Peter L. Berger's Blog, page 540

Official Numbers Hide Depth of China’s Smog Problem

Remember China’s toxic smog problem? Two years ago stories were coming out about Beijing’s searching for ace pilots to help land planes at the capital, so bad had the situation become. But the dangerous air pollution seemed to fade from international headlines recently, and Greenpeace reported Beijing’s skies were much clearer during the first quarter of this year. As the FT reports, however, China’s official smog numbers aren’t exactly reliable, and the problem may be worse than we think:

In Beijing, [smog] worsened after the environment ministry announced that it had achieved its five-year pollution targets six months early. Research from one government-backed institute suggests the ministry has instead undercounted emissions of sulphur dioxide by about half.

The research highlights the difficulty China faces even quantifying its pollution problem, given the challenge of obtaining accurate statistics. Beijing has pledged to rein in its carbon emissions so that they stop growing by 2030, despite not having published an official estimate of emissions since 2005.A study by the China Environment Chamber of Commerce shows that China emitted about 30m tonnes of SO2 last year, up from 25m tonnes in 2005, based on calculations of coal use by non-power generators such as metals smelters and factories. That contrasts with official figures that SO2 emissions fell to 19m tonnes last year.

In August 2014, China’s Ministry of Environmental Protection said on its website that air pollution had gotten worse from the previous year, and this latest study from the China Environment Chamber of Commerce suggests that, despite high-profile attempts to whitewash the country’s sooty environmental image, some large and quite deadly air pollution problems remain.

This also serves as a reminder of the dubious nature of China’s self-reported statistics. Negotiators at the now-ongoing climate summit in Paris ought to keep the seeming fuzziness of Beijing’s math in mind when they seek (quixotically) to hammer out an agreement to limit global carbon emissions. The fact that the world’s biggest emitter can’t be relied upon to provide accurate data only compounds the challenges facing those delegates.

President Obama’s Foreign Policy Legacy, Libya Edition

President Obama is in Paris for what he hopes will be an important milestone in his presidency: an agreement on global climate. But what is happening across the Mediterranean will likely do more to shape the way the future views his presidential legacy. ISIS is entrenching itself in the chaos Obama created in Libya, just as it took shape in the chaos he allowed to develop in Syria. The Wall Street Journal reports:

Since announcing its presence in February in Sirte, the city on Libya’s Mediterranean coast has become the first that the militant group governs outside of Syria and Iraq. Its presence there has grown over the past year from 200 eager fighters to a roughly 5,000-strong contingent which includes administrators and financiers, according to estimates by Libyan intelligence officials, residents and activists in the area.

The group has exploited the deep divisions in Libya, which has two rival governments, to create this new stronghold of violent religious extremism just across the Mediterranean Sea from Italy. Along the way, they scored a string of victories—defeating one of the strongest fighting forces in the country and swiftly crushing a local popular revolt.

That the President thinks a largely symbolic and ceremonial gabfest in Paris means more to the future than the unravelling of order and the rise of fanaticism in North Africa and the Middle East speaks volumes about his priorities and vision.

The gap between aspiration and accomplishment is the most striking feature of this Administration’s foreign policy. President Obama was going to put nuclear weapons on the glide path to elimination. He was going to rebuild relations between Americans and Muslims and promote the emergence of moderate Islamist democracy across the Middle East. He was going to end the confrontation with Russia based on a new and more understanding relationship with Vladimir Putin. He was going to win the war in Afghanistan and close out America’s remaining military conflicts even as he reduced global jihadism to a few remnants and “junior varsity” wannabes. He was going to make peace between the Israelis and Palestinians.President Obama’s term still has another 14 months to run. Yet it seems less and less likely that he will make significant progress on any of these goals. If so, the outline of his foreign policy legacy is already clear. Future historians and policy makers are more likely to study how we can avoid repeating President Obama’s mistakes than how we can recreate his achievements. In retirement, President Obama and President George W. Bush may find they have much in common.

