[extropy-chat] Fwd: Countdown to a Meltdown (Part 2)

[Jeff Davis]

COUNTDOWN TO A MELTDOWN 
BY JAMES FALLOWS

Part 2

As the dollar headed down, assets denominated in
dollars suddenly looked like losers. Most Americans
had 
no choice but to stay in the dollar economy (their
houses were priced in dollars, as were their savings
and 
their paychecks), but those who had a choice unloaded
their dollar holdings fast.20 The people with choices 
were the very richest Americans, and foreigners of
every sort. The two kinds of assets they least wanted
to 
hold were shares in U.S.-based companies, since the
plummeting dollar would wipe out any conceivable 
market gains, and dollar-based bonds, including U.S.
Treasury debt. Thus we had twin, reinforcing panics: a

sudden decline in share prices plus a sudden selloff
of bonds and Treasury holdings. The T-note selloff 
forced interest rates up, which forced stock prices
further down, and the race to the bottom was on. 
Because interest rates had been so low for so long,
much of the public had forgotten how nasty life could
be 
when money all of a sudden got tight.21 Every part of
the cycle seemed to make every other part worse. 
Businesses scaled back their expansion or investment
plans, since borrowed money was more expensive. 
That meant fewer jobs. Mortgage rates went up, so
buyers who might have bid on a $400,000 house could 
now handle only $250,000. That pushed real-estate
values down; over time the $400,000 house became a 
$250,000 house. Credit-card rates were more onerous,
so consumers had to cut back their spending. Some 
did it voluntarily, others in compliance with the
Garnishee Amendments to the Bankruptcy Act of 2008. 
Businesses of every sort had higher fixed costs: for
energy, because of the oil-price spike; for imported 
components, because of the dollar's crash; for
everything else, because of ripple effects from those
changes 
and from higher interest rates. Those same businesses
had lower revenues, because of the squeeze on their 
customer base. Early in Bush's second term economists
had pointed out that the U.S. stock indexes were 
surprisingly weak considering how well U.S.
corporations had been doing.22 The fear of just these 
developments was why. 

Americans had lived through a similar
self-intensifying cycle before—but not since the late
1970s, when 
many of today's adults were not even born. Back in
those days the sequence of energy-price spike, dollar 
crash, interest-rate surge, business slowdown, and
stock-market loss had overwhelmed poor Jimmy 
Carter—he of the promise to give America "a government
as good as its people." This time it did the same to 
the Preacher, for all his talk about "a new Democratic
Party rooted in the oldest values of a free and
faithful 
country." When he went down, the future of his party
almost certainly went with him. 
The spate of mergers and acquisitions that started in
2010 was shocking at the time but looks inevitable in 
retrospect. When the CEOs of the three remaining U.S.
airlines had their notorious midnight meeting at the 
DFW Hilton, they knew they were breaking two dozen
antitrust laws and would be in financial and legal 
trouble if their nervy move failed. But it worked.
When they announced the new and combined AmFly 
Corporation, regulators were in no position to call
their bluff. At their joint press conference the CEOs
said, 
Accept our more efficient structure or we'll all
declare bankruptcy, and all at once. The efficiencies
meant 
half as many flights (for "fuel conservation") as had
been offered by the previously competing airlines, to
150 
fewer cities, with a third as many jobs (all
non-union).23 Democrats in Congress didn't like it,
nor did most 
editorialists, but the administration didn't really
have a choice. It could swallow the deal—or it could
get 
ready to take over the routes, the planes, the
payrolls, and the passenger complaints, not to mention
the 
decades of litigation. 

Toyota's acquisition of General Motors and Ford, in
2012, had a similar inevitability. Over the previous 
decade the two U.S. companies had lost money on every
car they sold. Such profit as they made was on 
SUVs, trucks, and Hummer-style big rigs. In 2008, just
before the oil shock, GM seemed to have struck gold 
with the Strykette—an adaptation of the Army's Stryker
vehicle, so famous from Iraq and Pakistan, whose 
marketing campaign attracted professional women. Then
the SUV market simply disappeared. With gasoline 
at $6 a gallon, the prime interest rate at 15 percent,
and the stock and housing markets in the toilet, no
one 
wanted what American car makers could sell.24 The weak
dollar, and their weak stock prices, made the 
companies a bargain for Toyota.25
 
For politicians every aspect of this cycle was a
problem: the job losses, the gasoline lines, the
bankruptcies, 
the hard-luck stories of lifetime savings vanishing as
the stock market headed down. But nothing matched 
the nightmare of foreclosures. 

