If Americans could only free themselves from their antigovernment straitjackets, they would begin to see that the U.S.’s problems are not insoluble. A few sensible federal measures could put the country back on the right path. A simple consumption tax of, say, 5 percent would make a significant dent in the country’s huge government deficit without damaging productivity. A small gasoline tax would help wean America from its dependence on oil imports and create incentives for green energy development. In the same way, a significant reduction of wasteful agricultural subsidies and other earmarks could also lower the deficit. But in order to capitalize on these common-sense solutions, Americans will have to put aside their own attachment to the rhetoric of smaller government and less regulation. American politicians will have to develop the courage to follow what is taught in all American public-policy schools: that there are good taxes and bad taxes. Asian countries have embraced this wisdom, and have built sound long-term fiscal policies as a result.
Meanwhile, Europe has fallen prey to a different ideological trap: the belief that European governments would always have infinite resources and could continue borrowing as if there were no tomorrow. Unlike the Americans, who felt that the markets knew best, the Europeans failed to anticipate how the markets would react to their incessant borrowing. Today, the EU is in firefighting mode to stave off sovereign collapse. In concert with the IMF, it has created a $580 billion fund to bail out Europe’s troubled economies. This will buy the EU time, but it will not solve the bloc’s larger problem. Just as Americans need to learn how to intelligently raise taxes, the Europeans need to learn how to intelligently cut expenditures—a challenge that Asian economies were taught to surmount by their own past crises.
Of course, this won’t be the first time the West has needed to relearn its own wisdom from the East. Once upon a time, the great European Renaissance was facilitated by the preservation of Greek and Roman wisdom—lost to Europe during the Dark Ages—in the universities and libraries of the Arab world. Let’s hope the current financial Dark Ages for the West last a much shorter time.