Chrystia Freeland

Keith Banks is the president of U.S. Trust, the private wealth management arm of Bank of America. He stopped by the Reuters studio in Aspen to chat with Chrystia about the resurgent risk appetite among the world’s super-wealthy investors, his tripartite outlook for the global economy and the alternative asset classes that are currently in vogue. Here is a transcript of some of the highlights of their discussion:

The super-wealthy have gotten their groove back:

KEITH BANKS: The thing that was very interesting to me was even the super wealthy, people with hundreds of millions of dollars, how impacted they were psychologically by the crisis. So even though arguably their standard of living didn’t change, yeah their net worth was down, but it was not down to a point where they had to change their lifestyle. But psychologically, they were very impacted by it. If they happened to be business owners on top of that, they were really feeling pretty beaten up, because not only were they dealing with the personal aspects of that, but they were running businesses that were looking at higher taxes, more regulation, higher health care costs, and a lot of uncertainty and generals. They were getting kind of a double whammy. So I would say our clients came out of the crisis really hunkered down, were really impacted psychologically. And what it really changed was their thinking about what they wanted to do from an investment standpoint… I’d say about six, nine months ago, we slowly began to see that shift where clients began to engage. We’re able to engage clients more in a discussion about areas they should be thinking about moving their assets into to get somewhat higher returns, still managing the risk. So I think the psyche has improved. They’re doing more and they’re more willing to move money around, whereas 12 months ago, not interested.

A tale of three cities in the global economy:

There’s a tale of three cities going on.  Number one is the U.S.  And the U.S. — think about right now is a two to three percent grower, okay.  Not what we want to see, but certainly not the worst-case scenario.  The– the second city is Europe, Eurozone.  Now it’s going to be a one to two percent growth, right, even more anemic, with a very wide range of outcomes by country.  But again pretty anemic stuff.  And then the stars of the show continue to be the emerging markets. In general, China and Asia in particular.  But when you blend that all together, we’re still looking at growth north of four percent globally.  That’s a fantastic number.  And a lot of our– our multinational firms, the S&P 500 types of companies get as much of 50 percent or more of sales [abroad]… So if you’re a company that has a global market place that you’re serving, you’re probably looking out there saying this is pretty good, right.  I’m seeing good growth, I’m seeing good sales, I’m seeing good profits because I have the streamlined core structure.  So those companies and those executives are feeling good about things.  If you’re a smaller company that’s pretty much a U.S. domiciled, U.S.-centric company in terms of who your customers are, you’re probably not feeling nearly as buoyant, [or] nearly as robust because you’re feeling more the effects of that two percent, two and a half percent growth dynamic that we’re seeing just here in the U.S.  And obviously, if you’re U.S. and Europe, then you’re really not too pumped up because then you’re too mired in two of the areas that again are seeing the least robust growth.  So it really depends on what your market is, who you’re serving, where your sales come from.

The smart money bets the farm:

KEITH BANKS: And so now the question’s going to be how fast can we grow, both in the U.S. and globally, what opportunities does that create for them both from a business standpoint as well as a personal investment standpoint, and then positioning them accordingly. One thing that’s also very interesting is our clients, in addition to the traditional financial assets, stocks, bonds, all that, they’re getting increasingly interested in hard assets.  Hard assets to find as timberland, farmland, oil and gas properties.  We have the ability–

CHRYSTIA FREELAND: Real estate?

KEITH BANKS: Real estate.  But not so much, not residential.  There are opportunities in the commercial side just because values have gotten depressed.  But what’s interesting is if you believe that global growth will continue at a four percent plus rate, you’re already seeing inflation picking up in those countries that are seeing the faster growth, but it’s a reflation (PH) dynamic. And so what people are saying is own — owning the hard asset is not only a good diversifier with respect to financial assets, the traditional assets, but it’s a place you want to be if ultimately inflation will begin to slowly but surely tick up.  So we have a group within U.S. Trust that can do that.  We’re engaging a lot of clients in that discussion.

