More on Keeping America's Edge

My article on Keeping America’s Edge has generated a decent amount of commentary. I thought I’d round it up and reply a bit in one place.

Among the first comments were those at The Daily Dish. Our own Conor Friedersdorf and Andrew Sullivan excerpted reasonable chunks of it, and generally had very kind things to say. Conor focused one of his posts on the immigration recommendation, which I think is the most radical recommendation, and something I believe in very strongly.

Arnold Kling at EconLog (implicitly) provided an excellent criticism:

But I do not know exactly what we mean by social cohesion. I mean, if you have a civil war, that would seem to represent a loss of cohesion, and clearly civil wars are very bad things. But beyond that, the concept has a vague, “I know it when I see it” connotation.

In other words, I never defined social cohesion well. Here is my working definition (that I should have made clear in the piece, and will do in the book): the widespread and irrational willingness and propensity to sometimes and to some extent sacrifice narrowly-defined rational self-interest to the needs of a greater collective, and the expectation that others will do the same. In general, in a capitalist democracy this does not mean the expectation that everyone (or even most people) will become martyrs to the Greater Good, but more that they will pursue narrow self-interest within the written and unwritten rules of the society which tend to channel self-interest “as if by an invisible hand” to the good of the society as a whole over time.

David Brooks, in his New York Times column on Tuesday, very generously named the piece one of the better articles published in 2009. Lots of things in life look easy – until you try them. As the guy who wrote the actual article, I can’t see how I would improve on his five sentence summary:

Jim Manzi’s essay, “Keeping America’s Edge,” in National Affairs, explores two giant problems. First, widening inequality; second, economic stagnation, the fear that without rapid innovation, the U.S. will fall behind China and other rising powers.

Manzi investigates a dilemma. Most efforts to expand the welfare state to tackle inequality will slow innovation. Efforts to free up enterprise, meanwhile, will only exacerbate inequality because the already educated will benefit most from information economy growth.

Finally, Steve Pearlstein devoted his column in today’s Washington Post to reacting to the article. In spite of confusing me with a different Jim Manzi, he had a very interesting take.

He writes:

But the debate, it seems to me, needs to go beyond simply determining where the pendulum should come to rest. For equally important is how effective the two sectors are in actually delivering all that social justice and growth-inducing innovation.

I agree entirely with this. He goes on to criticize, in a very even-handed way, the effectiveness of both businesses and governments in delivering the goods. I’ll focus on the criticisms of business in this comment, concerning which, he writes:

Americans understand that free markets are the best vehicle for generating innovative products and ever more efficient ways of producing them. But recent experience also reminds that innovation and the competitive dynamic are not always what they are cracked up to be.

When investors engage in herd behavior and deploy scarce capital merely to bid up the price of real estate or financial assets, that does nothing to improve economic output or efficiency.

What good is competition if it drives corporate executives to knowingly engage in increasingly risky behavior simply to boost short-term profits and stock prices even at the expense of long-term value creation?

What this seems to ignore (or at least discount) is the centrality of the knowledge problem. All real markets will have bubbles, speculative excess, obnoxious rich people who confuse luck with merit, and so on. This is because markets are a method for making decisions in the face of deep uncertainty. As I tried to go into in the piece, I believe that the trick is to construct a political economy that can withstand these problems, rather than one that tries to eliminate them.