For years regulators and financiers had worried about
the "over-leveraging" of the American housing market. 
As housing prices soared in coastal cities, people
behaved the way they had during the stock-market
run-up 
of the 1920s: they paid higher and higher prices; they
covered more and more of the purchase price with 
debt; more and more of that debt was on "floating
rate" terms—and everything was fine as long as prices 
stayed high and interest rates stayed low. 

When the market collapsed, Americans didn't behave the
way economic theory said they should.26 They 
behaved the way their predecessors in the Depression
had: they stayed in their houses, stopped paying their

mortgages, and waited for the banks to take the next
step. Through much of the Midwest this was a 
manageable problem: the housing market had gone less
berserk to begin with, and, as in the Great 
Depression, there was a longer-term, more personal
relationship between customers and financiers. But in
the 
fastest-growing markets—Orlando, Las Vegas, the
Carolina Research Triangle, northern Virginia—the
banks 
simply could not wait. The deal brokered at the White
House Security-in-Shelter Summit was ingenious: 
federal purchase of one million RVs and mobile homes,
many of them built at idle auto or truck factories; 
subsidies for families who agreed to leave foreclosed
homes without being evicted by marshals, such that 
they could buy RVs with no payments for five years;
and the use of land at decommissioned military bases 
for the new RV villages. But it did not erase the
blogcam live broadcasts of families being evicted, or
the 
jokes about the "Preachervilles" springing up at Camp
Lejeune, the former Fort Ord, and the Philadelphia 
naval shipyard. 

Here is how we know that a sitting president is going
to lose: he is seriously challenged in his own party's

primaries.27 So if the economic tailspin had left any
doubts about the prospects for the Preacher and his 
party, they were removed by the clamor to run against
him in the Democratic primaries of 2012. The party's 
biggest names were all there: the senators from New
York, Illinois, and Florida; the new governors of 
California and Pennsylvania; the mayor of New York,
when it looked as if the Olympic Games would still be 
held there that fall; and the actor who in his three
most recent films had captured Americans' idea of how
a 
president should look and sound, and who came closest
to stealing the nomination from the incumbent. 
He and the rest of them were probably lucky that their
campaigns fell short—not that any politician ever 
believes that. The Democratic nomination in 2012 was
obviously a poisoned chalice, but a politician can't 
help thinking that a poisoned chalice is better than
no chalice at all. The barrier none of them could have

overcome was the financial crisis of state and local
government.  

All that befell the federal budget during the collapse
of 2009-2012 happened to state and local governments, 
too, but more so. They had to spend more—on welfare,
Medicaid, jails, police officers—while taking in less.

One by one their normal sources of funding dried up.28
Revenues from the multi-state lottery and the 
FreedomBall drawings rose a bit. Unfortunately, the
surge of spending on casino gambling in forty-three 
states and on legalized prostitution in thirty-one
didn't benefit state and local governments, because
except in 
Nevada those activities were confined to Indian
reservations, and had only an indirect stimulative
effect. 
And many governors and mayors faced a reality the
president could avoid: they operated under
constitutions 
and charters that forbade deficit spending. So they
had no practical choice but to tighten the clamps at
both 
ends, cutting budgets and raising taxes. The process
had begun before the crash, as politicking in most
state 
capitols was dominated by "intractable" budget
disputes.29 When the downturn really hit, even
governors 
who had never heard of John Maynard Keynes sensed that
it was a bad idea to raise taxes on people who 
were being laid off and evicted. But they were obliged
by law to balance their budgets. All mayors and 
governors knew that it would be dicey to renege on
their basic commitments to education, public safety, 
public health, and public infrastructure. But even in
hindsight it is hard to know what else they could have

done. California did too much too fast in closing
sixty-three of its 110 community colleges30 and
imposing 
$9,500 annual "user fees" in place of the previous
nominal fees. Its solution to the financing crisis on
its 
high-end campuses was defter—especially the "Great
Pacific Partnership" between the University of 
California and Tsinghua University, in Beijing. This
was a win-win arrangement, in which the Chinese 
Ministry of Education took over the funding of the UC
Berkeley physics, computer-science, and biology 
laboratories, plus the genomics laboratory at UC San
Francisco, in exchange for a 51 percent share of all 
resulting patents. 