The Big China Story Nobody’s Really Covering

The Chinese Discovery of the World is one of major stories of our age: For the first time in China’s 2,500 years of history, millions of its citizens are venturing beyond their home towns and cities and out beyond the boundaries of the Middle Kingdom itself. According to the Wall Street Journal, economic troubles mean that fewer Chinese have been traveling abroad this year. Yet despite the tourist slowdown, a large number of Chinese citizens are still going abroad:

Spending on travel abroad fell to $19 billion in October, a chunky drop from the $25 billion spent in September, according to services trade data published Monday. The level is still above the $16 billion spent a year ago in October, but the year-over-year growth rate is ebbing to around 20% from more than 60% in the first half.

The least adventurous of these travelers go with tour companies of the “if today is Tuesday, this must be Belgium” variety. But more and more are coming for longer stays, getting an appreciation for cultures and civilizations very different from their own.

This matters. China has always been the most insular of the world’s great civilizations. At one end of the Silk Road, and cut off by geography from the other great centers of civilization, China never experienced the constant interplay between high civilizations and great empires that characterized, for example, both European and Middle Eastern history from ancient times. China never lived in the presence of the Other, sometimes admired, sometimes feared, in the formative way that German, Latin, Greek, Egyptian, Mesopotamian, Iranian, and Indian civilizations did.When the outside world burst into Chinese awareness in the 19th century, it came as a horror show. Weakened by isolation and introspection, China struggled for 150 years to adapt and to maintain its independence and dignity. Now, thanks to China’s economic development and the technological progress that allows human beings to travel the world, millions of Chinese people are immersing themselves in other cultures and civilizations.This encounter will change China and it will change the world. Understanding how the new awareness of other countries and cultures is affecting the way people in China view their own history and way of life is critical for anybody who wants to see where the 21st century is headed. The great surge of Chinese tourists to sample the wider world’s restaurants, museums, cultural monuments, and natural wonders is one of the forces that is transforming the world as the first global civilization takes shape. Sadly, too many journalists and media outlets seem more interested in fact-checking Donald Trump than in getting their fingers on the pulse of world history. The press lavishes ink on relatively small bore events as one of the most consequential events in our time pass almost unnoticed.

The EU’s Historic Cave to Turkey

The weakness of the European Union has never been so exposed as it now is by the one-sided deal it signed with Turkey over the weekend.

Sensing profound desperation and weakness in his counterparts’ bargaining position, Turkish President Recep Tayyip Erdogan was reported to have driven a hard bargain at the weekend summit. He appeared to walk away with almost everything he wanted: “an initial” €3 billion in assistance for improving the lives of Syrian refugees already in Turkey in order to discourage them from moving to Europe, with top-ups to be negotiated in the future; visa-free travel for Turks to Europe within a year, pending progress on Turkey’s tightening its border security; a re-opening of negotiations for EU accession; and biannual summits between Turkey and the EU to monitor progress.European leaders may think that the deal, despite its shortcomings, will begin to stem the flow of refugees and migrants streaming into the continent. Unfortunately, however, the chances are high that the agreement will not succeed in stopping the flow. Turkey has never been entirely in control of its southern border, where Kurdish militants have been active for many years. If the U.S. cannot control the Rio Grande, Turkey will have even greater difficulty with the wild and unsettled border it shares with Syria and Iraq.Following contentious snap elections that saw Erdogan’s AKP claw back a majority for itself in parliament, Prime Minister Davutoglu was keen to focus on what Turkish diplomacy had wrested for his voters. “Today is a historic day in our accession process to the EU,” he told reporters. “I am grateful to all European leaders for this new beginning.” In reality, however, that particular concession by the EU was probably the most meaningless. At this point, Erdogan’s authoritarian government is as bad a fit for Europe as ever, and the Turkish leader has little interest in giving European human rights law any currency in a country where opposition newspapers are regularly closed down and enterprising journalists are jailed.Nevertheless, the contrast between the arrogance the EU displays when it feels strong—labeling settlement-made Israeli goods, barring desperately poor farmers in Africa from using GMO crops to enhance their productivity and profits, imposing human rights sanctions on countries too small or too far away to retaliate—and the sweeping concessions it makes when it’s reeling, is highly instructive. The deal makes a mockery of European values, it will divide Europe further, and it rewards Erdogan’s bad behavior. Because Europe has no real policy on Syrian refugees and no means of developing one in anything like a timely fashion, it was reduced to paying virtually any price Turkey chose to name.

