Foreword . . . xii About the Authors . . . xviii Introduction: The White House Plants Its Seeds of Destruction . . . 1 Part I Getting from Seeds of Destruction to Seeds of Prosperity . . . 7 Chapter 1 America's Four Growth Drivers Stall and Our Economy Stagnates . . . 9 The GDP Growth Drivers Equation . . . 11 GDP Growth Has Been Well Below Potential Growth . . . 12 The American Consumer's Roller Coaster . . . 15 Where Has All the Business Investment Gone?. . . 19 There's Too Much Government Spending . . . 21 Net Exports Are a Net Negative . . . 25 Conclusion . . . 27 Chapter 2 How to Lift the American Economy with the Ten Levers of Growth . . . 29 Lever One: Free Markets Free of Corruption and Monopoly Best Promote Growth . . . 29 Lever Two: Free and Fair Trade Helps All Countries Grow . . . 31 Lever Three: Entrepreneurship Is the Linchpin of Long-Term Growth . . . 33 Lever Four: Without Savings, There Can Be No Investment and Growth . . . 34 Lever Five: Without a Stable Banking System and Strong Financial Markets, Savings Can't Be Transformed into Investment . . . 35 Lever Six: Innovation and Technological Change Matter More Than Machines and Workers . . . 36 Lever Seven: "Human Capital" Matters as Much as Physical Capital . . . 38 Lever Eight: Oil Price Shocks Stunt the Growth of Oil-Import-Dependent Nations . . . 39 Lever Nine: A Healthy Nation Is a Productive and Prosperous Nation . . . 40 Lever Ten: A Solid Manufacturing Base Makes for a Strong Economy . . . 41 Part II Fixing America's Destructive Duo: Monetary and Fiscal Policy . . . 47 Chapter 3 Why an Easy-Money Street Is a Dead End . . . 49 The Return of Fed Activism . . . 52 The Maestro or a Bubble Maker? . . . 53 President Obama Crosses the Activist Rubicon . . . 54 The Road to American Prosperity Cannot Be Paved with a Cheap Dollar . . . 57 Where Have You Gone, William McChesney Martin? . . . 60 Chapter 4 Why You Can't Stimulate Your Way to Prosperity . . . 63 From John Maynard Keynes to the Kennedy Tax Cut Revolution . . . 66 Part III Getting the "Big Three" Right: Tax, Trade, and Energy Policy . . . 83 Chapter 5 Why Raising Taxes Lowers America's Growth Rate . . . 85 Ideological Gridlock Over Broad-based Tax Reform . . . 88 From a "Class Tax" to a "Mass Tax" . . . 91 From Double Taxation to Double Whammies . . . 93 Income Tax Evolution or Consumption Tax Revolution? . . . 95 Meeting on the Middle Ground . . . 97 Chapter 6 Why the Best "Jobs Program" May Be Trade Reform . . . 101 The 2000s: A Decade of Large and Chronic Trade Deficits . . . 103 America's Trade Deficits Cause Inflation and Loss of Political Sovereignty. . . 104 The World's Poster Child for the Modern Protectionist-Mercantilist State . . . 104 China's Great Wall of Protectionism . . . 106 China's Eighteenth Century Mercantilism . . . 111 Chapter 7 Why America's Foreign Oil Addiction Stunts Our Growth . . . 125 How Does America's Oil Import Addiction Harm Our Economy? Let Us Count the Ways . . . 128 Risky Business . . . 130 Moving Toward Forging a Political Consensus on Reducing Oil Import Dependency. . . 132 The Smart Path Embraces Both Soft- and Hard-Path Options . . . 133 The Folly of Energy Independence Redux . . . 136 Achieving a Targeted Reduction in Oil Dependence . . . 137 Why This Proposal Has Economic and Political Merit . . . 140 The Thorny Politics of Oil Import Fees . . . 142 Part IV Good Politics Usually Makes for Bad Economics . . . 147 Chapter 8 Cutting the Gordian Knot of Entitlements . . . 149 The Imperative of an Economic Rather Than Accounting Solution . . . 151 Why Social Security Is Easier to Fix Than Medicare and Medicaid . . . 153 Saving Social Security in Two Easy Pieces . . . 154 Closing the Social Security Spending Gap: What Won't Work . . . 158 Closing the Social Security Spending Gap: What Can Work . . . 161 Forging a Political Consensus . . . 165 Saving Medicare and Medicaid: Mission Impossible? . . . 167 A Flexible and Focused Way Forward . . . 168 Chapter 9 Why ObamaCare Makes Our Economy Sick . . . 173 The Big Health Care Picture . . . 174 Are We Getting What We Are Paying For? . . . 176 ObamaCare Puts the Coverage Cart Before the Cost Horse . . . 178 ObamaCare Provides a Far-Too-Sweet Entitlement . . . 180 Truth or Consequences . . . 181 ObamaCare and the Law of Unintended Consequences . . . 183 Toward a More Market-Driven Health Care System . . . 184 What Can Be Done? . . . 191 Conclusion. . . . 192 Part V The American Economy at a Crossroads . . . 197 Chapter 10 How to Prevent Another Financial Crisis-and Housing Bubble. . . 199 #1: Easy Money . . . 201 #2: Not Enough "Skin in the Game" for American Home Buyers . . . 202 #3: Not Enough "Skin in the Game" for Mortgage Lenders . . . 203 #4: Way-Too-Exotic Mortgages for Borrowers . . . 205 #5: The Mortgage-Backed Securities Meltdown . . . 208 #6: The Collateralized Debt Obligations Credit Rating Debacle . . . 211 #7: A Flawed Insurance Market: Credit Default Swaps . . . 213 #8: Inflexible Bank Capital . . . 216 #9: Too Big to Fail: Last Rites for Financial Dinosaurs . . . 218 #10: A Fragmented and Sectoral Model of Regulation . . . 219 #11: Subsidies for Nonproductive Investment, Taxes for Productive Investment . . . 221 The New Law as the End of the Beginning . . . 222 Chapter 11 How to Implement Our Seeds of Prosperity Policy Blueprint . . . 229 Our Seeds of Destruction Problem . . . 230 Our Seeds of Prosperity Solution . . . 231 Conclusion . . . 248 Index . . . 251 Additional Bonus Material for eVersion Only: An Interview with Glenn Hubbard About His Time in the White House . . . 269