At the Aspen Ideas Festival yesterday, Chrystia interviewed the iconoclastic and polymathic economist Justin Wolfers of the University of Pennsylvania’s Wharton School of Business. Here is a transcript of some of the highlights of their discussion:

On the U.S. economy’s lost half decade:

JUSTIN WOLFERS: If you go back, you look at how bad the economy’s been for so long.  So the NBER says the recession started in 2007.  Actually it may have started as early as 2006… One of the difficulties is we keep revising what happened to history. And if you look at the latest revisions of history, our current understanding is the economy actually peaked in late 2006. This I’m sure is something you’re going to hear a lot about during election season, ’cause they’re going to call this again, you know, the Bush recession. They’re going to be very keen to get that story out. But, you know, the first part of 2011 looks like it’s pretty grim. It’s very hard to see– a lot of strong growth.  And certainly, you know, things are well below potential now. You know, people talk about a lost decade, and if you think about 2006 to the present, we’re halfway there. And if you want to be the real pessimist — and I’m not — I’m not this pessimistic. But, you know, if you look at things like median family income, it actually fell during the Bush years.  Which actually means if you’re the median family– we’re well past a lost decade.

On the Fed’s need for a new marketing campaign:

JUSTIN WOLFERS: See this is where we’ve got the branding all wrong.  So QE1 and QE2, they sound complicated.  What are they, they’re the government buying bonds to reduce interest rates.  What’s monetary policy, standard run-of-the-mill monetary policy?  The government buying bonds to affect interest rates.  We’re just changing different interest rates.  So let’s change all of ‘em and let’s keep changing ‘em.  There’s nothing–

CHRYSTIA FREELAND: And you’d push ‘em down as far as you could go?

JUSTIN WOLFERS: Let’s just keep going…

CHRYSTIA FREELAND: And you would start now?

JUSTIN WOLFERS: I’d start yesterday.  And when we do this, let’s have the Fed not say we’re going to spend X billion dollars. That scares the public. The public thinks — this is like we’re building bridges or we’re throwing money away.  We’re not doing that.  We’re — we’re buying bonds.  We’re changing the structure of the balance sheet. Nothing too crazy. The same way the Fed says we’re going to set the Fed funds rate at zero percent, let’s say we are going to keep buying until the three-year Treasury is at .2.  You know, set an exact quantitative target like that, and let’s also commit.

On the “idiots in Congress” and their misguided macro policies:

JUSTIN WOLFERS: We’re in a very odd situation, which is normally we have idiots in Congress, both houses.  And that’s just a norm of political economic life… But normally it doesn’t matter because they can do idiotic things on macro policy and the Fed just undoes it.  And the people who are really setting macro policy at the Fed, the problem is the Fed’s at the zero lower bound.  Which means the idiots are now making macro policy, and it’s worse than that.  Which is Congress has a very different incentive with respect to stimulating the economy than my unemployed father-in-law and than the president.  And then, so, you know, there’s a strong bias towards inaction…  I can’t see inside the minds or hearts of these people.  But to believe that austerity is the order of the day when we have millions of people, long-term unemployed strikes me as problematic.

How money buys happiness:

JUSTIN WOLFERS: When you move from $25,000 to $30,000 you get happier.  When you go from earning $50,000 to $100,000 you get happier.  All the way.  I mean, it turns out — this is in empirical fact.  It’s not a theory.  It’s just that I stare at the data, I crunch spreadsheets.  That’s what it tells me.

CHRYSTIA FREELAND: And all over the world, it’s not just like, say, Americans really like money but.

JUSTIN WOLFERS: The Swedes love money too.  And the Australians do.  In Burundi, they love the stuff.  So, you know, it’s absolutely a global thing. there’s nothing complicated here.  It’s just richer people are happier than poorer people.  Richer countries are happier than poorer countries.  As countries get richer, they get happier.

