That Used to Be Us: How America Fell Behind in the World It Invented and How We Can

by Thomas L. Friedman

  As technology improves, performance standards need to advance as well. As noted earlier, in 1974, in the wake of the Arab oil embargo, Congress doubled the average efficiency standard for new automobiles sold in the United States, from about thirteen miles per gallon to more than twenty-five, over the next decade. Unfortunately, “this improvement, designed as a floor, turned into a de facto cap on fuel economy for most manufacturers, and fuel economy remained stuck for two decades,” said Harvey. One reason was that Detroit fiercely—and, as it turns out, suicidally—fought any change in the standards the whole time. “Imagine if, instead, the fuel economy level had grown just 2 percent per year after 1985,” said Harvey. “U.S. cars would have reached an average of forty-four miles per gallon this year, Detroit would be a technology leader, U.S. oil consumption would be three million barrels per day less.” We would have saved hundreds of millions of dollars, and the recent oil shocks would have been avoided or been far less severe.

  It is never too late to get this right, because the gains are so huge and the costs so low. In 2011, the Obama administration is expected to issue a proposal for new mileage standards to take us from 2017 to 2025. It is considering mandating annual improvements ranging from 3 percent to 6 percent. The current rules, which run from 2012 through 2016, compel automakers to decrease emissions—the proxy for fuel efficiency—by 5 percent each year. Automakers are pushing for 3 percent or less. We must go for 6 percent—and Dan Becker, a longtime environmental lobbyist and expert on this subject, explains why: “The technology to achieve 6 percent is on the shelves today. Most cars would get the mileage of today’s Prius. SUVs and other light trucks would average what today’s Ford Escape hybrid averages. This is auto mechanics, not rocket science. Most changes would be under the hood—better engines and transmissions, for example—and improved aerodynamics. The differences between strong and weak standards are huge: At 6 percent, we’ll save 2.5 million barrels of oil a day in 2030. That is more than our daily imports from the Persian Gulf. But if the standard calls for only a 3 percent decrease in emissions, we’ll save just over 1 million barrels a day. With the weaker standard, we’ll use an extra 1.5 million barrels of oil each day. That’s no way to curb our oil appetite.” By using less gas, the country would spend $645 billion less at the pump from 2017 to 2030, assuming gas costs $3.50 a gallon, according to the Union of Concerned Scientists.

  Once we put in place steadily rising efficiency standards across the nation, a price signal—a tax on carbon and/or an increase in the federal gasoline tax—would reinforce them. People would have even greater incentives to look for more efficient homes, cars, and appliances, which the market would have made available thanks to the performance standards. “Then you have this huge market signal pulling you where the government is pushing you,” said Harvey.

  Finally, when the market and the efficiency standards are both driving behavior in one direction, this creates a major incentive for private-sector investment and innovation. “California building codes get tighter every three years,” said Harvey. This has spawned ever more sophisticated window manufacturers, heating-and-cooling equipment producers, and insulation makers. These companies, in turn, have become a lobby for higher standards because with higher standards they have more customers for their higher-performing products and fewer competitors, especially cheap foreign competitors. “When Washington tried to pass a carbon cap, it got pecked to death by the vested interests,” said Harvey. “California passed a far more aggressive policy because the old vested interests from the fossil-fuel industries and the [U.S.] Chamber of Commerce have been supplanted by new vested interests that are part of this virtuous cycle.”

  These new interests know that if they can meet California’s standards, they can compete against anyone globally. This, in turn, gives both government and business the incentives to invest more in research and development. The pipeline of new products steadily drives more efficiency, making it easier and cheaper for consumers to adjust to a price signal. “The price signal becomes a transformation device, not a punishment device,” said Harvey. “If I make gasoline more expensive but I have access to great electric car batteries at falling prices, it doesn’t matter.” The consumer ends up saving money.

  Putting all three together—efficiency standards, carbon prices, and innovation—creates a powerful engine for driving down the price for clean power and driving up demand for their production. (See Harvey’s graphic above.) “And then your innovation radically increases,” said Harvey, “because the venture capital guys see a market and the finance guys see an income stream and that really starts to change the world.” Harvey added that this is precisely the ecosystem that China is trying to put in place. “They want to have the highest-performing globally competitive businesses in the clean-energy space, and that is exactly where they are going.”

  We wish we could say the same for America. But we can’t. America’s choices are clear: We can opt for living with the vicious energy-climate cycles set off in 1979 and 2010 that are making us less secure, less healthy, less wealthy, and more exposed than ever to the whims of the two most brutal forces on the planet—the market and Mother Nature. Or we can set in motion our own virtuous cycle that makes us healthier, more prosperous, more secure, and more resilient in today’s hyper-connected world.

