The President is a dolt – how can America be a success?

The President is a dolt – so how can America be such a
success story?
Anatole Kaletsky



TWO CEREMONIAL events occurred in Washington on
Tuesday evening that shone a spotlight on one of the
most important but paradoxical features of a modern
democratic society.
The more widely reported was President Bush’s State of
the Union address, a weak and defensive speech even by
his undemanding standards. At the other end of
Washington, meanwhile, Alan Greenspan, the retiring
chairman of the Federal Reserve Board, was bidding
farewell to the institution whose skilful management
of US monetary policy made him the dominant figure in
the world economy for the past 18 years. What connects
these two events is a paradox that has baffled many
people, especially in Europe, ever since George W.
Bush became President.



For the past five years, America has been led by a
president who is clearly not up to the job — a man who
is not just inarticulate, but lacking in judgment,
intelligence, integrity, charisma or staying power.
Yet America as a nation seems to be stronger, more
prosperous and self-confident than ever.

As the State of the Union address made clear,
President Bush has more or less given up on all the
grand goals that were supposed to define his
presidency: social security reform, peace in the
Middle East, even the axis of evil doctrine, which was
supposed to disarm North Korea and Iran. Most
embarrassingly, President Bush seems to have given up
on capturing Osama bin Laden or bringing to justice
the perpetrators of 9/11.

But now comes the paradox. While America has been run
by one of the most doltishly ineffectual governments
in history, it has forged ever further ahead of Europe
in terms of wealth, science, technology, artistic
creativity and cultural dominance.

Why does America’s prosperity and self-confidence seem
to bear so little relationship to the competence of
its government? The obvious answer is that America,
founded on a libertarian theory of minimal government,
has always had low expectations of politicians. In
America, it is not just business that thrives
independently of government, perhaps even in spite of
government. The same is also true of other areas of
excellence which in Britain are considered
quintessentially in the public domain — higher
education, leading-edge science, culture and academic
research. Because Americans expect so little of their
government, they are rarely disappointed. They do not
slump into German-style angst when their governments
fail to find solutions to the nation’s problems.

This anarchic spirit was summed up by Ronald Reagan:
“The ten most dangerous words in the English language
are ‘I’m from the government and I’m here to help
you’.” In Europe, by contrast, the public expect
government to solve all problems, and the media try to
hold politicians accountable for everything. The
result is a culture of dependency that extends far
beyond the welfare state, to business and to the
worlds of education, medicine, arts and science.

The American approach has a powerful advantage rooted
in human nature: private sector activity is powered by
economic incentives, while the State must operate by
rules and sanctions. Since incentives, as Adam Smith
observed, are much more likely to stimulate creativity
and effort than sanctions, private enterprise tends to
achieve ambitious objectives, while government often
fails.

But while the weakness of US government may in some
ways have helped to widen the gulf of achievement
between America and Europe, there is another and
opposite side to the story — which is where we must
return to Mr Greenspan. American politicians may be
incompetent and venal, even by European standards, but
this is not true of the public realm as a whole.
America has a host of public institutions, ranging
from government bodies such as the Federal Reserve and
the National Institutes of Health to charities such as
the great universities, museums and hospitals, that
are driven by a sense of public service that puts
British and European bureaucracies to shame.

The American system recognises that a capitalist
economy has areas of market failure where incentives
alone will not produce socially desirable results. But
American public institutions try to maximise private
activity and incentives, rather than rein them in,
within their realms — whether it is universities
encouraging professors to start businesses, or health
administrators creating incentives for drugs companies
to do medical research. It is in this respect that Mr
Greenspan most clearly represented the genius of the
American system.

Mr Greenspan realised that his job at the Fed was not
just to control inflation, the goal that other central
bankers recognise. His real task, he explained last
year, was “to achieve the maximum sustainable economic
growth, with price stability pursued as a necessary
condition to promote that goal”. Although a passionate
advocate of small government, he realised that
well-judged public intervention was necessary, not
just to maintain stable prices but also to create the
incentives for private enterprise to accelerate
economic growth. He also understood that the best way
to deal with the imbalances in the changing world
economy was by supporting growth and allowing the
greatest possible freedom for financial markets.
Private investors, he believed, were more likely to
find solutions to the complex challenges created by
globalisation than central bankers or politicians.

But while Mr Greenspan believed that private
incentives solve economic problems more successfully
than government diktats, he also understood that
capitalism works at its best if it operates in a
sound, simple framework of ambitiously pro-growth
monetary policy. His genius was to understand that
public policy could be simultaneously minimalist and
ambitious. In a sense, this is the genius of the
American system. And this is why America does not need
a genius in the White House.


a.kaletsky@thetimes.co.uk