This article is from our special November issue, which focuses on the future of America. Also in the issue is Mark Steyn’s Case for Pessimism and a COMMENTARY symposium featuring 41 American thinkers and writers who answer the question: Are you optimistic or pessimistic about America’s future? We will be posting two symposium contributions daily on our blog. Click here to read the most recently posted symposium contribution.

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There is a growing propensity to place the blame for the disastrous fiscal and economic condition of the United States on the supposedly damaged spiritual condition of the American people. President Obama himself, inclined these days to blame the nation’s economic woes on his predecessor and on millionaires and billionaires, stepped on his own storyline recently when he told a Florida TV reporter that the American people had “gotten a little soft.” By saying this, he was echoing the view that something had gone wrong inside the body politic over the past decade or longer. The American people wanted benefits they didn’t want to pay for; they borrowed money they didn’t have; they refused to make tough choices. “The richest society the world has ever seen has grown rich by devising better and better ways to give people what they want,” Michael Lewis, the most influential financial journalist in America, writes in his new book Boomerang. “The boom in trading activity in individual stock portfolios; the spread of legalized gambling; the rise of drug and alcohol addiction—it is all of a piece.”

This secular-Calvinist argument has achieved standing because it seems to take seriously the most nagging aspect of the past 10 years: the role we should assign to personal responsibility when we attempt to understand what happened, how to keep it from happening again, and how to deal with the pressing matters ahead of us. It is also alluring because it spreads the blame far and wide, which seems appropriate for a cascading series of events that developed over decades and then all came crashing into each other.

No other theory of wrongdoing draws a straight line from the expansion of the Community Reinvestment Act in 1995, which led to the growth in subprime lending that helped create a new market in derivative products from that lending, to the seemingly unrelated pension and medical-care crises afflicting state and local governments now and that will soon overwhelm the federal government if the spending trajectory isn’t altered. The fault lies not in Democrats, nor in Republicans, not in unions or cosseted banks; the fault, dear Brutus, lies in ourselves. We are the constant: the overindulged, overindulgent, overweight American people, wanting things heedlessly, getting things hedonistically, and ruining things wantonly. We are $14 trillion in debt because we ate the debt.

It is a powerful argument. But it is wrong. And by understanding the ways in which it is wrong, we can see the contours of the case for optimism about the American future taking shape. Americans made entirely rational choices in the years leading up to the crisis in 2008; they responded properly to a series of incentives created over the preceding decades by politicians who meant well but were satisfying the interests not of the public as a whole but of constituent groups that stood to benefit far more than the ordinary voter from the creation of those incentives. Just as Americans responded to the realities of the time before the crisis, they will respond to the realities of the United States in which we now live. And the nation will come out the stronger for it.

When you are living in the heyday of a bubble—and we’ve been through two in the past 15 years, one involving the Internet and the other real estate—you are presented with two opposing realities. The first is that something miraculous is going on around you, something so transformative it seems almost magical. And you know it is real, because the miracle workers are everywhere you look, peering at you from the covers of magazines, confident and smiling and looking like a billion bucks. To become like them, you need to take the steps they took; and because they took those steps and benefited, following in their footsteps doesn’t really seem risky at all.

The former CEO of Citigroup, Chuck Prince, notoriously said, even as he saw the housing collapse coming: “As long as the music is playing, you’ve got to get up and dance.” That remark has been taken as proof of his bank’s malfeasance and that of all Wall Street firms, and there is some of that in it; but it also describes perfectly the psychological condition of almost everyone during bubble time. If you’re not in, you’re out. Better to be in than out. At least you have skin in the game.

The other, contradictory reality is this: you know (because how can you not) that what you are seeing is not real, that something akin to a violation of the elementary laws of physics is happening before your eyes. When a piece of property that seemed overvalued at $250,000 costs $500,000 three years later, but nothing else has changed much—the economy isn’t growing all that quickly, you’re not all that much better off than you were, and your friends aren’t either—the cognitive dissonance should be overwhelming.

You know all this, but the anesthetic effect of the bubble’s music means that you don’t feel it. And when a mortgage broker tells you that you can afford a $500,000 mortgage on a salary of $52,000, you know for sure that someone is getting screwed as part of the deal, since that’s what happens when deals are too good to be true. And you know, what’s more, that it might be you who will be getting screwed; but what was true for Citi is true for you as well. The music is playing. You’ve got to get up and dance.

The point is that ordinary people didn’t just get up and dance because it was fashionable. They were presented with powerful motivations to do so, mostly in the form of lowered interest rates that not only made borrowing cheap but also allowed them to cash out the equity they had invested in their own homes without having to sell. People drained their own future wealth by spending it in short-term ways, but given the fact that housing prices were rising, it appeared they would make up for the lost equity in increased value. People didn’t believe falsely, or greedily, or hungrily, that money was free. Money was free. And the incentive to participate in this free-money game was general. America’s politicians have recently found it convenient to rage at the mortgage brokers and banks that were handing out subprime loans so cavalierly, but they too—and those who borrowed from them—were also acting in accord with incentives created by the Federal Reserve and federal government policy.