State and local governments across the country did
what they could. Fee-for-service became the norm—first

for "enrichment" programs in the schools, then to
underwrite teachers' salaries, then for emergency
police 
calls, then for inclusion in routine police and fire
patrols. First in Minnesota, soon after in Michigan,
New 
York, and Pennsylvania, there were awkward moments
when the governor, exercising his power as 
commander in chief of the state National Guard,
ordered the Guard's medical units to serve in
hospitals that 
had furloughed nurses and emergency-room doctors. The
Democratic president decided not to force the 
question of who had ultimate control over these
"citizen soldiers." This averted a showdown in the
short 
term, but became one more attack point for the
Republicans about weak and vacillating Democrats.
Cities 
within 150 miles of the Mexican border opened
police-service and trash-hauling contracts to
companies 
based in Mexico. The state of Georgia, extending a
practice it had begun in the early 2000s, said that it
would 
hire no new public school teachers except under the
"Partnership for Excellence" program, which brought in

cut-rate teachers from India.31 

The chaos in public services spelled the end for the
administration, and for the Democratic Party in the
long 
run. The Democrats couldn't defend the unions. They
couldn't defend pensioners. They couldn't even do 
much for their limousine liberals. The nation had
never been more in the mood for firm leadership. When
the 
"Desert Eagle" scored his astonishing coup in the
Saudi Arabian desert just before Christmas of 2011, 
America knew who its next leader would be. For a
four-star general to join his enlisted men in a
nighttime 
HALO32 special-operations assault was against all
established practice. The Eagle's determination to go 
ahead with the stunt revealed him to be essentially a
MacArthuresque ham. But the element of surprise was 
total, and the unit surrounded, captured, and gagged
Osama bin Laden before he was fully awake. 
The general's news conference the next day had the
largest live audience in history, breaking the record
set a 
few months earlier by the coronation of England's King
William V. The natural grace of this new American 
hero was like nothing the world had seen since Charles
Lindbergh landed in Paris. His politics were 
indistinct, but if anything, that was a plus. He was
strong on defense; urgent (without details) about
"fighting 
smart against our economic enemies"; and broadly
appealing on "values"—a devout Catholic who had 
brought the first openly gay commandos into a
front-line combat unit. ("When we were under fire, I
never 
asked who they loved, because I knew they loved our
flag.") Political pros had always assumed that 
America's first black president would be a Republican
and a soldier, and they were right. He just didn't
turn 
out to be Colin Powell. 

The only suspense in the election was how big the win
would be. By Labor Day it was clear that the 
Democrats might lose even the District of Columbia,
whose rich residents were resentful about their
ravaged 
stock portfolios, and whose poor residents had been
cut off from Medicaid, welfare, and schools. As the 
nation went, so went the District, and after
fifty-seven presidential elections the United States
had its first 
across-the-board electoral sweep.
  
3. BLEEDING 

The emergencies are over. As our current president
might put it, it's a war of attrition now. His 
administration hasn't made anything worse—and we have
to admit that early on his ease and 
confidence were like a balm. But he hasn't made
anything better, either. If not fully tired of him,
the 
public has grown as fatalistic about the Republicans'
ability to make any real difference as it already 
was about the Democrats'. The two-party system had
been in trouble for decades. It was rigid, polarizing,
and 
unrepresentative. The parties were pawns of special
interests. The one interest group they neglected was
the 
vast center of the American electorate, which kept
seeking split-the-difference policies. Eight years of
failure 
from two administrations have finally blown apart the
tired duopoly. The hopes of our nation are bleeding 
away along with our few remaining economic resources.
 
