Media Clip: Debating Policy on China and the U.S. Economy

Media Call: Debating Policy on China and the U.S. Economy

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Republican presidential candidates are calling for Washington to get tougher on an assertive China and reduce the size of the U.S. government. In a media call, contributors to the upcoming May/June issue of Foreign Affairs make the opposite case, calling for patience with China and a significant public role in boosting the domestic economy.


Jacob S. Hacker

Director of the Institution for Social and Policy Studies and Stanley B. Resor Professor of Political Science, Yale University

Stephen G. Brooks

Associate Professor of Government, Dartmouth College


Gideon Rose

Peter G. Peterson Chair and Editor, Foreign Affairs

ROSE: Hi, everybody. Welcome to another Foreign Affairs conference call. We have a great couple of guests to talk with us today. Steve Brooks is associate professor of government at Dartmouth, and Jacob Hacker is director of the Institution for Social and Policy Studies and Stanley Resor professor of political science at Yale. And they both are authors of pieces in the new issue of Foreign Affairs, which will be coming out—well, it’s being mailed to people in the next few days. And some of it’s already out on the Web today, including their pieces, which are co-authored, by the way, with Paul Pierson for Hacker and Bill Wohlforth for Brooks.

Now, guys, I’ve been following the campaign closely this year and last year, as has everybody. And I’ve learned that the United States is losing. It’s losing continuously in every arena, and it’s doing so because the people in government are idiots or incompetents or possibly even people who want to see America lose.

And I was a little surprised to read your pieces, which present a somewhat different view. So Steve, why don’t you tell us why you think it’s true that we’re not, in fact, losing relative, let’s say, to a country such as China, which I gather was eating our lunch and cleaning our clock across the board, but you seem to disagree. Explain.

BROOKS: Yeah. So before saying it, I’ll just say that one of the advantages of being a professor at Dartmouth in New Hampshire is that we actually have the opportunity to see all the presidential candidates up close. So I went to go see Donald Trump. I went to go to see Rand Paul. I went to go see Chris Christie. I went to see a whole bunch of these folks.

And it’s true that when you hear the rhetoric, it’s just kind of shocking for me as a scholar to hear people saying the U.S. is declining and it’s rapidly just kind of falling off the face of the earth when it just doesn’t square with what I understand to be the case when I look at the data and when I look at the theory.

And I think what’s going on is that, you know, people are just not recognizing that the past, in terms of how states have risen in the past, how Germany caught up to Britain, all those experiences do not apply to the situation today. The situation today is so different, and the result is that China is rising, but it has not risen. And the United States maybe, maybe a little bit, especially on the economic front, is declining. But in an overall sense, the U.S. has not declined and the U.S. is going to be, in our assessment, the sole superpower for many decades in the future.

And just super quickly, the bottom-line thing to understand in terms of how the world today is different, such that China’s rise will be much, much slower than any past rising state, is that all past rising states were essentially technologically at the same level as the leading state. So think of Germany in the early 20th century. It was the same technologically as Britain, whereas China is just at a fundamentally lower level than the United States technologically.

And the other thing that’s different in our view is that the way in which weapons are now developed is so much more difficult. They’re so much more complex. It takes so much more time that it’s no longer the case that you can expect any kind of effort by any state, especially China, to move from having a military which is a regional military into having a true global military. The process by which that would take any state to do it is something you should measure in decades, not years.

And so, just as an example, when the British invented the dreadnought in 1905, the Germans looked at it and were incredibly impressed, and three years later they had the exact same thing, whereas now, you know, something like a U.S. Virginia-class submarine, the Chinese cannot produce that now. They just do not have the technological capacity to make that. If and when they did, it would not take them three years to make it. It would probably take more like 20 years to make it.

ROSE: OK. So if your take and your take with Bill is that unipolarity will continue for the foreseeable future and the United States is still vastly dominant against sort of everybody except China and still majorly dominant against China, then why do we see things like Russian planes buzzing American warships in the Baltic or China building islands or the U.S. unable to get its way?