Puerto Rico Girds for Default

Puerto Rico is set to default on the first of several payments on December 1, which will end up totaling $1.5 billion through the end of January. Puerto Rico’s finances have been deteriorating since as early as 2006, with the bulk of the debt burden currently facing the territory stemming from liabilities in pensions programs. As the Economist notes, the largest government pension program is only 0.7% funded at this point. More:

State pension pots are not in quite such bad shape, but massive liabilities still loom. In Illinois, where the labour force has shrunk by about 3% since 2007, pensions are just 39% funded. Puerto Rico will not be the last local government to run out of money.

Perhaps for that reason, many politicians are adamant that the federal government should never rescue insolvent localities. Detroit, for one, was left to write down its debts in bankruptcy court. Puerto Rico cannot do that. The law bars states and territories from declaring bankruptcy, in order to deter profligate behaviour.

President Obama released a plan earlier this year that tries to address some of these problems (here‘s Peter Orszag’s eloquent defense of it as the best way forward). It calls for increasing the cap on federal Medicaid payments to the territory, on largely humanitarian grounds, to match what the Washington already pays out to the 50 states. It calls for bringing the Earned Income Tax Credit in Puerto Rico to encourage labor force participation. But more controversially, it seeks to extend Chapter 9 bankruptcy protection to the territory as a whole—something that the states themselves don’t have (although individual municipalities within them do). In exchange, the plan proposes to impose a fiscal oversight board on the territory’s government, not unlike the one imposed on the District of Columbia in 1995.

The devil is in the details, of course, and the Obama plan recognizes that the implementation of both the bankruptcy protection and an oversight board would have to be left to Congress. With the first default days away, little progress has been made.We ourselves would favor holding as tough a line as possible on the eventual deal, strictly conditioning relief for reform. We need a policy mix that offers a real chance for recovery, both by forcing the necessary changes on what is clearly a failing approach to government, and in terms of creating conditions under which a refinanced and reformed jurisdiction can actually succeed. And we definitely need to be mindful of the precedents Puerto Rico ends up setting.It’s patently obvious that there is no way out of this mess without paying some money. But the need is to make sure that the money ends up being well spent.

Integration, American Style

With Syrian refugees and Donald Trump’s anti-immigration stance dominating the political debate, the Washington Post ran a fascinating profile of America’s first majority-Muslim city, which just elected America’s first majority-Muslim city council. The local political scene is not PC, but it is very American. And it’s more promising than the Post seems to realize.

Hamtramck, MI used to be a Polish-dominated enclave, a separate city within Detroit. One of John Paul II’s cousins was a city councilman there in the Fifties, and beer and paczki pastries were major touchstones in local life (including a festival for the latter). But “the arrival of thousands of immigrants from Yemen, Bangladesh and Bosnia over a decade,” drawn by relatively low crime and very low property prices, transformed the landscape. Now the city is “23 percent Arabic, 19 percent Bangladeshi and 7 percent Bosnian,” and 27 languages are spoken by children enrolled in its schools. And ethnic differences are starting to spill over into political life:

Business owners within 500 feet of one of Hamtramck’s four mosques can’t obtain a liquor license, she complained, a notable development in a place that flouted Prohibition-era laws by openly operating bars. The restrictions could thwart efforts to create an entertainment hub downtown, said the pro-commerce mayor.

And while [Mayor Karen] Majewski advocated to allow mosques to issue calls to prayer, she understands why some longtime residents are struggling to adjust to the sound that echos through the city’s streets five times each day.“There’s definitely a strong feeling that Muslims are the other,” she said. “It’s about culture, what kind of place Hamtramck will become. There’s definitely a fear, and to some degree, I share it.”

It’s interesting to compare the scene in Hamtramck to that in Brussels where, as we are learning, PC pieties have kept real problems from being addressed. In a much-read article written last week, Dutch anthropologist Teun Voeten addressed the problematic neighborhood of Molenbeek, from which the Paris mastermind came, and the broader problem of European Islamic extremism:

[T]he most important factor is Belgium’s culture of denial. The country’s political debate has been dominated by a complacent progressive elite who firmly believes society can be designed and planned. Observers who point to unpleasant truths such as the high incidence of crime among Moroccan youth and violent tendencies in radical Islam are accused of being propagandists of the extreme-right, and are subsequently ignored and ostracized.