On why having children may not make you happy and the shortcomings of happiness-targeting policies:

JUSTIN WOLFERS: When I ask other people who would say their kids had made them always happy, they’d say they’d still have kids and the reason is they get meaning from them.  Or some deeper sense of something or other.  And so it turns out there’s more to life than happiness.  That’s actually really important because if you go back and think about these happiness debates, people are saying politicians should target happiness.  Well if we really believed that, the first thing we should do is have mass sterilization policies.  Now it turns out that that’s an absurd suggestion.  And it’s absurd because there’s a whole bunch of other things we also care about. Now what that suggests is not that the happiness project is– is wrong and needs to stop, but it suggests that it needs to expand and start to take account of these other things.  These crazy things that make us do things like go out and have kids.

“Jobs! Jobs! Jobs! What can we do?” was the title of a panel Chrystia moderated at the New York Forum last week with members of President Obama’s Council on Jobs and Competitiveness.  The Council has been tasked with jump-starting the U.S. labor market and recommending changes to the nation’s education and training initiatives, and each of the panelists touched on a different aspect of the Council’s findings.

Laura Tyson, a former chief economic adviser to President Clinton and an economist at the University of California, Berkeley, stressed that infrastructure projects were the low-hanging fruit of job creation.  She argued that $1 billion in infrastructure investment could create between 11,000 and 30,000 jobs.  Many infrastructure projects have been approved and are shovel-ready — the only thing that’s holding them up is the Department of Transportation’s lengthy permitting process, Tyson noted.

Valerie Jarrett, a Senior Advisor to President Obama, added that in order to offset the rise in structural unemployment, investments in education and worker placement must be made sooner rather than later:

The President is convinced that if we’re going to win the future, we have to continue to invest in education; we have to invest in innovation; and we have to re-build and build in order for us to be competitive…  We also want to make sure that the companies who are here have the resources they need to compete globally, and that means having a trained workforce.  That means having a workforce that’s trained for the marketplace of tomorrow, not the marketplace of yesterday, and so focusing on science and technology and engineering and math and partnering with our community colleges and working with the private sector so they actually design the curriculum and offer a job when you complete a program.  So for the people who are currently unemployed, let’s get them into those programs, so when the opportunities arise because demand does increase there is actually a job waiting for you on the other end.

AOL co-founder Steve Case emphasized entrepreneurship in his remarks.  Case brought up a study from the Kauffman Foundation that found that high-growth, entrepreneurial companies created 40 million jobs in the past 25 years — that’s roughly all the net job growth the U.S. saw during that period.  Nevertheless, Case laments, the nation has taken its entrepreneurs for granted and hasn’t recognized that entrepreneurship is the “secret sauce” that flavors the U.S. economy:

Robert Wolf, chairman of UBS Americas, addressed the difficulties that small businesses facein getting loans .  On the credit demand side, uncertainty over the economy’s growth prospects have halted new investments, Wolf argued.  On the supply side, credit is constrained because one thousand banks have vanished in the past few years and because those banks that survived have been hit with higher capital requirements. One possible policy the federal government could adopt to remedy this would be to expand Small Business Administration loan guarantees. Case noted that they have a long history in allowing budding enterprises to grow and cited Under Armor, which would have never become the success it is today without an SBA loan guarantee.

Is it morning in America? Or is now a time for blood, sweat, toil and tears? As the United States warms up for the presidential elections, the choice between those two narratives will be the most important decision each party makes and may determine who wins in 2012.

Both are ways of talking about the economy — the issue that polls show overwhelmingly preoccupies U.S. voters. The morning-in-America storyline is that the financial crisis is over, the economy is healing and the country’s innate powers of renewal, reinvention and innovation are already asserting themselves. The blood, sweat, toil and tears view is that the U.S. economy is still sick and that it will take a significant, arduous and collective effort to nurse it back to health.

For now, the White House is committed to morning in America. That was the message of a discussion among members of the President’s Council on Jobs and Competitiveness that I moderated this week at the New York Forum, a high-powered annual gathering of CEO’s and politicians that is shaping up to be New York’s answer to Davos.

The most influential voice on my panel belonged to Valerie Jarrett, a senior adviser to President Barack Obama. Mrs. Jarrett has worked as a lawyer, chief executive and Chicago City Hall heavyweight. But her most important qualification today is as the confidante, consigliere and best friend of the Obamas, whom she first got to know two decades ago when she interviewed the future first lady for a job and wound up meeting her fiancé, too. Mrs. Jarrett has the president’s ear, and his back — and she is always on message.