If we’re not declining and we’re still dominant, why does it feel like we’re no longer in charge of the world?

BROOKS: Well, I think the big thing is that, you know, we’re all human beings, and the way we process the world is that we give a lot of significance to events that we can see and we don’t give much significance to things that we can’t see. And the reality is that, you know, I want to be very clear that Bill and I are not saying that the world is exactly the same as it was in 1995 or 2005. The U.S. is not as dominant as it once was, especially in the economic realm. Things have changed on the military front which do matter, mostly in the area of very close to Russia and China. They have the ability to push us back in the way that they couldn’t before.

But if you look at the overall global picture, the main thing that our power advantage gives us is to prevent certainly really big, bad things from happening—major security races, arms races, security problems in major regions, nuclear proliferation all over the place, not just in limited cases; the global economy breaking down into regional blocs instead of being open.

Most of what U.S. grand strategy is designed to do, and most of what our massive power advantage still enables us to do, is to prevent those kind of events from happening. But they just don’t show up in the headlines. You know, there’s no headline which says for the 70th year in a row China didn’t invade Taiwan. For the 70th year in a row the global economy didn’t break down into regional blocs. For the 70th year in a row Japan and China didn’t end up in a security dilemma.

ROSE: (Laughs.) I like that. That would be really boring paper. (Laughs.) But it’s an interesting point. So we’re too complacent and take for granted all the up side that is prevented compared to the historical norm and focus on the few things that haven’t yet been fixed.

BROOKS: And we don’t have a metric for gauging the significance of the negative events that we see. You know, so do I think it’s great that China is making these islands? No, I do not. But is the fact that China is making these islands a fundamental threat to regional stability in East Asia? Is it a fundamental threat to, you know, overall freedom of navigation within the ocean? Is it a fundamental threat to the overall order? I think the answer to all those questions is no.

And we have a tendency—again, because we focus on things we can see—to sometimes give them far greater significance than they actually deserve. And so a big thing that we argue in the piece is kind of like that the U.S. needs to keep its eye on the ball. It needs to recognize that its grand strategy is still working, largely to do the things that it’s designed to do, which is these really big, important things, and to not become kind of overly worried and to overreact to what we really consider to be kind of small-ball events.

ROSE: Jacob, let’s turn domestically now. You know, the other general charge in the indictment is not just that we’re losing, but we’re losing because the people in government are scoundrels or idiots or incompetents and that, in fact, the way to reverse the losing streak is to replace all these idiots and scoundrels and so forth with people who are better, or get rid of government entirely and let the natural genius of the population and markets and the private sector take care of things, and that basically government is the problem rather than the solution and that that’s what has caused various sorts of malaise, various sorts of problems, various sorts of underperformance in the domestic economic arena, putting aside for a second the international arena.

Do you agree with that?

HACKER: (Laughs.) It won’t surprise you that I don’t. And Paul Pierson and I in this piece, which is titled “Making America Great Again”—a little reference to contemporary affairs—in this piece and in our book, we—“American Amnesia”—we really push back against the idea that the problem is government.

I mean, that’s been our rhetoric since Ronald Reagan said government is not the solution to our problems; government is the problem. And you have leading candidates like, you know, Ted Cruz just throwing off that we—you know, the idea that we could abolish the IRS, which might make it a little harder for us to do the kinds of big investments in research and development that Steve has pointed out are the reason that we’re so far ahead of other nations, and particularly China, technologically.

And so, I mean, I think there is a common theme here across these two pieces, and that’s that we tend to not look at the big picture, because of course the immediate to and fro of the campaign is very captivating. But if we miss the big picture, then we really misunderstand what’s at stake in this election.

So the big picture here is that the United States got rich not in spite of government but in large part because of government, and that in the 20th century we used, to quote the political economist Charles Lindblom, we used the strong thumb of government alongside the nimble fingers of the market to really, you know, produce a revolutionary transformation of our society.

