Thursday, March 3, 2011

Shikha Dalmia's arguments in "Long Live the American Dream" are just plain wrong

A link to an article came across my Twitter feed yesterday and I was flabbergasted by how wrong it was. Lots of things get me riled up, but it's not often that I feel the need to write a point by point rebuttal. Please pardon the self-indulgent length of this article, but here it is.

The article was "Long Live the American Dream by Shikha Dalmia. The link that received pointed to, a free-market magazine that I had not heard of before, but the article originally appeared as an opinion piece in The Daily. Throughout the piece, Dalmia uses bait-and-switch reasoning; she raises a point, cites statistics that make America look better than India and China, but don't directly support her point. Although Dalmia's argument rest on five pillars, she also makes a number of off-hand comments that are just plain wrong.

Let's start at the top.
Americans, hit first by outsourcing and then a recession, are becoming deeply pessimistic about their country’s ability to maintain its economic leadership in a globalized world. America’s Aristophanes, Jon Stewart, commented during a recent interview with Anand Giridhardas, author of India Calling: “The American dream is still alive—it’s just alive in India.” Likewise, 20 percent Americans in a December National Journal poll believed that the U.S. economy was no longer the strongest. Nearly half picked China instead.
Concerns about how America is doing economically surfaced recently in response to the news that China's economy is now the second largest in the world (knocking Japan into third place.)  Rhetoric quickly turned to per capita GDP, a metric that still makes the US look good ($42000 vs $6200), and some argue is a better measure of real wealth. The poke at Jon Stewart would be funnier, if his joke didn't strike so close to home. If America is doing so well, why did President Obama go to India last year to sign deals worth $10 billion in trade to create 54000 jobs? Dominant economic models pin prosperity on sustained growth, which isn't happening anymore, so we have to look elsewhere for markets. For better or for worse, companies are looking to India's and China's rising middle classes as potential buyers.
But there are at least five reasons why neither India nor China will knock America off its economic perch any time soon, at least not by the only measure that matters: Offering the best life to the most people.
I can accept that the only measure that matters is offering the best life to the most people. However, this measure is not discussed further in the article. I would have been happy to accept an argument that people in America have more rights and freedoms than others in the world and that we do a better job of ensuring that human beings live with dignity (though this isn't necessarily true, it's true enough for a comparison with India or China). Unfortunately, the rest of the argument doesn't follow through on this assertion (offering the best life to the most people).

America Wastes No Talent
Conventional wisdom holds that America’s global competitiveness is driven by geniuses flocking to its shore and producing breathtaking inventions.
It's not just conventional wisdom, people do flock to the US. In 2009, 37% of the doctorates earned in science and engineering were awarded to temporary visa holders. In other words, 14,724 people who were not US citizens or permanent residents received Ph.D.s that year. This figure is up from 27% in 1989. As a university professor in computer science, I have seen applications from both foreign and domestic students. While there are geniuses in both categories, many of our best students were educated elsewhere.
But America’s real genius lies not in tapping genius—but every scrap of talent up-and-down the scale.
If only this were true. The current unemployment rate is 9.8% and over 4 million of these people have been unemployed for over a year. This is a lot of talent not being tapped into. Furthermore, there are a lot of students finishing high school without even basic skills in reading, writing, and arithmetic. The California State Universities routinely offer remedial courses in these areas to make up for what students should have learned in high school, but didn't.

Another way we squander talent is by making health care unreachable. I have an acquaintance who does not have health insurance, so she can't get treatment for her seizures. (Probably epilepsy, but she doesn't know for certain.) Because she isn't treated, she misses a lot of work. Because she doesn't have a solid work history, she can only work part time and can't get health insurance. If she could get affordable treatment and medication, she would be able to make a bigger contribution to society, rather than languishing because her talent wasn't being tapped.

A 2005 World Bank study found that the bulk of a people’s wealth comes not from tangible capital like raw resources and infrastructure. It comes from intangible wealth: effective government, secure property rights, a functioning judiciary. Such intangible factors put the equivalent of $418,000 at the disposal of every American resident. India and China? $3,738 and $4,208 respectively.
To me, this is bait-and-switch reasoning.  While I am persuaded that intangible wealth is a good thing, what does intangible wealth have to do with not wasting genius? It's possible that there is a link between intangible wealth and the possibility of starting a business that succeeds, it's not made here.
America’s vast intangible wealth makes everyone more productive and successful. Personal attributes—talent, looks, smarts—matter only on the margins.
This is complete fiction. Sexism, racism, and other kinds of discrimination are alive and well. (The margins are alive and well too, but that's an argument for another day.) Talent, looks, and smarts matter everywhere. And even with them, one might not succeed.
Having witnessed the life trajectory of many Indian immigrants, what’s striking to me is that, with some exceptions, it doesn’t matter whether they are the best in their profession in India or just mediocre. Within 10 to 15 years of arriving, they land in a very similar space. They get good jobs, buy homes, have children, send them to decent schools and colleges and save for their retirement. The differences in their standard of living would have been far greater had they stayed home.
I have seen this too, but it's not the whole story. Many Americans (non-immigrants) are having trouble achieving the same prosperity. It's possible that these are lackluster citizens who don't like to work hard, but there are too many of them to simply blame the individual. Enough adult children are moving back in with their parents after a few years in the work force that a term has been coined: the Boomerang generation.