  Given the dangers and disruptions posed by the first choice and the economic and strategic benefits offered by the second, we consider the proper alternative to be obvious. We hope that a majority of Americans will soon see it that way as well. It is not at all an exaggeration to say that our future and the planet’s future are riding on it.

  PART IV

  POLITICAL FAILURE

  ELEVEN

  The Terrible Twos

  MAN LEAPS FROM WINDOW, SAVED BY UNCOLLECTED TRASH, January 3, 2011, 12:07 PM ET NEW YORK (Reuters)—A man who jumped out of a ninth-floor window in New York was alive on Monday after he landed in a giant heap of trash uncollected since the city’s huge snowstorm a week ago.

  Two scenes from Capitol Hill—five years apart—pretty well sum up America’s reckless behavior in the last decade. The first took place on March 18, 2005, when a group of America’s greatest baseball players testified before Congress. It wasn’t pretty. Curt Schilling, Rafael Palmeiro, Mark McGwire, Sammy Sosa, and José Canseco appeared together at one table—sitting “biceps-to-biceps”—before the House Committee on Oversight Government Reform for a hearing on steroids in baseball. They had come in response to repeated threats by Congress to pass legislation that would govern drug testing in baseball and other sports. ESPN.com described McGwire’s testimony:

  In a room filled with humbled heroes, Mark McGwire hemmed and hawed the most. His voice choked with emotion, his eyes nearly filled with tears, time after time he refused to answer the question everyone wanted to know: Did he take illegal steroids when he hit a then-record 70 home runs in 1998—or at any other time? Asked by Rep. Elijah Cummings, D-Md., whether he was asserting his Fifth Amendment right not to incriminate himself, McGwire said: “I’m not here to talk about the past. I’m here to be positive about this subject.” Asked whether use of steroids was cheating, McGwire said: “That’s not for me to determine.”

  José Canseco, whose best-selling book, Juiced, drew lawmakers’ attention, said anew that he used performanceenhancing drugs as a player. Baltimore Orioles teammates Sammy Sosa and Rafael Palmeiro said they haven’t … “Steroids were part of the game, and I don’t think anybody really wanted to take a stance on it,” Canseco said. “If Congress does nothing about this issue, it will go on forever.”

  It was painful to watch these heroes of our national pastime confess by their evasions that their record-setting performances not only were the product of hard work on the field and in the gym but were boosted by steroid injections in a dark corner of the locker room (and one of them, Palmeiro, later actually failed a drug test).

  Almost five years later, on January 13, 2010, in another committee heari
ng room just down the hall, Congress was at it again, with another panel investigating steroid use—this time financial steroids. The scene was eerily similar, but instead of baseball stars sitting biceps-to-biceps, it was investment bankers sitting briefcase-to-briefcase. Their huge bonuses and paydays were the Wall Street equivalent of grand-slam home runs—home runs also hit, it was suspected, with artificial stimulants. Some of America’s biggest financial sluggers jammed together at one long witness table: Goldman Sachs CEO Lloyd Blankfein, JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian Moynihan, and Morgan Stanley chairman John Mack. This was the first public hearing of the Financial Crisis Inquiry Commission.

  Here is how Reuters described what happened:

  Wall Street’s chiefs acknowledged taking on “too much risk” … but stopped short of an apology as they sparred with a commission looking into the origins of the financial crisis …

  With U.S. unemployment near a 26-year high after the worst recession in decades, public fury is growing over the cost of U.S. taxpayer bailouts and huge bonuses for bankers, now that the banking industry has stabilized from the 2008 meltdown.

  Phil Angelides, chairman of the commission and a former state treasurer of California, confronted the pugnacious, armwaving Lloyd Blankfein, chief executive of Goldman Sachs, over his firm’s pre-meltdown practices.

  Angelides compared Goldman’s practice of creating, then betting against, certain subprime mortgage-backed securities to “selling a car with faulty brakes and then buying an insurance policy on the buyer.”

  Just as baseball players in the 1990s injected themselves with steroids to build muscle artificially for the purpose of hitting more home runs, our government injected steroids into the economy in the form of cheap credit so that Wall Street could do more gambling and Main Street could do more home buying and unskilled workers could do more home-building. The fastest-growing job sectors during the steroid-injected bubble years of the early 2000s were construction, housing, real estate, homeland security, financial services, health care, and public employment—all of them fueled by low interest rates and deficit spending. New value-creating industries grew very little.

  Warren Buffett likes to say that when the tide goes out, you see who isn’t wearing a bathing suit. The economic tide went out with the financial meltdown and deep recession at the end of the first decade of the twenty-first century, and it showed with brutal clarity who was swimming naked.

  It was us.