And we’re still—you know, to some extent we’re coasting a bit now, but we’re still vastly, vastly better off, and improving in many areas, because of those massive investments and regulatory changes and new programs that were put in place in the 20th century. And we saw a huge increase in life expectancy, huge increase in income, huge increase in educational levels, in technology, in knowledge.

And I just want to say that, to sort of bring it full circle, that I do see a threat to our preeminent position in the world. And I can’t speak as knowledgeably as Steve can to the military geopolitical side of it. But one threat is just the—we’re seeing our government working less and less well to maintain the strong social and economic and health outcomes that we built up in the 20th century. So we’re getting better in a lot of areas, but much more slowly than in the past.

And, you know, I think that’s an even less attractive headline, right. You know, things are getting better slowly because of government. You know, I can see—I can hear eyelids drooping on the other end of the line. So, you know, that’s not an exciting headline, but that’s basically the story. And I think the story we want to tell is if we could get our government working better again, and that’s possible, we have a really—we have a lot of prosperity, a lot of money on the table that we could see. So happy to talk more about what that would mean.

But I’ll say just, you know, in response to your question, it’s not just that we have, you know, feckless leaders. In fact, it’s a really systemic problem, and it has to do with the transformation of our business community and the transformation of the two parties, in particular the Republican Party, and how that’s interacted with our very distinctive governing system.

ROSE: So you have populists on both the left and the right in this electoral cycle basically attacking establishment elites, arguing that the system is corrupt and cronyistic and in the thrall to various protected interests and that that’s part of the problem.

You sort of agree, to a certain extent, with some of that, right? I mean, your previous books have attacked those kind of themes. But your solutions differ a little bit from either the Trump or the Sanders or the Cruz camps kind of thing.

HACKER: Yeah. I mean, so, you know, the mixed economy, that strong thumb and those nimble figures, I mean, it’s not just about getting the economic policy right, doing the big public investments or regulating the negative effects of industry like pollution. It’s also about making sure that the thumb is somewhat independent of the fingers, right, so that you don’t have government captured by powerful interests.

You know, and when you get policy that really caters to those narrow interests, what economists call rent seeking, then you get things like health care prices that are so high that they’re the main threat to our long-term fiscal future, and therefore to our economic preeminence more broadly.

So we think there’s a lot of such rent seeking. What we want to remind people is that—of two things. One is that rent seeking a lot of times takes the form of government not acting, right? So if we’re not dealing with climate change, that’s a huge threat to our future. And the only way we’re going to deal with it is if—through some means. The public sector makes private actors pay the social costs of their carbon emissions, right? So and that’s—that’s a negative externality on the rest of society that will only be—

ROSE: Wait. So you argue that climate change is a classic example of a negative externality that requires government intervention—

HACKER: Absolutely.

ROSE: —to overcome—

HACKER: Absolutely.

ROSE: —the self-interested behavior of market participants who wouldn’t otherwise address the real problem.

HACKER: Exactly.

ROSE: Can you explain that a little bit more?

HACKER: Yeah. No, that’s—well, that’s—you have done a great job explaining it. I mean, the point I’m trying to make is that the fact that energy producers and users are able to worsen climate change without paying any costs is a huge rent—i.e., a huge subsidy for them. And that’s—the point we’re making is that government in some areas has to be stronger, not weaker, if we’re going to deal with the kind of crony capitalism that both right and left talk about.

The second thing I would say here—and this is really important—is that—and I think it links very closely to what Steve was saying—you know, that we tend to think about government as mostly about redistribution. Even the—you know, both the left and the right think about it that way. The left likes it, more or less, that redistribution, and the right doesn’t. But the truth is that a lot of what government does is really—is about positive-sum investments and regulations that make almost everyone better off.

You know, George W. Bush put it best when he said, you know, we need to make the pie higher. (Laughs.) So a lot of these policies are about making the pie higher. And that’s our basic point is that there’s actually a lot of potential for that. But to do that, we need actually more and more effective government in key areas rather than weaker and more hamstrung government.

