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NEWSWEEK COVER: The Bright Side, By Fareed Zakaria
Sunday, October 12, 2008
The United States 'Has Now Gotten the Wake-Up Call from Hell. If We Can Respond and Change Our Behavior Markedly, This Might Actually Be a Blessing in Disguise'
NEW YORK, Oct. 12 /PRNewswire/ -- "Amid all the difficulties and hardship
that we are about to undergo, I see one silver lining. This crisis has --
dramatically, vengefully -- forced the United States to confront the bad
habits it has developed over the past few decades. If we can kick those
habits, today's pain will translate into gains in the long run," writes
Newsweek International Editor Fareed Zakaria in the October 20 Newsweek cover,
"The Bright Side" (on newsstands Monday, October 13).
( http://www.newsweek.com/id/163449 )
(Photo: http://www.newscom.com/cgi-bin/prnh/20081012/NYSU005 )
In his essay, Zakaria looks at the economic crisis and writes about the
lessons that can be learned to get us on the right track. "Since the 1980s,
Americans have consumed more than they produced -- and they have made up the
difference by borrowing," he writes. "Two decades of easy money and innovative
financial products meant that virtually anyone could borrow any amount of
money for any purpose. If we wanted a bigger house, a better TV or a faster
car, and we didn't actually have the money to pay for it, no problem. We put
it on a credit card, took out a massive mortgage and financed our fantasies."
"At some point, the magical accounting had to stop. At some point,
consumers had to stop using their homes as banks and spending money that they
didn't have. At some point, the government had to confront its indebtedness.
The United States -- and other overleveraged societies -- has now gotten the
wake-up call from hell. If we can respond and change our behavior markedly,
this might actually be a blessing in disguise. (Though, as Winston Churchill
said when he lost the election of 1945, "at the moment it appears rather
effectively disguised.")
In the short term, Zakaria writes, all the solutions to the current crisis
require that governments take on more debts and larger obligations. "This is
inevitable and necessary. But that doesn't mean we should, as some noted
economists advocate, stimulate the economy with more tax cuts . . . A far
better stimulus would be to announce and expedite major infrastructure and
energy projects, which are investments, not consumption, and therefore have a
much different effect on the country's fiscal fortunes. (They are not listed
separately in the federal budget, but that's just bad accounting.)"
In the medium and long term, we have to get back to basics, Zakaria
writes. "Households, for instance, should save more. Governments should put
incentives in place that make such savings more likely. The U.S. government
offers enormous incentives to consume (the deduction of mortgage interest
being the best example), and it works . . . If we were to tax consumption and
encourage savings, that would also work. Regulations on credit-card debt
should be revised to ensure that people understand the risks and costs of
these instruments. Moving in this direction would be good for families and for
the government as well."
He writes that the financial industry itself is likely to shrink, "and
that's not a bad thing, either. It has ballooned dramatically in size."
And this crisis will stop the "misallocation of human and financial
resources and redirect them in more-productive ways. If some of the smart
people now on Wall Street end up building better models of energy usage and
efficiency, that would be a net gain for the economy."
"A new discipline would benefit America in a more general sense, too. Ever
since the collapse of the Soviet Union, the United States has operated in the
world with no constraints or checks on its power. This has not been good for
its foreign policy. It has made Washington arrogant, lazy and careless. Its
decision making has resembled General Motors' business strategy in the 1970s
and 1980s, a process driven largely by a vast array of internal factors but
little sense of urgency or awareness of outside pressures. We didn't have to
make strategic choices; we could have it all. We could make blunders, anger
the world, rupture alliances, waste resources, wage war incompetently -- it
didn't matter. We had more than enough room for error -- lots of error."
(Read cover at www.Newsweek.com)
SOURCE Newsweek
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