My colleague, Prof. Kavita Philip has been studying the growing tech industry in Bangalore. She has found a growing number of Indians who went abroad to earn their doctorates and to work are now returning home. While their total pay packet might be less, it buys them a much higher standard of living. They can afford to hire cooks, housekeepers, or nannies. As well, the work environment is less formal, more collegial, and more family-friendly. Their American dreams are alive and well in India.
America Does Not Have India’s Infrastructure Deficit or China’s Civil Society Deficit
India’s gap with America extends not just to intangible capital but tangible capital as well. Basic facilities in India—roads, water, sewage—remain primitive. For example, a 2010 McKinsey Global Institute report found that India treats 30 percent of raw sewage, whereas the international norm is 100 percent. India provides 105 liters of water per person per day, the minimum standard is 150 liters. It needs to spend twice the slated expenditures over the next 10 years to deliver basic services.
Yup, infrastructure is important and lots of work needs to be done in India. But we must not become complacent about the infrastructure that is needed in the United States. The US Chamber of Commerce has been studying the transportation infrastructure gap and its impact on economic growth. There gaps in water and sewage infrastructure too. We live in an era where big government is unpopular, so the necessary investments into roads, water, and other utilities are not being made. We are currently living off the investments made in the 1960s when people were dreaming about changing the world, and they did. And what about infrastructure that will be important in the coming years? In the US, we have some of the poorest broadband connectivity in the developed work. We pay more for it and receive slower service than elsewhere. The electrical distribution system is in need of an overhaul as well. Electricity is especially important in the information age, because so many of our digital appliances relies on it. The technology exists to build a "smart grid" to replace the existing crumbling system, but project lacks public support.
China, meanwhile, has a major civil society problem. America has made about $100 trillion in Social Security and Medicare promises to seniors that it can’t fund. But American seniors face nothing like the kind of destitution that the Chinese do. China’s one-child policy has decimated the natural safety net that old people rely on in traditional societies. And China offers no public safety net to the vast majority of village-born. Worse, many Chinese have invested their nest eggs is various asset bubbles that will wipe out their only means of subsistence if they burst, making the Great Depression look like a beach party.
China definitely has some shortcomings, but these are not the ones that are affecting economic prosperity. While China's seniors aren't surrounded by children and grandchildren they way they used to be, this shift occurs in any country that moves from an agrarian to an industrial economy. The developed world has social programs, because it is not unusual for people to move away from their families to find work. The industrial revolution led to factories, which led to migrant workers, which led to nuclear families, which led to a lower birth rate. The effect of China's one child policy on birthrate is indistinguishable from the effect of industrialization, though there are plenty of other negative outcomes. We too are facing similar problems with a "top heavy" demographic distribution where there are not enough young people (or incomes) to look after a growing number of elderly.

While Chinese are disciplined savers, they are not high-risk investors. They tend to sock money away diligently in boring old bank accounts. We Americans need to be much more worried about the stock market wiping out our retirement savings, as was the case during the financial crisis in 2008.
America Does Not Have Grinding Poverty
Despite all the recent hoopla about China becoming the world’s second biggest economy and India hoping to follow suit, the reality is that the per capita GDP—even measured by purchasing power parity—in both is pathetic. America’s is about $47,000, China’s $7,500, and India’s $3,290.
Worse, both still harbor medieval levels of poverty with 300 million people in each living on less than $1.25 a day. India’s IT boom gets big press, but it—along with all the tertiary industries it has spawned—employs 2.3 million people, or 0.2 percent of the population.
Neither country is a font of opportunity comparable to America.
I thought this article was about the American dream of prosperity and success, rather avoiding grinding poverty. Living on welfare or below the poverty line is grinding enough. Not living in squalor or eating dirt is a depressingly low bar and Aaron Huey's photojournalism shows that there are pockets in America where we have fallen short of even this low standard.

Dalmia's assertion obscures two facts. It's not China or India's current GDP (per capita or otherwise) that is drawing attention, but the growth rate. Both economies are growing steadily and China's per capita GDP is expected to exceed America's by 2050. In contrast , America's per capita GDP fell between 2008 and 2009.

