Robert Kagan is a prominent neoconservative who advised John McCain in the 2008 race and is advising Mitt Romney in 2012. But after publishing a cover story in the New Republic arguing against "the myth of American decline," he has found himself a new fan: President Obama.

Republican presidential candidate, former Massachusetts Gov. Mitt Romney campaigns at the Emma Lou Olson Civic Center, in Pompano Beach, Fla., Jan. 29. (Paul Sancya/AP)

Kagan's essay isn't really about "the myth of American decline." It's about the myth that America was ever omnipotent. "Every day, it seems, brings more evidence that the time has passed when the United States could lead the world and get others to do its bidding," Kagan writes. But the reality is that "much of today’s impressions about declining American influence are based on a nostalgic fallacy: that there was once a time when the United States could shape the whole world to suit its desires, and could get other nations to do what it wanted them to do."

Indeed, Kagan says, American preeminence looks much as it always has: we produce about a quarter of the world's GDP, the same percentage that we've produced for the last four decades, and our military remains vastly larger. Nor has the cost of maintaining that preeminence increased: Both in terms of men and money, our military consumes fewer of our resources than it did throughout most of the 20th Century. That doesn't empower us to control world events in minute detail. But it makes us very rich, very influential, and very dominant.

The real core of the question of American decline is, however, the continued productive capacity of the American economy. If America's economy can no longer adapt and grow, our military commitments will quickly become unmanageable, our domestic politics will become volatile, and our position in the world will wane. And as Kagan notes, this is backed up in impressions of American power: In the 1990s, when our economy was booming, commentators spoke of our "unipolar moment" and America's historically unmatched preeminence. Today, with our economy sagging, those same commentators wonder whether we are entering a permanent decline. So the question, really, is where our economy goes from here.

New economic data suggests there's reason for optimism: the recession has not permanently derailed our economy. Gross domestic product began falling in the fourth quarter of 2007. And for most of the last four years, real GDP -- that is, GDP once you account for inflation -- has been lower than it was in late 2007. But according to the newest GDP figures, America turned the corner in the third quarter of 2011: our economy was larger in that quarter than it was before the recession. And, in the fourth quarter of 2011, it was even larger than that. Which is not to deny the terrible toll the recession took on the economy, or its continued aftereffects. But the country's basic productive capacity has endured, and is even growing.

Further underscoring the case for optimism is the fact that America is much further along in the deleveraging process -- which is, essentially, the recovery process from this sort of recession -- than competitor countries. Frankly, it would be better for us if other countries were recovering more swiftly, as it would help our exports and reduce financial uncertainty. But insofar as the question is whether America's economy is recovering comparatively faster than other advanced economies, and thus displaying its tendency to recover from global recessions in a way that makes us relatively stronger than our peers, the numbers are, for now, encouraging.

TNR subscribers can read Kagan's article here. Non-TNR subscribers should become subscribers and read Kagan's article there. But it's also up for free at the Brookings web site.

Top stories

1) GDP grew at a disappointing 2.8 percent in the fourth quarter of 2011, reports Peter Whoriskey: "The economy is growing at a decent clip. Corporate profits are at record highs. And the nation’s automakers, whose near collapse in 2007 heralded the downturn, are humming along. But for many Americans, even those with jobs, the 'recovery' so far seems hardly worth celebrating. The Commerce Department issued a quarterly report Friday that said the economy expanded at a comfortable rate of 2.8 percent during the last quarter of last year. The figure suggests that, after the slowdown for much of 2011, the recovery has begun to accelerate again. But the report and other recent economic data suggest a stark divide between the fortunes of businesses and people. Companies are thriving again, but households have come under financial stress, creating dissatisfaction that, in a presidential election year, could have far-reaching effects."

@justinwolfers: GDP grew at trend--no more, no less. At this rate, we'll never reduce unemployment. The recovery has been postponed, again.

@crampell: 2011 overall was the slowest non-recessionary year of GDP growth since 1947, says Neal Soss of Credit-Suisse

2) Budget cuts have harmed growth , reports David Leonhardt: "The brief version of the story is that the government, which helped mitigate the recession, has been a significant drag on growth for more than a year now. In 2007, both the private sector and government were growing. The government continued growing through 2008 and most of 2009, with the exception of one quarter when military spending fell. The private sector, though, began to shrink in 2008 and by late 2008, as the financial crisis took hold, it was shrinking rapidly...People can obviously have a spirited debate about cause and effect here. I’m not aware of much research or evidence suggesting that short-term declines in government activity -- at least in a largely free-market economy -- cause short-term growth in the private sector. Lacking such evidence, the obvious conclusion seems to be that economic growth, and employment growth, would have been significantly stronger over the last two years without government cuts."

