American Gridlock: Why the Right and Left Are Both Wrong - Commonsense 101 Solutions to the Economic Crises

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John Wiley & Sons, Dec 14, 2011 - Business & Economics - 288 pages
2 Reviews
A sensible solution to getting our economy back on track

Pessimism is ubiquitous throughout the Western World as the pressing issues of massive debt, high unemployment, and anemic economic growth divide the populace into warring political camps. Right-and Left-wing ideologues talk past each other, with neither side admitting the other has any good ideas. In American Gridlock, leading economist and political theorist H. Woody Brock bridges the Left/Right divide, illuminating a clear path out of our economic quagmire.

Arguing from first principles and with rigorous logic, Brock demonstrates that the choice before us is not between free market capitalism and a government-driven economy. Rather, the solution to our problems will require enactment of constructive policies that allow "true" capitalism to flourish even as they incorporate social policies that help those who truly need it.

Brock demonstrates how deductive logic (as opposed to ideologically driven data analysis) can transform the way we think about these problems and lead us to new and different solutions that cross the ideological divide. Drawing on new theories such as game theory and the economics of uncertainty that are based upon deductive logic, Brock reveals fresh ideas for tackling issues central to the 2012 U.S, Presidential election and to the nation’s long-run future:

  • Demonstrating that the concept of a government “deficit” is highly problematic since it blinds us to the distinction between a good deficit and a bad deficit – where a deficit is good if it results from borrowing dedicated to productive investment rather than to unproductive spending.
  • Deriving the need for a U.S. Marshall Plan dedicated to very high levels of profitable infrastructure spending as the solution to today’s Lost Decade of high unemployment
  • Drawing upon a logical extension of the Law of Supply and Demand to demonstrate how the health-care spending crisis can be completely resolved by letting supply increase at a faster rate than demand
  • Utilizing the theory of bargaining inaugurated by the “Beautiful Mind” mathematician John F. Nash, Jr., to help us avoid being repeatedly duped in our negotiations with China
  • Making use of a completely new theory of market risk recently developed at Stanford University to demonstrate why dramatically limiting leverage is the key reform to preventing future Perfect Storms, whereas hoping to banish “greed” amounts to whistling Dixie
  • Deducting from first principles a solution to the contentious issue of fair shares of the economic pie, a solution that integrates the two fundamental norms of “to each according to his contribution” and “to each according to his need.”

Profound, timely and important, American Gridlock cuts through the stale biases of the Right and Left, advances new ways of thinking, and provides creative solutions to the problems that threaten American society.


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User Review  - ktp50 - LibraryThing

Was okay. I was expecting some sort of deep penetrating insight about todays most vexing political issues (social security, healthcare, foreign relations). However the book was mostly a summary level ... Read full review

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My one liner: Subtitled "Why the Right and Left are Both Wrong - Commonsense 101 Solutions to the Economic Crises." Although it has some flaws, this book is a rarity in the post-financial crisis literature, as it heavily emphasises first principles rather than over-analysing with macro data. Highly accessible to the layman.
The Oprah Winfrey Book Club Lottery:
“Suppose you and I are both accomplished writers of exactly the same age and reputation. We have both sold about the same number of books, yet we both only make $75,000 per year because we write “serious” books. Now, suppose a random event occurs: Oprah Winfrey opens up her book club. We both now face an equal chance that she might notice one of our next two books when they are published, read the book, and recommend it strongly to her audience. If I am the lucky one, then my income will soar from $75,000 to $5,000,000, and likewise for you if you are the lucky one.”
Well, let’s just do a deal. Let’s just enter into a contract whereby we agree to split the earnings 50/50, whoever gets the book deal. That way we both lock in a profit of $2,500,000. Pure free market economics right ?
At the end of this review, you can find how the author H. Woody Brock, (Harvard then Princeton PhD, uses this example to show us why progressive income taxes are
Elsewhere, the part I like most in this book is the analysis entitled “Must there be a Lost Decade ?”, largely I suppose because it is the part that has most relevance internationally in terms of ameliorating fiscal deficits. Brock demonstrates how we can have our cake and eat it, by increasing GDP growth and at the same time reduce long term fiscal deficits, hence preventing a Lost Decade 2010-2020. The answer lies in ensuring Government Spending is redirected towards “productive spending” on profitable investments (human capital and infrastructure). A new Marshall Plan.
Under conventional thinking it is most unlikely that these two goals can be achieved. First principles tell us:
Government Deficit = Net Private Savings + Net Foreign Capital Inflows.
Or, for the non-equation-minded, a government deficit must be funded either by (1) the domestic private sector, or (2) by foreign capital. That’s it. The late Wynne Godley of Cambridge University and the late Professor James Tobin of Yale were both proponents of this approach. So, if a government wants, say, to increase GDP growth by 2% (from the current 2% to 4%) and simultaneously reduce the government deficit by 7% (from an unsustainable 10% of GDP to a more sustainable 3%), then Net Private Savings must fall by 9%, as per the above equation. Simple.
Except that this is more or less impossible in current circumstances. Households are overly indebted, business investment confidence is low, and unemployment is rising, so the chances of a boom in overall investment spending from the private sector are...b**ger-all.
But, the insight from Brock is to focus on what we mean exactly by Government Deficit”. He engages in a Socratic Dialogue with President Obama, in order to propose a massive increase in Productive Spending.
So, out of a $4 trillion budget, $1 trillion should be invested in investments which generate positive returns, and the remaining $3 trillion (matched by tax receipts of $3 trillion) on “unproductive” spending (defence, interest payments, administrative costs, social and medical care etc).
Bond markets like this because this because the country is not running up
a structural deficit which must be serviced by future generations.
What does “productive”investment mean ? It means that...
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Read the rest of the review here:


Dialogue of the Deaf
Must There Be a Lost Decade?
Resolving the Entitlements Spending
A SupplySide Solution to the HealthCare Crisis
An Analogy from Agricultural Reform
Expert Systems and Automation
Preventing Perfect Financial Storms
Bargaining Theory 101
Beyond Democratic Capitalism

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About the author (2011)

H. Woody Brock is President and founder of Strategic Economic Decisions (SED), Inc., a firm that provides economic and financial market analysis to financial institutions, corporations, and investors. He has authored numerous Op-Ed pieces in the New York Times, the International Herald Tribune, and a variety of professional journals, and speaks regularly at investment conferences and forums. He is known worldwide as a speaker and writer adept at taking complex ideas and theories and expressing them logically and clearly. Brock was elected an Andrew Mellon Foundation Bicentennial Fellow of the Aspen Institute. He earned his BA, MBA, and MS (in mathematics) from Harvard University, and his MA and PhD from Princeton University.

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