Here is the challenge: 

Our country no longer controls its economic
fundamentals. 
Compared with the America of the past, it has become
stagnant, classbound, and brutally unfair. 
Compared with the rest of the world, it is on the way
down. We think we are a great power—and our 
military is still ahead of China's. Everyone else
thinks that over the past twenty years we finally
pushed our 
luck too far. 

To deal with these problems once in office, we must
point out basic truths in the campaign. 
These truths involve the past sources of our growth:
savings, investment, education, innovation. We've 
thrown away every one of these advantages. What we
would do right now to have back the $1 trillion that 
Congress voted away in 2008 with the Freedom From
Death Tax Act!33 A relatively small share of that 
money might have kept our aerospace programs
competitive with Europe's34—to say nothing of
preparing us 
for advances in other forms of transportation. A
little more might have made our road and highway
system at 
least as good as China's.35 With what was left over,
our companies might have been able to compete with 
Germany's in producing the superfast, quiet, efficient
maglev trains that are now doing for travel what the
jet 
plane did in the 1950s. Even if we couldn't afford to
make the trains, with more money at least some of our 
states and regions might have been able to buy them,
instead of just looking enviously at what China,
India, 
and Iran have done.36 

Or we could have shored up our universities. True, the
big change came as early as 2002, in the wake of 
9/11, when tighter visa rules, whatever their effect
on reducing terrorism, cut off the flow of foreign
talent 
that American universities had channeled to American
ends.37 In the summer of 2007 China applied the 
name "twenty Harvards" to its ambition, announced in
the early 2000s, to build major research institutions 
that would attract international talent. It seemed
preposterous (too much political control, too great a 
language barrier), but no one is laughing now. The
Chinese mission to Mars, with astronauts from
Pakistan, 
Germany, and Korea, indicates the scope of China's
scientific ambition. And necessity has pushed China
into 
the lead in computerized translation technology, so
that foreign students can read Chinese characters. The

Historic Campus of our best-known university, Harvard,
is still prestigious worldwide. But its role is 
increasingly that of the theme park, like Oxford or
Heidelberg, while the most ambitious students compete 
for fellowships at the Har-Bai and Har-Bei campuses in
Mumbai and Beijing. These, of course, have become 
each other's main rivals—whether for scores on the
World Ingenuity Test or in the annual meeting of the 
teams they sponsor at the Rose Bowl. 

Or we could at last have begun to grapple with
health-care costs. We've managed to create the worst
of all 
worlds—what the Democrats call the "30-30 problem."
Thirty percent of our entire economy goes for health 
and medical costs,38 but 30 percent of our citizens
have no regular contact with the medical system.
(Except, 
of course, during quarantines in avian-flu season.)
For people who can afford them, the "tailored
therapies" 
of the past decade represent the biggest breakthrough
in medicine since antibiotics or anesthesia. The big 
killers—heart disease and cancers of the colon, lung,
breast, and prostate—are now manageable chronic 
diseases at worst, and the big moral issues involve
the question of whether Baby Boomers are living "too 
long." But the costs are astronomical, which raises
questions of both efficiency and justice. Google's 
embedded diagnostic technology dramatizes our problem:
based on nonstop biometric testing of the 
thirty-seven relevant enzymes and organ-output levels,
it pipes into cell-phone implants instructions for 
which treatment, pill, or action to take next. The
system is extremely popular—for the 10 million people
who 
can afford it. NetJet flights to the Bahamas for organ
replacement illustrate the point even more sharply, 
although here the breakthrough was less medical than
diplomatic. The World Trade Organization, after the 
most contentious proceeding in its history, ruled that
prohibiting commerce in human organs for transplant 
was an unjust trade barrier. The ruling may have
caused the final, fatal split in the Republican Party 
(libertarians were jubilant, religious conservatives
appalled), but it became the foundation of an
important 
Caribbean industry after threats of violence dissuaded
many transplant centers from operating within the 
United States. Meanwhile, despite the Strong
America-Strong Americans Act of 2009, which tied 
income-tax rates to body-mass index and cigarette
consumption, smoking and eating junk food have become 
for our underemployed class what swilling vodka was
for the dispossessed in Boris Yeltsin's Russia. 
All these issues involve money, and we can't avoid
talking about money in this campaign. But your ability
to 
address an even harder issue will largely determine
whether you can succeed in the job the voters are
about to 
give you. 