@DLeonhardt: The private sector grew at a robust 4.5% annual rate last quarter. Government shrank at a 4.6% rate. Result: 2.8% GDP growth.

3) Gingrich's lead in Florida has collapsed, reports Nate Silver: "Based on the polling out through Saturday evening, Newt Gingrich had become a clear underdog to Mitt Romney in the Florida primary. But you could at least make the case that the downward trajectory in Mr. Gingrich’s polling had stopped, leaving open the possibility of a last-minute comeback. Now, that case has become much harder to make. Four polls released Sunday morning — from NBC News, Mason-Dixon, American Research Group and Rasmussen Reports — each give Mr. Romney a double-digit advantage in Florida."

@Freddoso: Gingrich, I can beat Obama, 'liberal' Romney can't. From @byronyork

@EzraKlein: @freddoso Swing state voters to Gingrich: No, you can't. Yes, he can.

4) Germany proposed, and Greece angrily rejected, a debt deal that would have given the eurozone veto power over its budgetary decisions, report Peter Spiegel and Kerin Hope: "Greece’s finance minister angrily rejected a German plan for the eurozone to impose a budget overseer onto Athens in return for a new €130bn bail-out, saying it would improperly force his country to choose between 'financial assistance' and 'national dignity'...Mr Venizelos’s comments came as talks in Athens shifted from the weeks-long negotiations over restructuring its privately held debt to the question of which public institutions will have to pay to fill a widening gap in Greece’s budget figures. According to officials involved in the discussions, negotiators representing Greek bondholders largely completed a deal with Athens at the weekend which would cut the long-term value of privately held bonds by just over 70 per cent.

@jmackin2: German oversight of Greek finances is half the answer. Fixing imbalances also needs Greek oversight of German spending, to push it up

5) European leaders may shift their focus to growth, reports Stephen Castle: "Bowing to mounting evidence that austerity alone cannot solve the debt crisis, European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need are a dose of economic growth. A draft of the European Union summit meeting communiqué calls for 'growth-friendly consolidation and job-friendly growth,’ an indication that European leaders have come to realize that austerity measures, like those being put in countries like Greece and Italy, risk stoking a recession and plunging fragile economies into a downward spiral. The difficulty, however, is that reaching such a conclusion is not the same as making it happen."

Top op-eds

1) Austerity has failed, writes Paul Krugman: "Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure -- changes in real G.D.P. since the recession began -- Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground...The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist -- or for that matter any undergraduate who had read Paul Samuelson’s textbook 'Economics' -- could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia."

2) The rich aren't to blame for inequality, writes James Wilson: "There is no doubt that incomes are unequal in the United States -- far more so than in most European nations. This fact is part of the impulse behind the Occupy Wall Street movement, whose members claim to represent the 99 percent of us against the wealthiest 1 percent. It has also sparked a major debate in the Republican presidential race, where former Massachusetts governor Mitt Romney has come under fire for his tax rates and his career as the head of a private-equity firm...But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality?"

3) The Buffett Rule is a terrible idea, writes Josh Barro: "It appears that Senator Sheldon Whitehouse (D-R.I.) intends to introduce a 'Buffett Rule' bill in the Senate, in line with President Obama’s State of the Union call that anybody making over $1 million should be paying at least a 30 percent tax rate. Essentially, it’s a proposal for a second Alternative Minimum Tax, though unlike the current AMT, this one would not make provision for lower taxes on capital gains. It’s important to note that this proposal effectively eliminates the tax preference for capital income for very high earners, even though 30 percent is lower than the top tax rate of 35 percent. Essentially any high earner with substantial capital income will end up being subject to the alternative tax; that means he’ll face a 30 percent marginal rate not only on capital gains, but also on additional ordinary income, whether from wages or interest. This is sure to be a powerful wedge issue for Democrats in the campaign. It’s also a terrible policy idea."

