe you find the welfare state kind ofpushing back against a Thatcher type limitations of the welfarestate. You have the French waging their war to preserve, you know,their countryside, the British are doing the same thing. And I thinkeven here in our own beloved homeland, I think that there will bemore of an argument, probably in the next presidential election, ofwhether it is entirely a wonderful thing to have just internalorganizations decided by the global economic conditions.

MS. ALLEN: And you might want to argue too that if Japan andthe other countries of East Asia had paid a little more attention towhat people like you were writing, they would have been better off. I mean, part of the argument among the so-called 'Asia bashers' asthey were, I think, wrongly mislabeled at the time, was that theywere not in the long-run doing themselves a favor. That they oughtto develop their own internal markets, which they have not done.

MR. WATTENBERG: And who were the Asia bashers?

MS. ALLEN: Well, Jim was often -- Jim Fallows and ClydePrestowitz were often labeled as such. But I don't think they were.

MR. WATTENBERG: But he was also saying -- I mean, he wassaying that they're doing so well, and therefore you were -- I mean,is that correct?

MR. FALLOWS: Perhaps I might be cited as a source.

MS. ALLEN: But he often argued that they were short-sighted,if I could finish my thought.

MR. WATTENBERG: Yeah, right.

MS. ALLEN: That, you know, in the end, as we now see, and theyall had an export-driven model, protect your own market in-house soyou can sell cheap and sell primarily to the United States, and, assome of us pointed out, there was some limit to the amount of goodsthat America could absorb. And we have now begun to develop a tastefor more services which are produced at home, another benefit for us. And that -- Lee Iacocca used to argue, this is for their own good,Japan and its emulators, should change their model because they werenot building for healthy growth.

MR. FALLOWS: It's not a sustainable way to deal with theworld.

MS. ALLEN: Sustainable way into the future.

MR. WATTENBERG: Chris?

MR. DeMUTH: For most of this century, the political elites inthe developed worlds have been pro-free trade. And the masses haveeither been indifferent or hostile. I actually think that thesituation has become reversed. For all of the talk about peoplebeing afraid of the destructive gale of international competition,the important story of the last 10 years is that capitalism has wonas an economic system in general. And we find that when nations arefreed from totalitarian or feudal regimes, w

hat they want to be is like America, to put it rather bluntly.

The resistance to --

MR. WATTENBERG: You're going to get a hard time about that.

MR. DeMUTH: I would stand by that. I think that theopposition to international trade is much more of an elite matterright now. Labor unions, environmental groups want to controlcompetition. I see it as a kind of an internationalization of thetra

ditional domestic interest group story. There are always groupsin society that have political power that are threatened bycompetition. They want to maintain the status quo. And we find inAmerica that there are a lot of well-entrenched groups that now wantto condition trade agreements to harmonize domestic labor,environmental, pretty soon we'll get around to people wanting toharmonize tax standards, have taxes set on an international basis.

MR. WATTENBERG: Let me ask you a question. Is there arelationship between the three points you all made, which were,signals matter, sort of tougher social action; more wealth sort ofsloshing through the economy; and the bumpy path of a good thing,

globalization. Is there something -- does anybody have a commonthread?

MR. DeMUTH: Well, I take a stab at that.

MR. WATTENBERG: Please.

MR. DeMUTH: I think that in a very wealthy society, althoughthere are always economic concerns, that increasingly issues ofconduct, character, amenity, are the dominant issues in our politics. For most of the century, since the progressive era, issu

es of the distribution of the pie were dominant. That was whatanimated most of the important political domestic controversies ofthis century. It's being replaced not just by such things asenvironmentalism and our relations with other cultures, but i

ssues such of behavior and conduct. The growth of religion is afactor in our politics, increased concern for the coarsening of thepublic square, and so the issues that Jodie talks about are one sliceof what seem to me to be what are going to be the issues in ourpolitics in the future.

And I'm not saying that we won't be concerned about theeconomy, we'll have recessions, we'll have arguments about incomedistribution, but they will tend to be displaced by the issues thatJodie is discussing would be my prediction.

MR. WATTENBERG: Do you by that as a sometime futurist, Jim?

MR. FALLOWS: Yes. And my parallel stream of logic would bethat it's another indication that we are driven often by what we canmeasure. What's easiest to measure is economic activity, so most ofour news concerns numbers about the economy.

MR. WATTENBERG: It's hard to measure religious feeling.

MR. FALLOWS: Yes. And of these other things, in the long-run,you know, man does not live by bread alone. For a long time they'vemattered to people, will matter in the future.

MR. WATTENBERG: Pasta, maybe. Right.

MS. ALLEN: And they have always mattered because the moralsand standards are certainly not just the luxury of the rich. If youlook at all these countries we've been talking about, not always forgood, but always for the sake of social order, cultura

l strictures have been extremely important at every level ofeconomic opportunity except in the very most anarchic and disorderedcountries. They are the tools of social order, and we, perhaps, werethe ones who forgot that for a while, so mad were we i

n the pursuit of money. And we're now coming back to realize thatthere are many important goods that you don't buy in the marketplace.

MR. WATTENBERG: So, to sum it up, in closing, we might say,values matter most. Thank you very much Jodie Allen, Jim Fallows,and Chris DeMuth. And thank you. For Think Tank, I'm BenWattenberg.

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Think Tank is made possible by AMGEN, recipient of thePresidential National Medal of Technology. AMGEN, helping cancerpatients through cellular and molecular biology. Improving livestoday and bringing hope for tomorrow.

Additional funding is provided by the John M. Olin Foundation,the Lilly Endowment and Lynde and Harry Bradley Foundation, theUnited States-Japan Foundation, and the Donner Canadian Foundation.

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