On October 1, I asked whether the TARP program was likely to turn the U.S. into England (blog entry). Now that we’re four months deeper into the recession, what do folks think? An economist asked me recently whether I saw the U.S. as likely to collapse like it did in the 1930s or recover? And if the economy were to recover, what did I think would spur the recovery? My reply was that maybe the most likely scenario was a long gradual downward slide, sort of like England in the post-World War II period.

We’ve got a system where those who have political power can continue to tap into rich veins of wealth even if what they’re doing is not sustainably boosting GDP. Wall Street executives, government at all levels, public employee union members, union members in some private companies, and similarly situated folks can avoid nearly all of the pain of the downturn while non-union workers at private companies get destroyed. That is a lot like what happened in various European countries. They’d have very high unemployment and economic stagnation, but workers who already had jobs were taken care of. If we give all of our money to the economic winners of the last few decades, what will be left for building new industries and jobs for young people?

And if the U.S. does turn into the U.K., how can a young person adapt? I talked with a kid who is about to graduate from Olin College of Engineering, perhaps the nation’s best undergraduate engineering program. He had two job offers, both from government contractors. What about his friends? One of them did get offered a job recently by some sort of financial services company. It is in the Netherlands and the kid will be moving there in June (whereupon he will cease to pay U.S. local, state, and federal taxes, unless he gets a big raise in which case some of his income will be subject to federal income tax).

[Loosely related New York Times article: Mancur Olson’s seminal work, The Rise and Decline of Nations, published in 1982, helped explain how stable, affluent societies tend to get in trouble. The book turns out to be a surprisingly useful guide to the current crisis. In Olson’s telling, successful countries give rise to interest groups that accumulate more and more influence over time. Eventually, the groups become powerful enough to win government favors, in the form of new laws or friendly regulators. These favors allow the groups to benefit at the expense of everyone else; not only do they end up with a larger piece of the economy’s pie, but they do so in a way that keeps the pie from growing as much as it otherwise would. Trade barriers and tariffs are the classic example. They help the domestic manufacturer of a product at the expense of millions of consumers, who must pay high prices and choose from a limited selection of goods. His primary case study was Great Britain in the decades after World War II. As an economic and military giant for more than two centuries, it had accumulated one of history’s great collections of interest groups — miners, financial traders and farmers, among others. These interest groups had so shackled Great Britain’s economy by the 1970s that its high unemployment and slow growth came to be known as “British disease.”]