Lending money, borrowing money, creating derivatives from the mortgages—these were all entirely understandable acts based on the realities of the time. The only true failure was believing the notion that somehow there was little or no risk involved. There is always risk in any financial transaction. But the anesthetic quality of Chuck Prince’s music dulled the anxiety that should accompany any kind of risk-taking—the very anxiety that functions as a counterweight to the thrill, the still small voice that warns against doing something that poses a long-term danger.

The music ended, and now we are in the fourth year of life in the crushing silence that followed. And the odd thing is this: the emotional psychology of the silence is very similar to the emotional psychology of the music. Almost no one is up on the dance floor, and in part for the same reasons that everyone was up on his feet as long as the tinny piano was playing. It is part of human nature to extrapolate from the condition of the present moment to the limitless future; just as we could not feel that there would be an end to the bubble, we cannot feel that there will come a time when we will rise from the mire of the Slough of Despond.

The image of the “slough of despond” comes from John Bunyan’s 17th-century allegory, The Pilgrim’s Progress. As Bunyan’s hero, Christian, travels toward his redemption, along the way he is trapped in a bog where “scum and filth that attends conviction for sin doth continually run.” Getting mired in it is an element in Christian’s redemption, because “as the sinner is awakened about his lost condition, there ariseth in his soul many fears, and doubts, and discouraging apprehensions, which all of them get together, and settle in this place.”

Christian’s “many fears, and doubts, and discouraging apprehensions” are mirrored in the way we think about the problems facing the United States. We fear we cannot make our way back, we doubt the resilience of our political system, and we have apprehensions about a future in which health-care entitlements will swallow our economy whole unless we change course. And when we think about what it will mean to change course, we are all discouraged. It can’t be done.

Of course it can.

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The evidence that a change in trajectory is more than possible can be found in the American political system over the past few years. The electorate has demonstrated a remarkable, almost unprecedented taste for shifting direction. Control of the House of Representatives, held for 40 uninterrupted years by the Democrats and then for 12 uninterrupted years by the Republicans, has switched hands twice since 2006. Democrats won 32 seats in a landslide in 2006 that George W. Bush called a “thumpin’”; Republicans won 63 seats in a landslide in 2010 that Barack Obama called a “shellacking.”

Republicans won control of the Senate in 2002, lost it in 2006, went some ways to winning it back in 2010 and will probably do so in 2012. At the presidential level, the conservative Republican won 51 percent of the vote in 2004, and in 2008 the liberal Democrat won 53 percent. Independent voters, obviously the most likely to bounce between the parties, preferred Obama over John McCain by 17 points—and then, in 2010, preferred the Republicans to the Democrats by 8 points, a 25-point shift in only two years.

Voters were not being flighty or silly or stupid. These dramatic shifts were substantive, the result of inarguable policy failures. Bush’s failure to win in Iraq and to handle Hurricane Katrina competently caused the 2006 Congressional thumpin’; the Republican party’s failure to manage the financial meltdown competently led to Obama’s easy victory in 2008; Obama’s failure to generate the recovery he had promised with his stimulus and his swelling of government caused the 2010 shellacking. Voters took a chance that Obama could bring about the change he had promised; the bet didn’t pay off, to put it mildly; and they tore up their tickets. If the 2012 election follows the same form, and at this moment there is no reason to think the dynamic will be different from what it has been since 2006, it will not go well for him.

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Somehow, we still think of the United States as a young country, and in comparison with the other great nations of the Earth it is; but its political and social system is now among the world’s oldest. Indeed, the amazing durability of the American system over 235 years is the primary reason for optimism about the American future. The glory of the United States does not reside in the untold wonders of its people—that is politician-speak—but rather in the flexibility of the American system. The nation has weathered crises far worse than the present crisis and come out the better for them eventually because the spine of the American system is at once sufficiently ironclad and sufficiently flexible to bend, but not break—the exception, of course, being the Civil War, when that spine was fractured and, at enormous cost, put into traction and forced back into alignment.

That system, the direct outgrowth of the Declaration of Independence and the Constitution, extends beyond the country’s political structures to an idea that courses through all its public and private institutions—the primacy of the individual. The centrality of the individual over the collective in the American system has not been cost-free for this nation and its people. Taken to extremes, it can destroy communities and induce a hunger for the material and a taste for the superficial that can corrode the character of the nation’s citizenry. Still, the American system has functioned because its revolutionary acknowledgement of the primacy of the individual also confers on the individual a sense of responsibility for himself, his loved ones, and his community that is unique in history.

Finding the balance between liberty and license has been a national challenge for centuries. So has finding the balance between the freedom of the individual and the common needs of the larger society. Everyone, from right to left, seems to feel that the nation’s equilibrium has been lost in the past few years, that we are out of balance politically, socially, fiscally, and culturally. This is what undergirds Michael Lewis’s contention that Americans are fat, greedy, sloppy addicts who got themselves into all kinds of trouble knowingly and without forethought.