ROSE: OK. So I thought Steve gave a good answer to why people don’t understand the point that he and Bill are making, which is that they don’t see the advantages of things that don’t happen, of avoiding catastrophes that otherwise would have occurred. But what’s your argument in that front, which is what you just said sounds quite commonsensical to me and it sounds like a logically defensible point, why is it so unappreciated? And why is the idea that we’re leaving money on the table by underestimating in public goods something that sounds almost like some kind of crazy alien thing in the contemporary political environment rather than the obvious common-sense thing?

HACKER: Well, thank you, Gideon. I am now the crazy alien on the line. So, yeah, so I—

ROSE: (Laughs.)

HACKER: I think it’s a great question. So the first thing I’d say is that it wasn’t always thus, right. And I do think, as Steve points out in his piece, that the existential threat of the Cold War really changed the conversation in the mid-20th century in a way that a broad cross-section of what we now, you know, mock as the establishment, a broad cross-section of the establishment was on board with this mixed economy. And that included Eisenhower and Nixon and it included moderate Republicans like Mitt Romney’s father, George Romney, who was the governor of Michigan. And it included business leaders and the groups representing them, mostly notable the Committee for Economic Development, which was this big moderate business group that has largely disappeared from the scene.

So the story of what happened, I think, is complex and there are many pieces, but I think it can be boiled down to two big shifts. One was the financialization of the business community and the transformation of the organizations representing it. So the Chamber of Commerce does not look like the Committee for Economic Development. The Koch brothers do not look like—do not look like the Committee for Economic Development.

The second is what happened to the Republican Party over this period. Now, Democrats deserve—Democrats basically ran for the fox hills when government came under fire, but the Republican Party was really the party that pushed a lot of this. And I think the fair reading of it is that although initially this was a big response to popular concern about government overreach and inflation in the 1970s, that the Republicans basically found that they could kind of engage in a crusade or attack on government that was really destructive to its capacity to do things and not only not pay a political price for that but actually benefit. So it was a kind of vicious cycle.

And that’s how you transit from, you know, a Richard Nixon or even a George H.W. Bush, right, who created the Clean Air Act and Americans with Disabilities—who amended the Clean Air Act dramatically. And, just so you know, the Clean Air Act is probably worth one to two years of additional life expectancy in the United States since the `70s. But that—you know, George H.W. Bush was much more moderate on these issues.

But, you know, if you look at the people running for president today, even Donald Trump, who’s obviously not as focused on the anti-government rhetoric and certainly not that worried about Social Security or Medicare, you just really see a party that no longer is able to talk about or engage realistically with a lot of the real issues concerning how we make our government work better and the real need for government in a complex, interdependent world.

ROSE: You’re putting all the blame on one side of the aisle. And I’m wondering whether that—

HACKER: I’m not. I’m not. (Laughs.) As I said—

ROSE: But what I’m saying—for example, what you just said, I’m struck by that line. The Clean Air Act added one to two years of life expectancy for Americans. That—I haven’t heard that put like that historically. And I’ve heard lots of times about how the EPA and environmental regulations are killing jobs, screwing business, getting in the way of growth and prosperity.

Why is it so hard for politicians on the opposite side of the aisle to say what you just said? Is it because they don’t want to or because they themselves don’t understand it or because they thought they would pay a political price for it? I just don’t get it.

HACKER: Yeah, I think it’s all of those. I mean, we titled our book “American Amnesia” because we think there’s a real sense in which people have forgotten how central government was to our economic rise. But so there is definitely a more hard edge, what we call in the book a kind of hard Randian attack on government, which sort of describes it as parasitic on the economy and, you know, as a zero-sum—in a zero-sum conflict with the market.

But that’s not the dominant narrative. I mean, I think the dominant narrative is what we call kind of soft Randian view, which says, oh, yeah, well, we need government in some ways. But, you know, we’re basically—the private sector is where all the mojo of the economy comes from, and government is bumbling and incompetent.