That problem is the sense of sunset, decline,
hopelessness. America has been so resilient as a
society because 
each American has imagined that the sky was the limit.
Obviously it was not for everyone, or always. From 
the beginning we've had a class system, and a
racial-caste system, and extended periods—the 1890s,
the 
1930s, the 1970s, the past few years—when many more
people than usual were struggling merely to survive. 
But the myth of equal opportunity has been closer to
reality here than in any other society, and the myth
itself 
has mattered.
 
My father, in explaining why it was so painful for him
to see a lifetime's savings melt away after the 
Venezuelan crisis, told me about a political speech he
remembered from his own youth. It was by Daniel 
Patrick Moynihan, a Harvard professor who later became
a politician. In the late 1960s, when American 
prosperity held despite bitter political turmoil,
Moynihan told left-wing students why preserving that 
prosperity should be important even to them. We know
Europe from its novels, Moynihan said: the old ones, 
by Austen and Dickens and Stendahl, and the more
recent ones, too. We know it as a static society.
Young 
people, seeking opportunity, have to wait for old
people to die. A whole life's prospects depend on the
size of 
an inheritance. People know their place. America,
Moynihan said fifty years ago, must never become a
place 
like that. 

That is the place we have become. Half this country's
households live on less than $50,000 a year. That 
sounds like a significant improvement from the $44,000
household median in 2003. But a year in private 
college now costs $83,000, a day in a hospital $1,350,
a year in a nursing home $150,000—and a gallon of 
gasoline $9. Thus we start off knowing that for half
our people there is no chance—none—of getting ahead 
of the game. And really, it's more like 80 percent of
the public that is priced out of a chance for future 
opportunity. We have made a perfect circle—perfect in
closing off options. There are fewer attractive jobs
to 
be had, even though the ones at the top, for
financiers or specialty doctors, are very attractive
indeed. And 
those who don't start out with advantages in getting
those jobs have less and less chance of moving up to 
them. 

Jobs in the middle of the skill-and-income
distribution have steadily vanished if any aspect of
them can be 
done more efficiently in China, India, or Vietnam. The
K-12 schools, the universities, the ambitious research

projects that could help the next generation qualify
for better jobs, have weakened or dried up.39 A
dynamic 
economy is always losing jobs. The problem with ours
is that we're no longer any good at creating new ones.

America is a less attractive place for new business
because it's a less attractive place, period.40 
In the past decade we've seen the telephone companies
disappear. Programming, data, entertainment, 
conversation—they all go over the Internet now.
Pharmaceuticals are no longer mass-produced but,
rather, 
tailored to each patient's genetic makeup. The big
airlines are all gone now, and much of publishing,
too. The 
new industries are the ones we want. When their
founders are deciding where to locate, though, they'll
see us 
as a country with a big market—and with an
undereducated work force, a rundown infrastructure,
and a 
shaky currency. They'll see England as it lost its
empire. They'll see Russia without the oil reserves, 
Brezhnev's Soviet Union without the repression.
They'll see the America that Daniel Patrick Moynihan 
feared. 

This story is now yours to tell, and later I'll turn
to notes for the stump speech. But remember that the
reality 
of the story reaches backward, and that is why I have
concentrated on the missed opportunities, the 
spendthrift recklessness, the warnings America heard
but tuned out. To tell it that way in public would of 
course only make things worse, and we can't afford the
recriminations or the further waste of time. The only 
chance for a new beginning is to make people believe
there actually is a chance.

NOTES:

20. Once the foreigners knew that the dollar had hit
bottom, they came back to buy shares at bargain
prices. But the 
currency run of 2009 showed the same pattern as the
tech-stock crash of 2000 and, indeed, the generalized
market panic of 
the 1930s: prices stayed depressed for years, because
investors who had suffered heavy losses were
understandably slow to 
return. 