But that impressionistic sense is not borne out by the realities of life in the United States. There are surprisingly few signs of social instability even as the financial crisis enters its fifth year, and even when, as one census report suggests, household incomes have fallen dramatically throughout the country. Crime continues to decline; divorce rates are not rising; dropout rates are not rising; hospitals are not reporting an increase in domestic violence.

The American people do not seem unhealthy (though they could stand to lose a few, as could I). The political system does. But not because debates are ugly, and not because it is too partisan, and not because some fools call Obama a Kenyan or because Joe Biden, also a fool, dubs the Tea Party “terrorists.” These are all transitory unpleasantnesses, and they have their parallels in every era. The political system is uniquely unhealthy at the present moment because of twin temptations to which politicians at every level and in both parties have succumbed—temptations whose consequences were not all that visible during the boom times but have been cast in stark relief by the bum times.

The first temptation has been to direct the behavior of the citizenry through the manipulation of the tax code, which (over time) creates a system of perverse incentives. It may seem, for example, that the mortgage-interest deduction is a vital tax break, but it is an accident of history, a holdover from a time before modern levels of federal taxation when all interest payments were deductible. Its continued existence has undeniably had an inflationary effect; the result of its disappearance would be a revaluing of all property downward in equal proportion. The transition would be complicated and confusing and would require careful management, but the end result would be a more honest valuation. The real benefit of the home-mortgage deduction over time has been to the industries that compose the real-estate sector, because having the government favor ownership over renting has created greater demand for home construction and home flipping than would otherwise be the case.

The moral argument for favoring home ownership is that owners are better citizens than renters, and therefore that it supports a greater common good. But we have now seen the damage that can be done by driving people into home ownership who had no business making—and might even have had little desire to make—that kind of long-term commitment. If ownership is a good in itself, people will pursue it without the incentive of the tax break. Indeed, even as the value of the deduction grew in the post–World-War II period while income tax rates rose and more brackets were created, the level of home ownership remained startlingly constant, just over 60 percent of households. It was not until the push to broaden the numbers of borrowers began in the mid-1990s that the rate began to jump to nearly 70 percent.

The second temptation is to secure long-term control over public office by creating a constituency among public-sector workers through contracts that have, over time, made those in the employ of the government or those receiving retirement benefits from the government twice as wealthy as the people who are employing them. We are told, by Michael Lewis and others, that these problems are due to the fact that people want big government but do not want to pay for it. But what actual evidence, other than big government’s failure to shrink in size, is there for this contention? States and localities are beginning to go bankrupt due to pension obligations and absurdly generous deals with public-sector unions. When a firefighter in Vallejo, California (Lewis’s example), can join the ranks at 45 and retire at 50 with a full pension on the public dime—a case that sounds extreme but is replicated in many localities in many states—what benefit does the taxpayer get?

Of course, the most popular benefits are national ones—Social Security and Medicare. Medicare is far more dangerous to the public weal, especially with the baby boomers beginning to retire. And certainly the case for controlling the costs of Medicare (and to a lesser degree, Social Security) is vastly tougher than the case against the public-sector workforce. But the unjust transfer of wealth from the young to the old—something that has been an impossible subject to raise in political life over the past several decades—will be an inescapable reality in very short order. If it is not halted or redirected, it will, as Yuval Levin has put it simply, “leave us with a national debt larger than our economy in just a decade and twice as large in the 2030s.”

If the prospect of being hanged in a fortnight wonderfully concentrates the mind, as Dr. Johnson said, the fortnight is about to begin. And for the first time, in 2011, politicians have begun to address the crisis seriously. House Republicans passed Rep. Paul Ryan’s revolutionary budget outline, which eliminates the Medicare entitlement in favor of a voucher system. And even Barack Obama is using the term “tax reform,” though he surely doesn’t mean by it what it really means—a radical simplification of the tax code that largely reverses the long trend toward using it as a means of designing a social order in keeping with the wants and interests of politicians.

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The American people are already witness to one possible future now playing itself out in the implosion of Europe. That ongoing nightmare is providing hard evidence to anyone with eyes to see that the United States must take a different path in relation to government spending and conduct before it is too late. That is true not only of the entitlements but also the incentives that dominate the tax code, including the home-mortgage deduction; right and left are finding surprising common ground in the notion that these incentives are dangerous distortions, little more than corporate welfare that supports banks and energy producers and home builders as well. Reducing or eliminating them is the work of the next decade—complicated and grueling work that will require a complete restructuring of the tax code and an alteration in the very notion of a government “benefit,” how it is received, and how it is paid out.

The battles over all this will, to some extent, dominate our politics henceforward. We got a glimpse of the nature of the fight over the debt ceiling in July, and the 2012 election will pivot on it. I say “to some extent” because unexpected events, probably in the realm of foreign policy, will surely come along to complicate the picture. But when it comes to matters of their own fiscal health and the country’s, we can be confident in this: the American people have made rational choices in the past, and there is no reason to believe they will cease making rational choices in the future. And you don’t have to be all that much of an optimist to see that the choice between national suicide and national salvation isn’t really all that difficult.