That’s why her determined good cheer at the forum matters. “We have good reason to be optimistic,” she said. “We have great entrepreneurs and the capacity to reinvent ourselves. This is still the best country on earth.”

The other panelists, all members of the Jobs and Competitiveness Council, faithfully chimed in in the same key. Brian L. Roberts, chairman and chief executive of Comcast, the cable giant that recently acquired a majority stake in NBC, said a positive outlook was essential to “make America a great place to live and work. We all want that to be the outcome, so it’s critical to have a sense of optimism.”

Robert Wolf, chairman of UBS Americas, and one of Mr. Obama’s earliest supporters on Wall Street, agreed, and accused the news media of painting an overly bleak picture of the economy: “Since I sat here a year ago, we have two million jobs that have been created,” he said. “Exports have gone up by 10 percent and technology is booming, agriculture is booming. But when you look at the TV you hear what we are not doing well. I believe we have built a foundation and are on the right path.”

There are a lot of good reasons for the White House’s determination to tell us the glass is half full. For one thing, even though this president isn’t from Hope, from the very outset, hope has been central to his personal brand. That has been a smart choice — Americans are a generally cheerful folk and it has long been a political truism that the sunniest politician is the one who wins.

Perhaps more importantly, two and a half years after taking office, Mr. Obama owns the U.S. economy. That gives him and his backers a powerful incentive to cast it in the most positive light.

Finally, this is a White House of wonks and one of their chief enthusiasms is for behavioral economics. They have all read George A. Akerlof and Robert J. Shiller’s Animal Spirits — a book whose title refers to John Maynard Keynes’s famous line that markets are governed not just by hard data but also by the animal spirits of their participants — and they understand that confidence can be a self-fulfilling prophesy.

These are three powerful arguments for official optimism. But the strategy could go very badly wrong if the public doesn’t buy it. And so far, people don’t. The Rasmussen survey this week showed that just 26 percent of likely voters thought the United States was headed in the right direction; 65 percent think the country is on the wrong track.

That pessimism is the product of more than the TV shows Mr. Wolf excoriated: unemployment is still above 9 percent and more people than ever told Rasmussen that their homes were worth less than their mortgages. A separate poll, by Gallup, revealed that even people with jobs think now is a bad time to find good work: 86 percent of respondents said that now is a bad time to find a “quality” job. That number jumped to 93 percent for college graduates. Before the recession — in January 2007 — it was just 47 percent.

That grim view suggests that, notwithstanding their cultural inclination toward optimism, Americans today may not be in the market for happy talk. We may be at one of those rare historical crossroads when voters realize their country is in trouble and they prefer the leader who offers a bleakly honest diagnosis to the one who says everything is OK.

That was the magic of Winston Churchill’s famous “blood, toil, tears and sweat” speech. “We have before us an ordeal of the most grievous kind,” he said on May 13, 1940, in his first address to the House of Commons as prime minister. “We have before us many, many long months of struggle and of suffering.”

At the wrong moment, the audacity of hope can sound a lot like denial. Mitt Romney, the Republican front-runner, is already making that point. A Romney campaign video released earlier this month mocks the president’s assertion that “there are always going to be bumps on the road to recovery,” arguing that the 20 million Americans who have lost their jobs can’t be dismissed as mere bumps in the road

And so, the big question of the next year is this: do Americans want someone to reassure them they are still great or someone who admits things are awful?

BUDAPEST – Sometimes the conventional wisdom is right. The Arab Spring really is the most important political event since the 1989 revolutions in Eastern Europe. So it makes sense to find out what the East Europeans make of the uprisings in the Middle East and North Africa and to ask what they think it will take to transform the promise of these rebellions into a lasting political transformation.

A good place to look for those answers this week was Budapest, where Central European University, one of the intellectual centers of the region’s political and economic transition, is celebrating its 20th anniversary.