Voeten follows up with several examples, some from his own career, where now-prescient warnings were treated as unspeakable—and meanwhile, real problems festered:

The neighborhood was hardly multicultural. Rather, with roughly 80 percent of the population of Moroccan origin, it was tragically conformist and homogenous. There may be a vibrant alternative culture in Casablanca and Marrakech, but certainly not in Molenbeek.

Over nine years, I witnessed the neighborhood become increasingly intolerant. Alcohol became unavailable in most shops and supermarkets; I heard stories of fanatics at the Comte des Flandres metro station who pressured women to wear the veil; Islamic bookshops proliferated, and it became impossible to buy a decent newspaper. With an unemployment rate of 30 percent, the streets were eerily empty until late in the morning. Nowhere was there a bar or café where white, black and brown people would mingle. Instead, I witnessed petty crime, aggression, and frustrated youths who spat at our girlfriends and called them “filthy whores.” If you made a remark, you were inevitably scolded and called a racist. There used to be Jewish shops on Chaussée de Gand, but these were terrorized by gangs of young kids and most closed their doors around 2008. Openly gay people were routinely intimidated, and also packed up their bags.

As Walter Russell Mead wrote earlier this week, “[Brussels] is a city that holds up a glittering facade of international institutions and high ideas to the outside world, while its insides fester with societal breakdown and with the murderous death cults that exploded into the world’s awareness in Paris last week.”

The process going on in Hamtramck is undoubtedly a lot messier on the surface. But it’s hard not to conclude that it is nevertheless much healthier: some kind of a real conversation is going on. The early morning calls to prayer broadcast next to residential communities on the one hand, and the questionable welcome from certain longterm residents on the other, are real, local concerns. The specter of Islamic extremism and problems with integration worldwide are going to be a presence in everyone’s thinking, whether vocalized or not; so too is the nativism debate happening in America. But it’s happening out in the open.An open if occasionally offensive conversation that airs real concerns, political organization along ethnic lines, and a resultant give-and-take would all have been familiar to the grandfathers of the city’s Polish residents from their own day. Familiar too would be concerns about the about the overt religious dress and self-ghettoization, political leanings, and ability to integrate into America’s culture—in that day, of the Eastern European orthodox Jews, socialist Polish emigres, Irish Catholics. Then, in fact, the fringes of the domestic scene were much more radical: the “second” KKK was virulently anti-immigrant, while immigrant and second-generation anarchists were responsible for the Haymarket Riot bombing and the assassination of President McKinley.But by and large the rough-edged political exchanges of places like Detroit, Chicago, and New York in the early 1900s led to the most successful examples of integration the world has ever known. Now, the past is precedent, not exact analogy. The Islamic world has its own set of issues right now, and the world is interconnected in ways that would have seemed impossible in 1900. So will this very American process work this time? Who knows. But it’s been very successful so far. There are reasons to be hopeful.

An Unnecessary Crisis

Turkey’s NATO allies have by and large stood by Ankara in the wake of Turkey’s downing of a Russian Su-24 bomber this past Tuesday. As President Obama has argued, every country has the right to defend itself. The Turks and the Russians have been on opposing sides of the Syrian civil war, with Moscow intervening to bolster the fragile regime of strongman Bashar al-Assad and Ankara almost from the beginning supporting a slew of armed opposition groups wanting to overthrow Assad.