And, you know, the thing that I think it’s hard to—I’m not sure I have the exact—the final answer to this. But what I think has happened is a kind of vicious cycle where, if one side doesn’t talk at all—it’s kind of a spiral of silence—about the virtues of government, and the other side is attacking it, and that side that’s not talking about the virtues of government, namely, you know, those who actually believe in it, the Democrats, then that’s in part because they’re responding to some of the same private interests that want to hurt government capacity.

And you get—the last thing I would say is that it’s just the collapse of public trust in government which is abetted by this spiral of silence, I think, is also just—it’s a fundamental reality of American politics today. So most Americans like the specific things government does but think that government is—almost cannot comprehend government doing a good job, even though there’s lots of areas where government does do a good job.

So the only way you get out of this, I think, is you have to start creating something more like a virtuous circle, where there’s more rhetoric that’s positive, more actions that are effective and visible, more elections that hinge on actual constructive use of government, and sort of a slow rebuilding, because it’s not going to happen overnight, of this faith, basic faith in the need for and capacity of government within a mixed economy.

ROSE: OK. So let’s—

BROOKS: I have one thing to add, Gideon—

ROSE: Sure.

BROOKS: —to link the papers together, which is that I do think what’s going on is somewhat similar to, you know, what Bill and I are saying in the piece in that, you know, a lot of what government does which is helpful in terms of advancing America’s, you know, overall capacity, both for its citizens but also its overall competitiveness in the world, you can’t easily see because there are a lot of things we’re doing now and they’re working, and the only way to see how well they’re working is if we stop doing them.

And so let me just also note, just to be more concrete on this, is that I do think, in terms of, like, you know, what I’m afraid of—I mean, and I should be clear that, you know, we end the piece by saying the U.S. position in the world is so secure that the only way in which the U.S. could kind of, you know, tumble in any kind of rapid fashion would be if we impose—make self-inflicted wounds on ourselves.

The one we highlight in the paper is a foreign-policy one, which is you can’t do more things like Iraq. But everything I think Jacob is referring to is also on the table and we would agree with and that I think that, you know, if you look at what the Cold War did, you know, the Cold War basically said we are in a worldwide fight with the Soviet Union, and if we and our allies do not kind of raise our game economically and technologically, then our security will be threatened.

And in that environment, if Eisenhower says to make us competitive in the world, I want to invest the government in terms of advancing education or I want to invest the government in terms of advancing technology, that’s a very compelling argument, and highways. And if you think about, like, in technology, we still are doing a great job in terms of investing in military R&D. We spend right now $79 billion every year on military R&D. The number two country is China at, like, $6 billion. So on that dimension, we’re doing an awesome job and we continue to do an awesome job. But the two areas where I’m concerned, very much related to the things that Jacob is talking about, is in terms of overall technological capacity, not military technology, we’re not doing as well. We are either cutting back or thinking about cutting back.

And in education, you know, we’re in real danger. And if you think about, like, for example, the University of California system, I mean, the best public university system in the entire world, any government anywhere would love to have that. We created that. We created that by having government invest in it. And now, you know, all we have to do is maintain it, which is far easier than creating it, but we’re in danger of not even doing that.

ROSE: The same thing happened—presumably what you just said would be true of Wisconsin as well, and yet that voted for Cruz.

BROOKS: Yeah. And it’s one of the issues in terms of, you know, a lot of the investments that we made which made America great now were things that were done during the Cold War in which you had a consensus and also normally presidents looking at the encompassing overall interests of the country and saying, look, you know, building highways, that makes sense. Investing in education, that makes sense. Raising taxes in order to be able to increase R&D spending and investment, that makes sense. And so you really would need someone at that overall level so you have the whole country saying why they’re doing it.

In terms of what Jacob was talking about, like why don’t you hear this, if I was, you know, able to make this case, I would shift it a lot more to the international arena and basically say, you know, if you don’t want to fall behind China, you have to do these kind of investments. They are a national-security imperative. That argument is, I think, correct, and also one that would be politically very strong.