The scholars and activists who gathered here to toast those two decades strolled along the sunny banks of the Danube, listened to a special concert of Liszt and Mahler — and spent a lot of time debating the lessons of their revolution for the Arab Spring.

Here are four of them:

– The first is that selling democracy has become harder now than it was 20 years ago. That’s because, as Aryeh Neier, the human rights activist and head of the Open Society Foundations, explained, the equation of prosperity and democracy, which was universally acknowledged in 1989 and the period that followed, has broken down today.

“In 1989, the U.S. had succeeded in conveying the view that economic prosperity and political freedom go hand in hand,” Mr. Neier said. “That is by no means so certain today. The rise of China and the difficulty the West continues to have in recovering from the financial crisis have broken the link between prosperity and freedom.”

– A second big idea was that while technology has probably made it easier to rebel against authoritarian governments, it has also made it tougher to build enduring, deeply rooted democratic polities to replace them.

Ivan Krastev, a Bulgarian political scientist and one of the world’s leading thinkers about democracy and authoritarianism, argued that the communication revolution had created a “fragmentation of the public space.” Instead of all of us being part of a single public debate, the Internet and social media have allowed us all to consume only “the information that confirms our biases.” That may be useful when you are trying to bring together a crowd to topple a tyrant, but, as Krastev explained, it makes constructing the common civic space upon which a functioning democracy depends much harder.

– The third big idea was a historical one. Wanda Rapaczynski was one of the leading creators of Poland’s vibrant free press. But she identified a critical external force in her explanation of what made the revolutions in Poland, Hungary and the Czech Republic succeed: Europe and the promise of membership in the European Union.

“How did we get so lucky?” Rapaczynski asked. “The most important role was played by our aspiration to join NATO and the EU. We had to carry out reforms in accordance with EU guidelines and deadlines. We made tremendous progress.”

Rapaczynski described the reforms that preceded membership in the European Union as a period of “sponsored transformation” and pointed out that “once the pressure of the beauty contest was off, the pace of reform slowed.” At a moment when many are questioning the value and the durability of the European experiment, Rapaczynski’s reminder of the positive power the European idea has had in the eastern half of the Continent is timely.

– The fourth lesson of Central Europe for the Arab Spring came from the founder and chief benefactor of Central European University: George Soros. Soros, who fled Budapest as a teen-ager and made his fortune in the United States, suggested that the history of his homeland offered an example for the Arab revolutions that was both cruelly realistic and ultimately inspiring.

“Reflecting on the Arab revolutions, one very important factor is that people were willing to sacrifice their lives for a common cause,” Soros said. “That is a memory, a historic event, that will change those countries forever. It is irreversible.”

That’s the positive part of Soros’s lesson. But here is the dark cloud to that silver lining:

“Revolutions are rarely successful. They often end in tragedy. But they change the behavior of that country afterwards. The 1956 Hungarian Revolution was repressed. But it carried with it the seeds of the successful revolution in 1989.”

At a time when many of us in the West — and on the Arab street — are looking for instant results from the Jasmine Revolution, Soros’s conclusion is both heartening and frightening. Sometimes, as with Hungary’s 1956 uprising, a successful rebellion can take 33 years to work.

That long view may be one of the greatest gifts Central Europe has to offer Egypt, Tunisia and their neighbors. Pretty soon, we will start to write the obituaries of the Arab Spring. We will begin to talk about how the promise of Tahrir Square has been squandered by the chaotic and corrupt governments the brave people on the street propelled into office. But, as with 1956 in Hungary, 1968 in Prague and 1980 in Gdansk, revolutions can be successful even if it takes decades for their promise to flower.

Listening to these friends and patrons of Central Europe’s successful revolutions prompted one big question. It was left unspoken — and that is probably appropriate, since it is most properly asked on the banks of the Nile, not the banks of the Danube. It is this: Where is the European Union and where is the George Soros for the Middle East and North Africa?

The party this week in Budapest was a testament to the power of smart, committed outsiders to help a revolution deliver results in less than three decades. The European Union can still help, by admitting Turkey, not a participant in the Arab Spring, but an essential example for the Muslim world.