The differences over Syria notwithstanding, however, there are a number of open questions about this story. The first is the violation of the Turkish airspace itself. Allegedly, the Russian bomber, which was presumably loitering while waiting for target coordinates, spent a total of 17 seconds in Turkish territory. Prior to shooting it down, the Turks tried to radio the Russian aircraft ten times in the space of five minutes, to no avail.Still it seems hard to believe that such a minor violation would merit a shootdown, even if, as the Turkish side claims, there had been similar violations earlier. The irony is that then-Turkish Prime Minister, and now President, Recep Tayyip Erdogan had bitterly complained in 2012 when the Syrians shot down a Turkish air force jet that had allegedly strayed into Syrian airspace. At the time he pointedly argued that “a short-term border violation can never be a pretext for an attack.” How was the situation different in the Russian case? Besides, Turkish and Greek aircraft routinely violate each other’s space; neither side would even think of shooting down the other’s aircraft.Second, Obama’s articulation of Turkey’s “right to defend itself” does not really apply in this case. Russia and Turkey are two friendly countries that have extensive trade, tourism, and other ties. Russian President Vladimir Putin and Erdogan had vowed to raise the trade volume to $100 billion by 2023. Turkey buys large amounts of gas from Russia. They are both dependent on that trade; Turkey consumes large amounts of energy, and the Russians need the foreign exchange earnings this trade provides. Hence an armed bomber on the fringes of Turkish territory is an unlikely threat to any country, much less an important member of NATO. Why would Turkey feel threatened by that single aircraft? Why would the Russians, who are already saddled with numerous other problems, threaten a friendly country? In other words, this was not a case of self-defense but rather one of defending one’s sovereignty.So why did Turkey shoot the plane down? There are two possible explanations, though neither is completely satisfying. The first is that the Turkish F-16s were given rules of engagement that required them to engage any aircraft that penetrated Turkish airspace, especially if the opposing craft failed to respond to emergency communication requests. The policy may have been put in place precisely because the Russians appeared to regularly violate Turkish airspace. Yet this is far too important decision to be left to individual pilots or perhaps even their ground controllers. Attacking a Russian plane entails a risk of engulfing the NATO alliance in a confrontation that it may not be seeking. NATO predictably supported Turkey, just as it had done in 2012 when the roles were reversed.The second explanation is that this was a deliberate act by Turkey. Ankara had been ready for any intrusion of its airspace, having made up its mind in advance of this particular incident. In this scenario, given the five minutes spent trying to radio the Russian jet, the Turkish military had ample time to consult with their political bosses; this is not a decision the Turkish General Staff would have taken on its own without civilian prodding. Given the high stakes involved, what would encourage the Turkish leadership to take such risks?The Turks seemed particularly upset at the Russian bombardment of its allies, the anti-Assad Turkmen militia. Turkey has invested a lot of support in this militia; Erdogan publicly admitted that they had been supplying it with arms. Another worrying factor for Ankara was the growing post-Paris consensus to prioritize the fight against the Islamic State at the expense of the fight against Assad, which has always been Turkey’s primary focus. Finally, the mood in the West regarding Putin’s bullying tactics, from Ukraine to Syria, had turned sour.Still, even if the Turks were confident of NATO support and correctly judged the growing Putin fatigue in the West, this remains too risky of a decision for any country to take. The decision requires a great deal of self-confidence, as well as an element of risk-taking. All this points to President Erdogan, who possesses both of these attributes.Turkey may now realize that it has overplayed its hand. Erdogan, who initially said there was nothing to apologize for, is now saying that if they knew it was a Russian plane they would probably have acted differently. Erdogan likely changed his tune because Putin didn’t lose any time in retaliating against Turkish interests: Turkish convoys in Syria delivering supplies to the opposition have been bombed, Turkish businessmen have been denied entry at the Moscow airport, tourism packages are being cancelled, and Moscow is contemplating other measures, including the elimination starting January 1, 2016 of the visa-free travel program. The most worrisome, however, is the increasing arsenal, including S400 advanced air defense systems Russia has brought into Syria. This, more than anything else, will make life harder for allied aircraft over Syria and is clearly something Washington wished would never have happen.Eventually the tensions will subside, but for the moment two mercurial leaders are confronting one another. How long the confrontation will last depends on their particular calculations.

Bollywood Star Decries “Growing Intolerance” in India

Complaints of intolerance have intensified since Hindu nationalist Narendra Modi’s inauguration in 2014 and contributed to his BJP party’s defeat in the populous northern state of Bihar several weeks ago. Now, Bollywood star Aamir Khan has joined the chorus of artists and intellectuals decrying the trend.

After accusations that he was being unpatriotic, Khan has refused to back down, according to The Times of India:

“I stand by everything I have said. To all the people shouting obscenities at me for speaking my heart out, it saddens me to say you are only proving my point,” Aamir Khan said in a statement.

“First let me state categorically that neither I, nor my wife Kiran, have any intention of leaving the country. We never did, and nor would we like to in the future,” Aamir says in the statement.“Anyone implying the opposite has either not seen my interview or is deliberately trying to distort what I have said. India is my country, I love it, I feel fortunate for being born here, and this is where I am staying,” he says.