HACKER: Gideon—

ROSE: Yeah?

HACKER: Could I just jump in here real quick? Because I just want to mention UC Berkeley, because I think that’s a really great example of the kind of common story we’re telling. So UC Berkeley was created as a land-grant college, so it actually wasn’t just the state of California but the federal government, by giving federal land, that started this great institution.

Among the graduates of UC Berkeley was Andy Grove, the Intel—the former CEO of Intel, who—and Silicon Valley pioneer, who just passed away recently. And it’s really notable to me that in Silicon—that he was one of the few people in recent memory in Silicon Valley—you know, contrast him with Steve Jobs—who actually recognized how important government’s role was and often talked about it. In fact, you know, he had gone to City College. Then he went to UC Berkeley.

He went to Fairchild Semiconductors, which was essentially the Department of Defense’s way of, you know, incentivizing and funding the private sector to create transistors and circuits for military uses. And then he went to Intel and, you know, became this iconic figure. And I—you know, we point out in the book that every component, major component, of the iPhone originated in government research. And we don’t notice that, and we are rarely told that even by the people in Silicon Valley, who’ve benefited the most from it, who have a kind of—I don’t know—sort of strange kind of bite-the-hand-that-feeds-them kind of dismay and disdain for government. But that’s what needs to happen.

And so one thing I would say is that this isn’t just a problem for political leaders. It’s actually a problem for business leaders. And with, I think, some pressure, including the kind of pressure that comes from a candidate like Bernie Sanders, you know, we may see more—a more centrist, moderate business group gaining ground. Right now they’re mostly mobilized around, you know, issues of gay rights and other—and sort of atavistic state laws around gender identity and abortion and standing your ground and the like.

But, you know, those social issues might be the gateway to a more engaged position on the kind of economic issues that Steve was just talking about. At least we can hope that that will happen, because I think we need a push from all sectors of our society.

ROSE: You could point out that Grove was also a refugee.

HACKER: He was. That’s totally true. I mean, when we became the world’s leading scientific power during the Cold War, it was in part because we attracted—our liberty and our investments in science attracted scientists from all over the world. And we quickly became the world’s leader in Nobel prizes, for example.

BROOKS: And it’s—

ROSE: I should point out—

BROOKS: —another case in which, you know, it’s easy to take for granted. We’re so used to people wanting to come to the United States that we, you know, feel like we can, you know, perhaps think about being really discriminating and perhaps not let many people in. Every other country in the world would love to be in our position in which the best and the brightest people overwhelmingly—if they could choose one place to go, it would be here. You know, we just take that for granted.

And if we, through our rhetoric or through our actions, essentially undermine this kind of overall good will of people in terms of them concluding that America is not a welcoming place, then we won’t have everyone wanting to come here. And that may not be something that’s easy to repair.

ROSE: I should mention that in the same issue as your guys’ pieces, there’s also a piece by Treasury Secretary Jack Lew, which follows on some broadly similar themes as your guys’ pieces. He was not here for this call because he wouldn’t want to be on with the likes of you two. (Laughter.) It’s worth taking a look at that piece as well.

So let me turn this over to questions from our distinguished guests on the call. Any questions you might have for Steve Brooks or Jacob Hacker or anybody else? Well, those are the ones on the call. Have at them.

OPERATOR: Thank you, sir. At this time we’ll open the floor for questions.

(Gives queueing instructions.)

Please hold on the line while we compile our questions.

ROSE: OK, while we’re—

OPERATOR: I’ll turn it back over to Gideon Rose while we are compiling questions.

ROSE: Sure. OK, so—

OPERATOR: (Gives queueing instructions.)

ROSE: Let me give each of you a follow-up on a specific issue that you’ve raised and I think is problematic, which is—or that requires some follow-up. So Jacob, you talked about the cycle, the vicious cycle of government doing badly, being distrusted, getting fewer resources, and then doing even worse, and try to turn that into a positive cycle.