21. Let's make up flash cards for the speechwriters,
so they are clear about the role of interest rates. 
When interest rates go up, these things go down:
stock-market prices, bond prices, housing prices,
overall economic growth 
rates, overall investment, overall job creation. 

The most important thing that goes up when interest
rates rise is the value of the dollar. We'll save the
cause and effect for 
our policy guys, but make sure the writers have these
points straight. 
For the speechwriters' benefit, let's spell this out
too: Why did the dollar panic raise interest rates?
Two related reasons. 
First, interest rates are ultimately set by supply and
demand. If the Treasury can't sell enough notes at
four percent to cover 
the deficit, it will keep raising the rate—to five,
six, ten percent—until it gets the money it needs.
Second, the main way a 
government can keep up the value of its currency is to
raise interest rates, hoping to attract investments
that would 
otherwise be made in yuan, euros, or yen.
 
22. In the spring of 2005, as stock averages slid week
by week, W. Bowman Cutter, a managing partner of the 
investment-banking firm Warburg Pincus, asked, "Why
are we not in a bull market now?" He said that if you
looked at the 
traditional measures of economic strength—high
corporate investment, rapid productivity improvements,
strong overall 
growth rates—"you would have to say that 2004 was the
best year of the past twenty." Interest rates at the
time were still 
very low. "If you transposed this to any other era in
history," Cutter said, "you would have a very strong
bull market. Why 
not now? Because the market is looking to the
long-term structural problems." If the market couldn't
go up when conditions 
were promising, it had no cushion when the crisis
began. 

23. Jobs in the airline industry had been plummeting
for years. In 2000 the eight largest carriers employed
432,000 people. 
Four years later a third of those jobs were gone. That
meant the loss of 136,000 mainly unionized, mainly
high-wage jobs, 
offset by a small increase in lower-paid jobs at
regional and discount airlines. 

24. U.S. auto companies and the U.S. auto-buying
public suffered in different ways from the "slowness"
of America's industry 
compared with Japan's, China's, and Korea's. It took
Detroit companies three years to shift production from
trucks and SUVs 
to hybrid cars; by that time the Asian brands owned
the market. Also, it took the American fleet as a
whole a surprisingly 
long time to change. The average car on America's
roads is nine years old, and in the course of a decade
only half of all cars 
are replaced. It takes a long time to work the older
gas-guzzlers out of the system.
 
25. The rising value of the euro and the troubled
state of the airline market might well have made
Boeing a similar target for 
the new Airbus-Mitsubishi consortium—but for the
Transformational Air Mobility Industrial Base Act of
2011, which converted 
Boeing's factories to national-defense production
facilities on a par with Navy shipyards.
 
26. Through the boom years speculators would borrow
the entire cost of a house. If they could "flip" it in
a year or two, the 
profit on the sale would offset the interest they'd
paid. But after mortgage rates "floated" up above 10
percent, the 
calculation changed. The house's value was heading
down, and the cost of covering the mortgage was
heading up. If the 
house were just another asset, the rational choice
would be to move out and give it back to the bank. But
houses aren't 
normal assets, and that's not what people did. 

27. The pattern goes back to the very beginning of the
modern primary system, after World War II, and it has
no exceptions. 
If an incumbent faces a serious, vote-getting rival
for his party's nomination, he goes on to lose the
White House. If not, he 
stays in.
 
28. State and local governments tax income, which was
falling; property, whose value was plummeting; and
retail sales, 
which were down as well. The blue states were somewhat
cushioned against the shocks in comparison with the
many red 
states that had declined to impose state income taxes.
Those states depended on property taxes, a
fast-disappearing 
revenue source. Also, since the Nixon years red and
blue states alike had relied on federal revenue
sharing. This was slashed 
as part of the Emergency Budget Act of 2012. 

29. In 2002 the Rockefeller Institute of Government
projected budget trends for the states through 2010,
and found that 
forty-four of them were headed for long-term deficits
like the ones plaguing the federal government. The
difference, again, is 
that many states were obliged to change their policies
to avoid the deficits. 