That one of Bollywood’s top stars (most of whom are Muslim) is taking on the Hindutva movement brings India’s messy identity politics into some focus. Prime Minister Modi was elected in part because the secular Congress ideology was failing to create a national purpose and a set of unifying values. But the only real alternative, Hindu nationalism, alienates India’s sizable minority groups. Ethnic tensions in India have been known to turn violent, notably under Modi’s watch in the Indian state of Gujarat. That ever-present possibility, combined with the domestic effects of a flagging world economy, are cause for concern.

Poll: Support for Climate Agreement Down

With the COP21 global climate summit kicking off next Monday in Paris, a new shock poll found declining support across the globe for a tough climate agreement. The BBC:

Only four now have majorities in favour of their governments setting ambitious targets at a global conference in Paris.

In a similar poll before the Copenhagen meeting in 2009, eight countries had majorities favouring tough action.The poll has been provided to the BBC by research group GlobeScan.Just under half of all those surveyed viewed climate change as a “very serious” problem this year, compared with 63% in 2009. […]All told an average of 42% of those polled want their government to play a leadership role in setting ambitious targets, while another 41% want their government to take a more moderate approach and support only gradual action.“The public are less concerned about climate change, and when you put that in the context of the climate conference in Paris, the findings show less support for an ambitious and binding agreement at a global level than there was ahead of COP15 in 2009 in Copenhagen,” said Lionel Bellier, from GlobeScan.“It’s not an abrupt change of views, the trend seems to be now towards a softer approach.”

A “softer approach” seems eminently sensible to us. The fact remains that any unwieldy agreement hashed out among world leaders with wildly differing agendas will be practically unenforceable, at thus will be only marginally effective if it succeeds in moving the needle at all. The whole circus is at best a distraction, and at worst a growth-killing boondoggle which will provide the world economy with yet another layer of restrictive, expensive bureaucracy to be gamed by the nimble and to be paid for by the slow-witted.

Alas, public opinion alone has never deterred globalist bureaucrats from forging boldly ahead with their schemes. We’re nearly certain this time around will be no different. 

Getting to the Next American Dream

The American financial system is failing small businesses. The Wall Street Journal has some eye-popping statistics:

The biggest banks in the U.S. are making far fewer loans to small businesses than they did a decade ago, ceding market share to alternative lenders that charge significantly higher rates.

Together, 10 of the largest banks issuing small loans to business lent $44.7 billion in 2014, down 38% from a peak of $72.5 billion in 2006, according to an analysis of the banks’ federal regulatory filings.Through August, banks this year originated 43% of business loans of up to $1 million, down from 58% for all of 2009, according to PayNet Inc., a tracker of small business credit.

This matters much more than most people think.