4) The new mortgage investigation must be aggressive, writes Gretchen Morgenson: "President Obama told the nation last week that he was convening a task force to investigate the abusive practices in the mortgage industry that led to our economic woes. Both lending and the practice of bundling loans into securities will come under scrutiny, he said, adding: 'This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans.' Some greeted this new task force -- its unwieldy name is the Residential Mortgage-Backed Securities Working Group -- with skepticism. It is an election year, after all, and many might wonder if this is just a public-relations response to the outrage against the institutions and executives that almost wrecked the economy. If this task force nailed some big names, and soon, it would help to allay deep suspicions that the authorities have given powerful people and institutions a pass during this awful episode."

Late night interlude: They Might Be Giants play "When Will You Die" live on Conan.

Got tips, additions, or comments? E-mail me.

Still to come: Budget cuts are a drag on growth; debate over birth control; union membership falls; new estimates dim hopes for natural gas; and a dog sleeps with its kittens.


Exports are driving growth, reports Binyamin Appelbaum: "The estimates of the nation’s economic performance last year, released Friday, highlight a striking trend: Exports have never been more important. Foreign buyers purchased more than $2 trillion in goods and services, the first time exports have topped that threshold. And those exports accounted for almost 14 percent of gross domestic product, the largest share since at least 1929. We usually talk about exports alongside its opposite number, imports, and since the United States buys much more than it sells - our 'trade deficit' -- the general impression is that foreign trade is a drag on the economy. But that tends to obscure the importance of exports, which have accounted for about 10 percent of G.D.P. over the last two decades and, since the recession, considerably more. The growth has come from all areas, but the real strength has come from what might be called the old economy: petroleum, metals, chemicals and farm goods."

Consumer confidence ticked up, reports Kathleen Madigan: "U.S. consumers think the economy is doing a bit better in January, according to data released Friday. The Thomson Reuters/University of Michigan consumer sentiment index for the end of January rose to 75 from a preliminary reading of 74 for the month and 69.9 at the end of December, according to sources who have seen the report. The latest reading was better than the 74.5 expected by economists surveyed by Dow Jones Newswires...Better job growth in recent months has been boosting consumer spirits, but that has not translated to a burst of spending. Friday’s report on U.S. gross domestic product showed real consumer spending rising at an annual rate of 2%, which was slower than many economists had projected."

The Obama administration expanded a mortgage assistance effort, report Alan Zibel and Nick Timiraos: "The Obama administration said Friday it would give troubled homeowners another year to enroll in its signature mortgage-assistance program and increase payments to banks in an effort to get them to more aggressively reduce borrowers' loan balances. The changes represent the latest overhaul of the administration's foreclosure-prevention efforts, which President Barack Obama launched three years ago. The administration has fallen far short of its original goal of modifying three million to four million mortgages. The administration's Home Affordable Modification Program had been set to expire at the end of this year but will now be extended until the end of 2013."

Small business growth slowed in January, reports Lucia Mutikani: "Small business payrolls grew at a slower rate in January and wages fell, an independent survey showed on Monday, suggesting the pace of overall job growth moderated after December's sturdy gain. Small businesses added 50,000 jobs, payrolls processing firm Intuit said, compared with a gain of 60,000 in December. Still, labor market conditions continue to improve...The Intuit survey is based on responses from about 72,000 small businesses with fewer than 20 employees that use the Intuit Online Payroll system. It covered the period from December 24 to January 23. The average monthly salary for small business employees fell 0.1 percent, or $3, to $2,632 in January. The average workweek eased 0.1 percent to 24.8 hours."

Tumblr interlude: On What Matters, on What Matters.

Health Care

@jbarro: A system of tax-advantaged employer-based health insurance inevitably leads to govt telling employers what a health plan should be.

A new birth control rule is drawing resistance, reports Denise Grady: "This month the Obama administration, citing the medical case for birth control, made a politically charged decision that the new health care law requires insurance plans at Catholic institutions to cover birth control without co-payments for employees, and that may be extended to students. But Catholic organizations are resisting the rule, saying it would force them to violate their beliefs and finance behavior that betrays Catholic teachings...The Obama administration relied on the recommendations of the Institute of Medicine, an independent group of doctors and researchers that concluded that birth control is not just a convenience but is medically necessary 'to ensure women’s health and well-being.' About half of all pregnancies in the United States are unplanned, and about 4 of 10 of those end in abortion, according to the Institute of Medicine report, which was released in July. It noted that providing birth control could lower both pregnancy and abortion rates."