As for Soros, it is probably asking too much to expect this octogenarian to be the patron saint of the Arab Spring, as he was for the revolutions of 1989. But the Arab world, too, has its democracy-loving billionaires. It is time for them to step up to the plate. Come visit Budapest — where one professor told me this week, “I may be the only academic in town who didn’t study on a Soros scholarship” — to appreciate how rich the reward could be.

The big mystery in the United States today is why the job crisis is not at the center of the political and economic debate. After all, the numbers — and the human tragedies they reflect — could not be bleaker.

Nearly 14 million Americans — 9.1 percent of the working population — are unemployed. That’s just a couple of a million shy of the populations of Greece and Ireland, Europe’s two problem children, combined. Another 8.5 million would like to work full time, but can only find part-time jobs. A further 2.2 million have been so discouraged by the grim labor market that they have given up looking for jobs altogether.

It is hard to blame them — those still actively looking for work have been unemployed for an average of 39.7 weeks. These are cruel numbers, and they depict an unemployment crisis that is deeper and more sustained than at any time since 1948, when records first started to be kept.

Yet the debate in Washington is focused on deficit reduction, rather than job creation. The news media are following the same playbook. A recent database analysis by the National Journal found that over the past two years, the leading newspapers in the United States had dramatically shifted their attention from unemployment to the deficit and were now publishing more than three times as many stories about the budget as they did about jobs.

Politicians and pundits on the left have begun warning that this relative indifference to joblessness is worse than a crime, it is a mistake. In a blog post earlier this month, Robert Reich, the former labor secretary, said that “the economic burdens of America’s vast middle class may be catching up with the Street.” Unless more jobs are created soon, he warned, “American consumers will not have enough purchasing power to buy what the private sector can produce.”

But the reality may be even more chilling: Perhaps U.S. business is learning to get by just fine, thank you, without middle-class U.S. consumers. And while that may be good news for chief executives and shareholders, it could be the beginning of a new and socially wrenching political logic that leaves the great American middle behind.

Wall Street, which is paid for smarts, not sentiment, has this figured out. In a newspaper interview earlier this month, Robert C. Doll, chief equity strategist at BlackRock, the largest money manager in the world, pointed out that the fortunes of U.S. companies and the fortunes of the country as a whole were diverging: “The U.S. stock market and the U.S. economy are increasingly different animals.”

Mr. Doll’s explanation for the shift was the growing importance of international markets rather than the domestic one — of the rising middle class in emerging markets, rather than the stagnating one back home. He said that over the next five years, 70 percent of the incremental earnings of S.&P. 500 companies would come from outside the United States.

In the C-suite, capitalizing on that shift has become standard operating practice. Speaking this week in Washington at an Ernst & Young conference on emerging markets (disclosure note: I moderated some sessions), Steve Taylor, a senior executive at the energy and water company Nalco, explained, “In most cases, it is dismantling something you have in mature markets to build in emerging markets. So you have to take that step. It is very painful, but you have to take that step.”

The move to consumers from emerging markets is just part of the story. Within the United States, Madison Avenue is discovering that the age of the American mass consumer may be drawing to an end. Instead, a new white paper by Ad Age, the industry’s trade journal, argues that growing income inequality means the only buyers who count are those at the top.

“Simply put, as the discrepancy between the rich and poor has become more and more stark, a small plutocracy of wealthy elites drives a larger and larger share of total consumer spending,” the paper concludes, citing research that shows the top 10 percent of U.S. households account for nearly 50 percent of all consumer spending. “It appears that mass affluence may be a thing of the past — and that luxury marketers should reconsider how their products appeal to elite consumers.”

It is hard to overemphasize the importance of this business shift from the U.S. middle class to the rich at home and the hundreds of millions graduating into the middle class in the emerging markets.

Twentieth-century American capitalism was built on what you might call the Henry Ford model — generously compensated workers (Ford paid double the existing rate) created a mass middle class that bought the products of the country’s entrepreneurs. That virtuous circle made the United States the world’s economic behemoth, and created a society and a political discourse defined by a proudly acquisitive middle class — the United States’ much admired and much maligned consumer culture.