  Thanks to the peace dividend, the creation of the dot-com industry, the portable-computing and cell-phone industries, and the tax increase pushed through by President Bill Clinton, the first decade after the end of the Cold War was, on balance, positive for America. We almost erased the deficit, and employment grew steadily. The Clinton administration tried to pass an energy tax and nearly succeeded in doing so. Welfare was reformed, and corporate America seemed to be adjusting and adapting to the flat world, because it had no choice. Alas, the second decade after the Cold War ended—the first decade of the twenty-first century—was not so benign. There is really no other way to say it: By the standards of elementary prudence and our own history, we went nuts.

  When America failed to see what a profound challenge the end of the Cold War posed, this could be chalked up to ignorance or inattention. We simply didn’t understand the world in which we were living. But when we decided to go to war on math and physics, we did so with eyes wide open. And when we did all of these things at once, we made a radical departure from the norms of American history. That is why we call this initial decade of the twenty-first century the “Terrible Twos.”

  This term comes originally from child psychology. It refers to the developmental stage, beginning sometime after a child turns two, when the child becomes cranky, moody, and willful about almost everything. Pediatricians reassure anxious parents of such cantankerous toddlers that the behavior pattern is normal. They’ll grow out of it. American behavior in the Terrible Twos, by contrast, was anything but normal, and we have not yet grown out of it.

  As a country, we lost the plot. We forgot who we were, how we had become the richest and most powerful country in the history of the world, where we wanted to go, and what we needed to do to get there. We failed to update our five-part formula for greatness—education, infrastructure, immigration, research and development, and appropriate regulation—just at a time when changes in the world, especially the expansion of globalization and the IT revolution, made adapting that formula to new circumstances as important as it had ever been. Then we fell into the pit of the Great Recession, while fighting two wars in the Middle East and being the first generation of Americans not only to fail to raise taxes to pay for a war but actually to cut them.

  In short, we were the generation of Americans that threw out its umbrella just before the storm. In so doing, we broke with one of the main patterns of American history. “In the past we not only met challenges, we did it in ways that left people in our dust—so as to emphatically assert or reassert our leadership,” said Dov Seidman, the author of How. We did nothing of the sort in the Terrible Twos, and that has left us in very difficult circumstances. “Instead of being twenty years behind, we should be twenty years ahead right now—so we are actually forty years behind where we should be,” Seidman added.

  And while the steroid-enhanced sluggers’ achievements remain, at least for now, part of baseball’s record books, the artificially created wealth of the Terrible Twos has evaporated. The numbers don’t lie. On January 2, 2010, as that radical decade was coming to an end, The Washington Post did the math—the real math. It ran an article by Neil Irwin entitled “Aughts Were a Lost Decade for U.S. Economy, Workers,” which is worth quoting at length:

  For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation’s growth. It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism—there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable. There has been zero net job creation since December, 1999.

  No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well. Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999—and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s. And the net worth of American households—the value of their houses, retirement funds and other assets minus debts—has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.

  The financial shenanigans that produced the meltdown triggered by the collapse of the investment bank Lehman Brothers on September 15, 2008, made a huge contribution to these dismal, shocking, and unprecedented figures. The titans of banking have a lot to answer for. But financial misdeeds were not the only cause. Just as responsible for the nation’s abysmal economic performance during the Terrible Twos, if not more responsible for it, was the nation’s collective failure to maintain and upgrade the American formula that had served us so well for so long. We let each one of the pillars of our formula erode significantly during the last decade, and that, in our view, is what made the Terrible Twos so terrible. Here is a scorecard.

  If 2 Plus X Equals 4, What Is the Value of X?

  On October 24, 2010, The Hartford Courant ran a cartoon by the paper’s resident cartoonist, Bob Englehart, featuring four versions of the fame
d recruiting poster—the one with Uncle Sam pointing outward. In the first poster Uncle Sam is saying, “I WANT YOU.” In the second poster, he has both hands up, flashing stop, under the caption “NO, WAIT. NOT YOU.” In the third poster he is pointing out again, under the caption “WELL, OK, YOU.” In the final poster he has both hands up again, warning stop, under the caption “NO, WAIT …”

  We wonder if he drew that cartoon in anticipation of a study that made headlines on December 21, 2010, which found, according to an Associated Press report that day, that “nearly one-fourth of the students who try to join the U.S. Army fail its entrance exam, painting a grim picture of an education system that produces graduates who can’t answer basic math, science and reading questions.” The study, conducted by the Education Trust, a Washington, D.C.–based children’s advocacy group, “found that 23 percent of recent high school graduates don’t get the minimum score needed on the enlistment test to join any branch of the military. Questions are often basic, such as: ‘If 2 plus x equals 4, what is the value of x?’”