American Education Is Superior

President Obama claims that America is in an “education arms race” with India and China. Rubbish.
Notwithstanding all the horror stories about American kids underperforming on standardized tests compared to Asian kids raised by Tiger moms, things are worse in India and China. India’s literacy rate is 66 percent. China puts its at 93 percent—but between 2000 and 2005, China’s illiterate population grew by 30 million. The same may happen in India, thanks to last year’s Right to Education Act whose regulations will cripple India’s private school market. The fundamental problem is that both countries put their resources into educating elite kids—and ignoring the rest.
America is also guilty of educating elite kids and ignoring the rest. Much of public education is funded through property taxes, which means districts with more expensive houses have more money to educate their children. One parent who tried to send her kids to a better school outside their catchment area was sent to jail. This disparity is further compounded by the fundraising by PTAs to further goldplate a school. At the same time, there are rural and inner city schools that don't have a library. We have some great teachers who are pouring their hearts into teaching, but they and their unions are under attack. While budget cuts, low wages, and lack of respect drive away talented teachers, the rich are putting their children into private schools. So much for educating the non-elite.
College education in both countries, especially in engineering, is also vastly overrated. Harvard researcher Vivek Wadhwa has shown that, contrary to conventional wisdom, not only does America graduate comparable number of  engineers to India and China—American engineers are vastly superior.
But unless more Indian and Chinese kids get access to a quality education, their countries won’t be able to actualize their human potential, precisely what America does so well.
These points might be true, but Dalmia doesn't substantiate them here. In what way are American engineers superior? I have heard the arguments in both directions, but let me give this factoid: foreign applicants to graduate programs in science and engineering routinely earn a perfect scores on the quantitative section of the Graduate Record Exam, while American students do not. What human potential is being actualized? While education is definitely a good thing, one's literacy level does not determine one's value as a human being. The value of a human life is not counted in terms of economic output, but in the moments of love and laughter.

And the final point...
America Doesn’t Have a Culture of Hype
An important reason why the gloom-and-doom about America is unjustified is precisely that there is so much gloom-and-doom. Indians and Chinese, by contrast, have drunk their own Kool Aid. Their moribund economies have barely kicked into action and they are entertaining dreams of becoming the next global superpower. This bespeaks a profound megalomania—not to mention lopsided priorities. There is not a culture of hope in these countries, as Giridhardas told Jon Stewart. There is a culture of hype.
By contrast, Americans are their own worst critics—always looking for lessons to improve what is working and fix what’s not. Alexis de Tocqueville observed that although Americans were the freest and most enlightened men placed in the happiest of conditions, “a sort of cloud habitually covered their features.” Why? Because “they were constantly tormented by a vague fear of not having chosen the shortest route that can lead to...their wellbeing."
I agree that the current gloom-and-doom about the US economy is overblown, but it's not because America doesn't have a culture of hype. It's because the extremes make better news than the typical, expected, or mediocre. When the economy is booming, it's not as bright as the news reports make it out to be. When the economy is struggling, it's not as bad as the news reports make it out to be. America is not immune to hype. In our popular culture, there is an abundance of celebrities who are famous for being famous. The stereotype of the loud, overbearing, embarrassingly patriotic, and isolationist American is still prevalent abroad, and is still too often reinforced. (For a glimpse of this, see the portrayal of the US president in the movie Love Actually.)
Indeed, Americans have a grab-the-bull-by-its-horns quality so that they simply don’t hang around hoping for things to get better on their own. If the public school monopoly is failing kids, by golly, then they’ll homeschool them themselves. (Public schools are dysfunctional virtually everywhere, but which other country has spawned anything equivalent to America’s homeschooling movement?) The government responds ineffectually to the recession, modest by historic standards, and Americans go into panic mode. Grass-roots movements such as the Tea Party emerge to rein in the government. Pay Pal founder Peter Theil has even given close to a million dollars to the Seasteading Institute to establish new countries on the sea to experiment with new forms of government. This might be wacky but it puts an outside limit on how out-of-whack Americans will let their institutions get before they start fixing them.
This American spirit, ultimately, is the biggest reason to believe that the American dream is and will stay alive—in America.

The American spirit is indeed a great thing, but it's not the same as the American dream.

According to Wikipedia, the American dream is the "promise of the possibility of prosperity and success." If you ask an average American, what would this dream would include, you'd get a variety of answers. Many people think of it as getting ahead, or having enough to live comfortably and save up for some extras. Home ownership might come up. It's also common to expect to be better off than one's parents. You'd be hard pressed to find anyone who mentioned intangible capital, infrastructure deficit, lack of grinding poverty, our superior education system, or our lack of culture of hype. While these may be true, they are not normally used as evidence that the American dream is alive.

After these rebuttals, what do we have left?
  • Some points that are true, but not relevant to the American dream claim.
  • Some side comments that are off the mark.
  • Some points that are not supported by evidence or a solid argument.
  • Some statistics.
In other words, an opinion that is just plain wrong.

So what do I think? As usual, I think the truth lies somewhere in between. I think things the American dream is not doing as well as Dalmia claims and that things in India and China are not as terrible as she claims. I think there are lots of people who still have the American dream, but are starting to wonder if they're ever going to achieve it, despite their best efforts. I think the world economy is changing and we need to do our best to understand it. I think economic models that are predicated on annual growth levels of 4% or more are busted and unsustainable. I think that the rich getting richer while the poor are getting poorer is not acceptable. We need to find ways of defining success that don't involve things or money. Living with less, living simply, living in harmony with others and the planet-- this sounds to me like a better dream.

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