30. This accelerated a trend that had begun a decade
earlier in California. For instance, when the 2003
school year began, 
some 175,000 students could not find space in
community colleges—which, like K-12 public schools,
had previously offered 
enrollment to all eligible students.
 
31. Gwinnett County, near Atlanta, opened many school
administrators' eyes to this possibility in 2004, when
it brought in 
twenty-seven teachers from Hyderabad. In 2005 an
examination board in England outsourced the grading of
high-school 
achievement exams to workers in India. 

32. For "high-altitude, low-opening" parachute jump.
The jumpers leave the plane at 30,000 feet, free-fall
for nearly two 
minutes, and open their chutes at 1,000 feet, a few
seconds before impact. Because the airplanes are so
high, they cannot 
be seen or heard from the ground; and the jumpers
spend almost no time with their chutes visibly
deployed. 

33. In the spring of 2005 the Congressional Joint
Committee on Taxation estimated that ending the estate
tax would directly 
cut federal revenue by $72 billion in 2015. Other
groups calculated that the total impact on the budget,
including higher 
interest payments on a larger federal debt, would be
$100 billion a year, or $1 trillion over a decade. All
this tax relief flowed 
to the wealthiest one percent of Americans.
 
34. In 1990 the American aerospace industry employed
1,120,000 people. By 2004 that number had fallen by
nearly half, to 
593,000. During those same years the European
aerospace industry was growing in both sales and work
force. In 2003 
Airbus overtook Boeing in world market share for
commercial airliners.
 
35. In 2005 the American Society of Civil Engineers
released a "report card" on the state of America's
infrastructure—roads, 
dams, bridges, aviation, and so on. The overall grade
was D, with the highest mark being C+, for solid-waste
handling. 
According to the report, the most dramatic
underinvestment involved the nation's roads. Simply
maintaining the roads at the 
same level would cost $94 billion, the report said—or
half again as much as actual yearly investment levels.
Improving the 
roads would require about twice as much as the United
States was spending. 

36. In 2003 the city of Shanghai opened the world's
fastest maglev line, whose trains average 267 miles
per hour and arrive 
on schedule 99.7 percent of the time. An editor's note
in the Journal of the American Society of Civil
Engineers pointed out 
that half a dozen maglev proposals for American cities
were "stalled in one stage or another of planning,
permitting, or 
budgeting." The result, the journal's editor observed,
was this: "Traffic congestion on U.S. roads worsens,
energy prices 
fluctuate unpredictably, and, at least for the moment,
China pulls ahead of the United States on the path to
a safe, reliable, 
fast, and efficient means of transporting passengers."


37. Foreign enrollment in U.S. universities increased
steadily from 1971 through 2002. It fell the next
year, and has gone 
down ever since. 

38. It was under 8 percent in 1990 and under 12
percent in 2000. 

39. It's hard to remember or even to believe, but not
that long ago the school system was a valuable social
equalizer. More 
important, it was seen that way. Through the three
golden decades, from the late 1940s (when the GI Bill
kicked in) to the 
late 1970s (when Proposition 13 passed in California),
the federal government and the states put more money
than ever 
before into elementary schools, high schools, and
universities. More students than ever before finished
high school; more 
finished college; more felt they could go further than
their parents had. Proposition 13 was the California
ballot measure that 
cut property taxes by 30 percent and then capped their
future growth. It prefigured the federal tax cuts of
the early 2000s, 
because it pushed the level of revenue below its
historic "band." Before Proposition 13 California's
per capita spending on 
public schools was high, like Connecticut's or New
York's. Twenty years later it was well below the
national average, just 
ahead of Arkansas's.
 
40. In the early 2000s one third of American public
high school students failed to graduate on time. Niels
Christian Nielsen, a 
member of several corporate boards in Europe and the
United States, said at the University of California in
2005, "The big 
difference between Europe and America is the
proportion of people who come out of the system really
not being functional 
for any serious role. In Finland that is maybe two or
three percent. For Europe in general maybe fifteen or
twenty. For the 
United States at least thirty percent, maybe more. In
spite of all the press, Americans don't really get the
education 
difference. They generally still feel this is a
well-educated country and work force. They just don't
see how far the country is 
falling behind.



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