New business start-ups are the lifeblood of the American economy, now more than ever. Even in normal times, small business is where most of the new jobs come from. It’s small businesses that revitalize neighborhoods, give poor people a chance to get ahead. And ultimately, it’s some of the small businesses of today that will become the innovative big firms of tomorrow.But these aren’t normal times, and small business matters even more. We live in times when the old drivers of employment like big business, government, and the NGO sector are less and less effective at generating growth and prosperity. The collapse of employment in the manufacturing sector, and the steady pressure on white collar and clerical work driven by automation, means that established firms aren’t generating jobs as quickly. That’s driving wage stagnation and exacerbating inequality. And the new normal of slower job growth also means that many of the conventional career tracks in business and the professions aren’t as reliable a glide path to a comfortable middle class existence as they used to be.Accelerating the formation of innovative new businesses is the only real way to address this problem in the long run. Millennials and their successors are going to have to create the jobs they want rather than hoping that corporate and government bureaucracies will provide them with lifelong careers.This isn’t an impossible dream. Today labor costs are relatively low and information and communications technology are creating resources that smart and creative people can use to build new businesses. Harnessing the power of the internet and information technology to improve the lives of people around you is one of the greatest business opportunities of all time. But as a society, we are making it harder, not easier, for these creative new business ideas to emerge.Part of the problem is that the natural response to the financial meltdown of 2008 has been to regulate against, rather than to regulate for. That is to say, the financial industry has been saddled with heavy costs and enormously complicated compliance regulations. And a greatly engorged bureaucracy in Washington continues to churn out new regulations in a cascading stream. Some regulation was clearly needed in the wake of the meltdown, but many of the consequences have been perverse. The higher regulatory overhead means that big banks (who can afford teams of lawyers, compliance officials and lobbyists) now enjoy even more advantages over small banks than they did before the crash. But the new policies also steer banks away from small loans to struggling new businesses. Those loans cost more to make than big loans to well known companies with long track records; the big banks want big loans to solid customers to help them bear the weight of the new regulatory superstructure the politicians and bureaucrats rigged up.Again, some of this is inevitable, and the history of Western banking is in part the construction of more sophisticated forms of prudential regulation to allow financial systems to work at a greater scale in more complex environments. But what’s missing is a sense that the health of small business is essential to our economic well being, and that part of the work of effectively regulating the banking system is to ensure that small businesses and startups can access the credit they need under favorable conditions.In past essays on the history of the American Dream, I’ve pointed out that in the 19th century the American ideal was the owner-occupied, single family farm. A substantial majority of Americans lived on their own farms during much of this time, enabling them to enjoy high living standards and personal independence and security. Throughout the first 125 years of American independence, government policy aimed to make it easier for Americans to achieve and live that dream. The Northwest Ordinance, the Louisiana Purchase, the Homestead Act, the promotion and regulation of railroads, the establishment of land grant colleges that taught scientific farming methods to the sons and daughters of farmers: all these polices (to say nothing of the use of federal troops in the Indian wars that opened land for settlers) were organized around the desire of ordinary Americans to own their own farm, and to escape the poverty and servile dependency of peasant life in Europe. America’s democratic aspirations expressed themselves in government policy aimed at enabling millions of ordinary Americans to live in their own way on their own land.Late in the 19th century and continuing into the 20th, the advent of the industrial revolution made the family farm obsolete. Mechanized agriculture required larger investments than most single family farms could make, and farm prices fell to levels that depressed rural incomes. For decades American politics was rocked by the consequences of the decline of the family farm and the absence of an alternative version of the American Dream. Populists, socialists and anarchists assailed a rotten system; inequality grew. Many believed that the American system was doomed and that the Dream had vanished forever.The crisis was resolved by the rise of the manufacturing and services economy of the 20th century, and a new version of the American Dream developed. In the 20th century, the single family home, lifetime employment and guaranteed retirement stood at the center of the American economy, American society and American politics. As is inevitable in a democratic society, government policy once again centered on assisting Americans who wanted to live the dream. From Social Security to the GI Bill and beyond, government policy shifted to meet the new realities. The financial system, with lots of prodding and support from government worked to inaugurate an era of cheap housing, rapid suburban expansion, and infrastructure for automobiles that got workers from their houses to their jobs.We are now in what appears to be yet another transitional era. The old system works less and less well, but, as in the 1880s and 1890s, we aren’t yet sure what the new version of the Dream will be like.Over time, we will start to get a clearer vision of what a prosperous information based economy will look like, but one thing is already clear: version 3.0 of the American Dream is going to depend much more on small business. The family owned business, perhaps operating out of the single family home, is likely to play a larger role in the new economy. As the ‘big box’ economy of traditional factory and big businesses continues to shed jobs as it becomes more efficient, more Americans are going to have to make their livings outside the old system. Even if the ‘single family firm’ does not replace the single family farm as the foundation of American national life, family owned businesses will need to play a major role in the information economy that is beginning to emerge.We will need a credit system that is better at helping small businesses get launched, an educational system that builds entrepreneurial character rather than churning out bureaucratic functionaries and docile factory workers, and regulatory systems that encourage and support rather than discourage and inhibit the formation of new businesses—and new types of businesses.Forward-thinking politicians, and the think tankers who want to help them, need to put the financial problems of small business at the top of their agenda. Just as the 19th century developed an agenda to help people own farms, and the 20th century developed ways of allowing more people to build homes and get higher education, the 21st century needs to develop regulatory fixes and policy initiatives that help people start and operate small businesses.It’s a measure of how badly our priorities are out of whack that, as of now, things are headed in the wrong direction. It is easier than ever to borrow tens of thousands of dollars to fund a BA and graduate education program that will leave students with no marketable skills and a lifetime of debt. It was so easy to get home mortgages during the last bubble that flipping Miami condos became a national sport. But when it comes to financing the next wave of American growth and the future of the middle class, our financial system is coming up short.