But today, for the first time since the Industrial Revolution, that link between keeping up with the Joneses and the rising value of the Dow Jones industrial average may be breaking. Unemployment remains stuck above 9 percent, but since March 2009, when stocks hit their post-crisis bottom, the Dow has risen more than 85 percent.

When the chief of General Motors, Charles Wilson, told a Senate confirmation hearing in 1953 that he believed that what was good for the country was good for G.M. and vice versa, he took some flak for uttering such a self-serving line. But we all remember it because Mr. Wilson captured something axiomatic about the connection between the fortunes of U.S. business and the welfare of the country as a whole.

The creative destruction of 21st-century capitalism seems to be requiring U.S. companies to learn to prosper with fewer U.S. workers and with fewer U.S. middle-class consumers. We do not know yet how American democracy — where the middle class has the votes, but the business class has the money — will respond to this tough new economic logic.

Are hedge funds malign financial firms that are exploiting and encouraging volatility? Or are they contrarian investors that lean against asset bubbles and make markets more stable? Chrystia interviewed Roger Martin of the University of Toronto’s Rotman School of Management and Sebastian Mallaby of the Council on Foreign Relations about the role of hedge funds in the economy, George Soros’s “gloriously schizophrenic personality,” and the lessons financial regulators can learn from the NFL commissioner:

The political theater in the United States this week has been all about the “debt ceiling”: Congress voting not to increase it; President Barack Obama and the House Republicans meeting to discuss it; and the Treasury warning that failure to raise it will bring economic apocalypse for the United States and the world.

Elites like to accuse ordinary Americans of a lack of political sophistication, but everyone from Main Street to Wall Street is savvy enough to understand that so far, the fighting over the ceiling is pure Kabuki. As with the budget deal earlier this year, the real negotiating is unlikely to happen until the very last minute.

But everyone also understands that this summer game of brinkmanship matters because it is a proxy war being fought over a very real problem: the growing national debt and deficit. At just under 60 percent of gross domestic product, the U.S. national debt is lower than that of France, Germany and Britain. And the rest of the world still seems delighted to lend the United States money on historically generous terms.

The need to tackle the deficit (although not how to do it) has become a national truth universally acknowledged. What nearly all Americans of all political stripes also understand is that the problem with the budget deficit is health care spending – which is why the most important economic initiative of the Obama administration not directly connected to the financial crisis and its aftermath was health care reform, and why the most important new economic policy proposal from the Republicans is Representative Paul Ryan’s proposal to transform Medicare.

But here is what no one can figure out: what Americans want when it comes to sickness and the state. One of the changes Americans decided to believe in when they elected Obama in 2008 was health care reform, a central plank in his political platform. Yet when he actually acted on his health care pledge, it suddenly seemed as if the issue were anathema to voters.

Obamacare became one of the most effective rallying cries in the 2010 midterm elections, and the Republicans were emboldened to make the opposite of Obamacare – a cut in state support of health care, instead of an extension of coverage – the centrepiece of the most important conservative initiative this year, Ryan’s budget proposal.

But the right’s plan to cut back on state-supported medical coverage seems just as toxic as the left’s effort to extend it. So which is it? Do Americans love state-financed health care or loathe it?

Maybe the confusion comes not from voters but from the way politicians, policy makers and pundits are framing the debate. Everyone who has a national voice in this discussion is a citizen of that lucky slice of America that enjoys Cadillac health care coverage, paid for by someone else, be it the U.S. government, in the case of elected politicians; universities and research organizations, in the case of the policy wonks; or mainstream media companies, in the case of the pundits. For them, the health care debate is an ideological issue; it’s about the thrilling clash of ideas, or the exciting, painstaking effort to build an economic model that works.

But for most of the hard-pressed U.S. middle class – whose median wages have stagnated for the past decade – health care and the taxes that pay for it are two of the four pocketbook issues that determine the fate of their family (the other two are jobs and housing).

