The Endangered American Dream
There Is No Peace or Mutually Beneficial Trade in Luttwak's World
AUGUST 01, 1994 by JEFFREY A. TUCKER
Filed Under : War, Free Trade
Edward Luttwak, of the Center for Strategic and International Studies, is obviously a brilliant man. His prose is concrete. It packs a punch. He marshals enough facts and anecdotes to his side of the debate to provide the appearance of an infallible case. It is easy to see how his previous book, Pentagon and the Art of War, became a bestseller.
But at the heart of The Endangered American Dream lies a deception. For all Luttwak’s attacks on free trade, his frenzied warnings of Japanese “economic power,” his aggressive call for centralized industrial planning, his desire for a global war for American economic supremacy, what he really seems to fear is a return to normalcy after the Cold War.
In a very revealing passage, Luttwak writes that America “has only two modes: internal strife over ideas . . . or a marvelous cohesion in the presence of a threatening external enemy. The Soviet Union performed that function very well for more than forty years,” but now that threat is gone. A “basic instinct of American society is to search for an external enemy that can assure its cohesion—and Japan is the only possible candidate.”
This passage has marvelous explanatory power. If it were written to demonstrate what’s really behind Japan-bashing—culminating in the Clinton administration’s walking out of trade talks in February 1994—he makes a compelling point. But, instead the passage is troubling, since the author’s protectionism is designed to unite the citizenry in loyalty to the central state.
He is far from the only one in Washington to fear our present lack of some grand international mission. The entire industry of big government would find itself in mortal danger in the absence of an ominous foreign threat. Rather than fret about foreigners, the public would be likely to ask some interesting questions. The foremost is: What do we get in return for sending $1.5 trillion to Washington each year besides pork barreling, a permanent welfare class, and bureaucratic trouble? Frenetic fears of foreigners are powerful enough to drive such fundamental questions out of public debate.
According to Luttwak, we are supposed to fear Japan’s “investment” in high technology, its state-subsidized industries, its high levels of education, its long work hours, and its tribal loyalties. If the United States doesn’t match them trick for trick, Luttwak warns, especially by jettisoning whatever free trade principles we have, we are going to be economically sunk.
In Luttwak’s world, there is no peace or mutually beneficial trade. All economics is war. When foreign corporations invest in new technologies, they are not attempting to make a buck or satisfy consumers; they are trying to drive our companies into the ground, humiliate us, and rob us of our national pride. When American companies invest in foreign countries, they are not boosting profits, but invading the enemy territory and striking where they are most vulnerable.
Luttwak views every trade slight as a bomb lobbed at American shores. Hidden trade barriers are the “geo-economic equivalents of the ambush,” circumventing GATT rules amounts to “customs-house conspiracies,” subsidized technology is “the equivalent of weapons innovations,” and state-guided capital investment is “firepower.” This is Cold War thinking gone mad: he has yet to make the psychological transition from war to peace, or the mental switch from geopolitics to plain economics.
There is no reason to fear Japan’s Ministry of International Trade and Industry, or MITI, the way the CIA fears the KGB. It is a government bureaucracy, much like the Commerce Department, with the usual share of calculation errors. Government agencies are going to win sometimes and lose other times. Recall that MITI recommended that Honda should stick to making motorcycles, a point which does not receive prominent notice in Luttwak’s book. History demonstrates that in the long run, it’s the “unpicked” industries that have done well in the marketplace.
During economic decline, there’s always a temptation to emulate any economy with a faster rising gross domestic product. In the thirties, for example, the New Deal brain trust tried to copy the Soviet system under the mistaken impression that the Russian GNP was zooming. During the 1990 U.S. recession, moreover, hatred and envy of Japan was at its height. So was the Japanese stock market. Nowadays, the economic fortunes of the two nations have crisscrossed. Mixed economies like those of the United States and Japan ebb and flow, depending on a whole variety of factors, including the rate at which the central bank expands money and credit, and the degree to which tax and regulatory police successfully interfere with economic decision-makers. It’s best to stick to economic principles rather than hastily lunge from one central-planning fashion to another.
Nonetheless, Luttwak is a compelling prophet of doom. If you’re looking for bad news, this is the place to find it. As he points out, our savings rate is at historic lows, and this is causing harm to long-term prosperity. But Luttwak concludes from this that we need a new consumption tax to skew the benefits and penalties the other way. Like Clinton, he wants more “investment” in the private sector by the public sector (based again on the alleged Japanese model), though there is no evidence that this would help at all.
A more sustained attack on the present state of American public education hasn’t been published anywhere. That is to be appreciated. But in the end, Luttwak spoils even this by his call for federal government standards and testing, two “solutions” that are somehow never connected to the problem.
Throughout The Endangered American Dream, we are treated to masterful polemics, stunning pieces of information, and a sweeping understanding of national trends and economic troubles. Missing is any coherent theory as to why the American dream is indeed endangered. The real reason has to do with the cost of government, but Luttwak is not interested in discussing this. His supposed solutions actually present a greater danger than the status quo itself.
If we adopt his prescriptions—and we seem to be doing so under the current administration—we’ll never return to that normalcy Luttwak so fears. That’s unfortunate. A nation stuck in the mire of the mixed economy needs internal strife over ideas most of all. Only this kind of battle—-not that kind that Luttwak longs for—will bring back liberty, which is the core of the American dream. 
Mr. Tucker is editor at the Ludwig von Mises Institute in Auburn, Alabama.