One of the things that was so depressing to me about the last several years was—well, like everybody, I think—was the rollout of, let’s say, and then some of the scandals, whether it was the IRS or other kinds of scandals, which basically seemed to indicate that even the party that wanted to use government more and that was trying to invest in government more didn’t really seem to pay a lot of attention to improving institutional performance or executing properly, as if the policies mattered rather than just—you know, rather than following through on the implementation and so forth.

And so the end result of even something that has done pretty well in some respects gets tarnished by scandals that make the public, you know, skeptical about what government can do. How do you fix that kind of thing? How do you actually make government work better?

HACKER: Well, I mean, so the first thing I’d say is that I completely acknowledge that government works less well, and in some cases much less well, than it should. I—and I think that’s part and parcel of the decline in the kind of, you know, more rational discourse about government and making it work well that we’ve had.

And, you know, the decline in the capacity of the federal government in particular, you know, is really remarkable if you think about the just flat-lining or even in real terms declining of investment in R&D—I mean, in discretionary spending, which is sort of basically all of the core government functions, besides the military and the social insurance programs.

And then you have, at the same time, public employees—federal employees essentially being declining as a share of the population so that all of the stuff is getting contracted out in ways that are often less effective and efficient. So you can see how the attack on government is actually producing some of these outcomes.

But the other thing I would say is that I think our—we’re still receiving too negative of a view of what’s happening. I think the media world does play into this, because, again, that story that Steve said or the story that I just talked about—things are getting better slowly because of government—doesn’t play very well.

And think about the way in which the two issues that you mentioned were covered, right. I mean, the initial botched rollout, which was completely embarrassing and really telling about the poor technological expertise of the federal government, was followed, of course, by the Affordable Care Act actually performing really quite well, I mean, meeting all of its goals for coverage without driving up costs. I mean, there’s a little hint of a premium increases now. But up till now it’s been quite a good story. And for the most part, that story has not been heard. In fact, you know, most Americans are unaware of most of these elements.

And then the other one you mentioned is the IRS. I mean, you know, tomorrow is tax day. Well, actually, technically it’s actually not due till Monday because tomorrow’s a federal holiday. But April 15th is the day that we all think about taxes. And why do we want to rip the IRS apart? That’s what we’ve been doing. I mean, the scandals that have been discussed—and I won’t go into the details—have been massively inflated.

There is definitely some bad behavior and poor management behind them, but overall the IRS, you know, what, spends about $11 billion to collect over $3 trillion in taxes. And its budget and its personnel have been gutted since the late `90s when there was a, you know, massive attack on the IRS that occurred under Newt Gingrich and then where most of those who might defend the agency ran for the foxholes.

So we really would do a lot better—I mean, every dollar we invest in collecting tax—in better enforcement yields $6 in additional revenue. So it would actually be a good thing if we had a more powerful IRS that worked better. And yet nobody’s talking about making the agency stronger and more effective.

ROSE: Interesting. So, Steve, let me ask you a question about China.


ROSE: China clearly is feeling its oats a little bit in terms of its foreign policy and its ability to project power.

BROOKS: Right.

ROSE: The South and East China Seas with the islands.

BROOKS: Right.

ROSE: And I take your point about the broader strategic picture and the global picture. But there clearly is a sort of problem in the near—you know, China’s near abroad, you might say.


ROSE: And your—I’m a little unsure about exactly what you guys recommend about dealing with that. I have a teenager, and sometimes the best thing to do is to not—is to develop a certain kind of deafness and not hear some of the grumbling or obstreperousness—


ROSE: —or attempts to “utsch” me that my son will engage in, because it’ll just—he’s not going to act on it, but just letting it pass without notice allows him to blow off steam—


ROSE: —but without getting into a conflict. Is that essentially the policy you recommend towards China, which is essentially ignore this kind of stuff they’re doing because they’re not actually going to fight a war with us and we don’t want to provoke a conflict?