" ... Hubbard and Navarro propose a set of realistic solutions. The authors bring their vast academic and policy experience to bear on weighty issues such as U.S. oil dependence, health-care reform, Medicare, and housing imbalances. Their solutions have a distinctly bipartisan flavor ... " -Library Journal "This is a good and useful book." -Financial Times "Hubbard and Navarro provide a cogent analysis of America's dangerous economic decline as well as a carefully thought out plan for recovery based on a manufacturing renaissance." -Clyde Prestowitz, Founder and President of the Economic Strategy Institute, and author of The Betrayal of American Prosperity and Three Billion New Capitalists "A well-argued-and exceedingly timely-call to action for the White House and Congress to end partisan political bickering and move the American economy back to sound principles like free markets, entrepreneurship, and a renewed manufacturing base that will restore our nation's greatness. Hubbard and Navarro focus a bipartisan perspective on practical policy reform." -Larry M. Wortzel, Ph.D., Commissioner and former Chairman of the U.S.-China Economic and Security Review Commission "It is time for a clean sheet of paper that creates the ultimate focus on creating real jobs and driving the success of our private sector by significantly improving our global competitiveness and not further eroding it. Kudos to Glenn Hubbard and Peter Navarro for doing just that!" -Dan DiMicco, Chairman, President, and CEO, Nucor Corporation "Seeds of Destruction is everything that Washington policymaking is not: sober, lucid, reasoned, timely, bipartisan, and constructive. The United States is on a path to greater danger and diminished aspirations. Hubbard and Navarro illuminate the path to fulfilling this generation's obligation to leave behind a nation with greater freedom and prosperity than it inherited." -Douglas Holtz-Eakin, President of the American Action Forum, and former Director of the Congressional Budget Office (2003-2005) "Glenn Hubbard and Peter Navarro combine their unique experiences in government and politics with their crystal-clear economic insights to produce a lively and compelling account of the origins of the financial crisis and the problems now plaguing the American economy. The book convincingly explains how government policy planted the seeds of destruction and how a change in government policy can root them out and plant the seeds of prosperity. Their diagnoses and remedies should be read, studied carefully, and applied." -John B. Taylor, Mary and Robert Raymond Professor of Economics at Stanford University, and former Undersecretary of the Treasury for International Finance "A thoughtful and politically provocative diagnosis of America's economic ills." -Kenneth S. Rogoff, coauthor of This Time is Different, and Thomas D. Cabot Professor of Public Policy, Harvard University "This book is a 'must-read' for all persons who are concerned about our economic future. It shows the disastrous folly of our current economic policies and, more important, it lays out the proper policies to achieve a sound and prosperous economic future." -John Cogan, Leonard and Shirley Ely Fellow, Hoover Institution, and Professor of Public Policy Program, Stanford University; former Deputy Director of the Office of Management and Budget, Reagan administration "This is a compact blockbuster of a book that gives six reasons why the U.S. economy has sunk so far and offers ten initiatives that the authors believe will lift us back up. It spares neither political camp and it appeals to both camps to take actions that will repair the damage they have caused over the past decade." -Edmund Phelps, McVickar Professor of Political Economy, Columbia University, and 2006 winner of the Nobel Prize in Economic Science

If you think the current administration is mismanaging the economy straight towards disaster, you're not alone: so do two top economists from both sides of the political aisle. In Seeds of Destruction, former Bush chief White House economist R. Glenn Hubbard and well-known CNBC commentator Peter Navarro explain why current economic policy is a catastrophic failure. Then, they offer a comprehensive, bipartisan blueprint for reversing the decline of America's currency, manufacturing base, and standard of living - setting the stage for the epic policy debates that will precede the 2010 elections. Hubbard and Navarro begin with a "checklist" of what it takes to be a prosperous, democratic nation - and show why Obama's policies (some of Bush's also) fail on every level. They explain why the activist Federal Reserve and Obama fiscal stimulus policies are doing far more harm than good... why we must restore the U.S. manufacturing base, whatever China says about it... how to transform tax policy into an engine of growth and innovation... how to apply the "tough love" needed to save Social Security, Medicare, and Medicaid... why America must resign the job of world policeman... how market-based solutions can finally deliver real energy independence... how to reform our antique financial regulatory system without imposing heavy-handed rules that cause even more trouble.