They are terrified of anything that further strains their budgets – including higher taxes that don’t directly translate into a personal benefit. If you are a privileged liberal, it is easy to sneer at this unwillingness to pay for state benefits for other people as selfish. But if your family isn’t poor enough to get Medicaid – the health program for low-income people – yet is struggling to get by, it makes perfect sense.

Many, on both left and right, argue that one of the absurdities of Medicare, unlike Medicaid, is that it is universal. Surely, they say, it is madness to provide equal benefits to the elderly rich and poor alike. Yet that universality is the reason Americans will never allow Medicare to be gutted, just as Europeans and Canadians will never give up their universal health care. People will pay for a good-enough system they know they can use, even if only in the final decades of life. And woe betide the politician who tries to take it away. But that does not mean, as Obama discovered, that it is easy to persuade them to pay for benefits that are not a real benefit to their family’s bottom line.

In 1984 Marc Koska read a newspaper article that changed his life. The article predicted that the HIV contagion that had surfaced a few years earlier would morph into an all-out pandemic across the developed world via the unsanitary practice of reusing syringes. He spent the next three years traveling and designing a cost-effective syringe that would lock up if someone attempted to reuse it. Fast forward to the present, and 13 manufacturers around the world are making a couple of million of Koska’s K1 syringes every day. Yet, as he told Chrystia at Google’s 2011 European Zeitgeist conference in May, doctors and nurses in developing countries continue to reuse unsterilized syringes:

The vast majority of injections are not in any way safe if they don’t use this or they don’t use correct procedure.So we end up with something like 1.3 million deaths — World Health Organization number — being caused every single year, which is twice the amount of the death toll of malaria even. And what angers me is, this is caused by a doctor or a nurse. This isn’t, you know, an innocent mosquito. This is actually being transmitted to the patients via a health care worker.

Marc’s approach to development was one of many that were discussed during Chrystia’s Zeitgeist panel “Spotlight on Philanthropy.” Another panelist, Oxfam CEO Barbara Stocking, stressed that business had a crucial role to play in poverty alleviation and argued, “the best thing that companies can do is actually work in their core business in a way that actually helps poor people.” She cited a recent initiative from consumer-goods behemoth Unilever as an encouraging example:

Unilever is buying up vegetables out of supply chains for — in this case, it’s Knorr stock cubes. Now, we’ve got really a five-term arrangement now with them that in Azerbaijan, actually, we will be organizing the farmers into producer organizations, and Unilever, helping with the agronomy work, so that actually Unilever will be buying 10% of their global supply of onions in three years from Azerbaijan.Now, that’s fantastic for the poor farmers because they have a guaranteed contract and that’s what they’re looking for.

Sipho Moyo, Africa Director of Bono’s charity ONE, said that no matter what approach donors, businessmen, or development efforts pursue in Africa, one thing the continent does not need is more foreign interlopers who try to impose their pre-conceived remedies on the people from afar. She brings up a cautionary tale from the colonial era:

When the colonialists came to Zambia back in the colonial days, they found the Tonga people one of the rites of passage as a coming of age for young men was knocking their front teeth out. And that was a really big thing, if you didn’t get your front teeth knocked out, you protested. You had to have them knocked out. And the colonialists came and thought this was really barbaric. So they put in a law, some kind of a, you know, legislation to make that illegal. And that went well. But soon after that happened, young men just started dropping dead like flies, you know, at the time that they sort of come of age. And then they started investigating what was the problem. What actually happened is that because, you know, they were pastoralists,they handle a lot of cow dung, and there is a bacterium in the cow dung that transmits tetanus. And the reason they originally knocked out their teeth was that when you have tetanus, there’s a lockjaw of some kind that takes place, so they can’t feed you, they can’t give you medication. But if your front teeth are knocked out, they can drop the medication and the food through, you know, the gap. And so they could no longer feed them or medicate them, and they started dying. And that’s when the colonialists came back and said, “Okay.Tell us why you knock out the teeth.” But they should have asked that in the first place. So the point is, is that what the Africans want? You need to find out why they do what they do.

Posted by Peter Rudegeair.