BROOKS: Well, I mean, China is asserting itself in its region and, you know, globally in a variety of different ways. And I wouldn’t want to say that in general that we should ignore it. But there definitely are situations that are very much, you know, along the lines of what you said, in which the mistake that Washington has made has been to overreact; you know, to see something that China is doing, which, by almost any objective measure, is minor and inconsequential, and to blow it up into being a crisis and to kind of respond in a way that it’s a crisis, which actually is counterproductive to U.S. interests.

So a key example that I can talk about on this front, which Bill and I talk about at the very end of our piece briefly, is the Asian Infrastructure Investment Bank. And so this was a situation where China wanted to create this bank and really wanted to do it for two reasons. One is China is in Asia and, you know, it will be able to improve its relations with countries there and have probably a more prosperous region if the infrastructure in Asia is functioning well. And there’s not enough infrastructure in Asia. And so it has money. It wants to invest it there. And there wasn’t enough money coming from the World Bank, and so it saw this need.

It also, of course, didn’t do it just to be, you know, nice or to try and help overall economic growth in the region. It did it to increase its status. And, you know, that’s something that all rising powers do. And what Bill and I would say is, OK, if China is doing this bank, and it’s doing it in part to increase its status and it’s doing it to fill a real concrete need, that seems fine. You know, why is that a problem?

And what happened was that the Obama administration looked at this and said this is a threat to the overall order. This is a threat to the World Bank. This is a threat to the Bretton Woods system, and then went on to lobby many of its allies, military allies especially, to not join the bank. And they said no. Britain joined. All these other allies joined. And the result was that something which was inconsequential, was not a threat to the order, was built up by the United States as being this momentous kind of event, and we lobbied our allies and we failed. And it turned into this kind of stunning diplomatic defeat for us, and in the process, strangely, gave China way more status than it actually reasonably should have deserved for doing this thing. And so we need to, when we see China doing things, not overreact.

And on the military front, an example I can give is that, you know, in the ’90s, early 2000s, the U.S. could essentially do anything it wanted near China’s borders; if we wanted to, and we sometimes did, you know, literally engage in artillery practice with our ships very close to Chinese borders. For a supposed great power, China, to not be in a position to block that is historically just kind of incredible to think about, to think about here’s a country we consider a great power and it can’t prevent another state from coming right up to its coast and doing essentially whatever it’s wanted.

China did not like that, and since has invested tens of billions of dollars and decades of effort to be able to push us back, to be able to push our ships and our planes away from their coast so that, you know, we can’t just do whatever we want next to them. That’s seen as a big change in the status quo. And in Washington, both among civilian policymakers and defense policymakers, they got, many of them, up in arms about this, concerned about this, feeling like this is something in which we used to have all this freedom of action, and now we don’t.

But if you take a step back and you ask, you know, how much of it is a problem that, you know, we don’t have complete freedom of action, in my assessment and Bill’s assessment, we would say, for what we really want to do in Asia, this is not a big problem. And the mistake, the thing that we could do which would be harmful, would be to again kind of see something which is basically relatively routine in international politics—a great power has some control near its borders—to overreact to that. And our initial reaction was to overreact in that we created a very escalatory and dangerous military policy, which was largely designed to regain the freedom of action that we had lost.

This was the so-called air-sea battle strategy. I won’t go into all the details, but basically it involved rapidly striking the Chinese mainland, you know, if there ever was any kind of situation in which our ships or planes were threatened. And we don’t need to have that policy. It was a mistake. We shouldn’t try to regain all of our freedom of action. We should recognize that there are some things that China will want to do which are not a big deal, and we shouldn’t kind of blow them overboard.


OPERATOR: (Gives queuing instructions.)

ROSE: Last chance to ask the socialist quislings appearing in the pages of Foreign Affairs something about their arguments about managed decline and increasing statism.

OK. Well, everybody’s got busy schedules. I don’t want to keep all of you too much.

Steve Brooks and Jacob Hacker, thank you guys very much for great pieces and a good discussion.

Thank all of you on the call for participating, and we’ll see you next time.

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