Domestic Policy

Union membership fell in 2011, reports Steven Greenhouse: "The nation’s union membership rate continued a decades-long slide last year, falling to 11.8 percent of the American work force in 2011, the Bureau of Labor Statistics announced in a report on Friday. That was down from 11.9 percent the previous year even though total union membership edged up, rising by 49,000 last year to 14.76 million. The overall membership rate declined because the increases in organized labor’s ranks did not keep pace with overall growth in employment. The bureau announced these numbers as the nation’s labor unions have been coming under heavy political attack. Republican governors and Republican-controlled legislatures in Wisconsin and in several other states have pushed to curb the power of public employees to bargain collectively. Moreover, Indiana is poised to become the first state in more than a decade to enact a 'right to work' law, which bans employers and unions from agreeing to contracts that require workers to pay fees for union representation."

Obama announced a plan to reduce tuition costs, report David Nakamura and Daniel de Vise: "President Obama offered a plan Friday to reduce the costs of higher education by increasing the amount of federal grant money available for low-interest loans and tying it directly to colleges’ ability to reduce tuition. In an impassioned speech before 4,000 students at the University of Michigan, Obama delivered an election-year pitch to the type of youthful audience that buoyed his 2008 campaign, saying his administration was putting colleges 'on notice' that they must rein in soaring prices...Obama’s proposal would boost federal investment in the Perkins loan program from $1 billion to $8 billion and revamp the formula for distributing the money. Under the plan, colleges would be rewarded based on their success in offering relatively lower tuition prices, providing value and serving low-income students, the White House said."

The effort is long overdue, writes Kevin Carney: "At a speech Friday morning at the University of Michigan, Obama elaborated even further. He proposed a 'Race to the Top' modeled after his successful efforts to spur state reform of K-12 schools. States would be rewarded for restructuring their college financing systems and continuing to support higher learning. A new 'College Scorecard' would rate colleges on price, graduation, debt and employment, helping students and parents decide where to enroll. Work-study jobs would double, and student loan interest rates would be kept low. Most importantly, billions of dollars in federal aid would become contingent on colleges keeping prices reasonable and low. Colleges that successfully enroll and graduate low-income students, educate people well, and help students find jobs and repay debt would get more federal aid for student loans and other programs. Colleges that fail would not."

Interspecies friendship interlude: A dog sleeps with its kittens.


@daveweigel: Keystone pipeline 2012 = Panama canal 1976. Discuss.

Keystone XL will be attached to the House infrastructure bill, reports Russell Berman: "Speaker John Boehner (R-Ohio) said Sunday that legislation advancing the Keystone pipeline would be part of a major House Republican infrastructure and energy bill if it is not enacted before that bill comes to a vote. The Obama administration has rejected approval of the oil sands pipeline over GOP objections, and Republican leaders have identified it as a top job-creating priority. House GOP leaders are preparing to release a top Boehner priority: Legislation that would generate revenue for improving the nation’s aging infrastructure through expanding domestic energy production. 'If it’s not enacted before we take up the American Energy and Infrastructure Jobs Act, it’ll be part of it,' Boehner said of the Keystone pipeline bill."

New estimates show less natural gas in U.S., reports Ian Urbina: "Just how much natural gas is trapped underground in the United States? The difficulty and uncertainty in predicting natural gas resources was underscored last week when the Energy Information Administration released a report containing sharply lower estimates. The agency estimated that there are 482 trillion cubic feet of shale gas in the United States, down from the 2011 estimate of 827 trillion cubic feet -- a drop of more than 40 percent. The report also said the Marcellus region, a rock formation under parts of New York, Ohio, Pennsylvania and West Virginia, contained 141 trillion cubic feet of gas. That represents a 66 percent drop from the 410 trillion cubic feet estimate offered in the agency’s last report."

California's low-carbon fuel push is drawing controversy, reports Juliet Eilperin: "Just as it pioneered curbs on greenhouse gas emissions from cars and light trucks a decade ago, California is championing standards that could transform the fuel that goes into their tanks. But its new rule, which requires lowering the amount of carbon in fuel sold in the state, has become embroiled in a fierce public battle and has been barred from being enforced. In light of tight state budgets, litigation over California’s program and a strong lobbying campaign against them, the question is whether the ambitious climate policy will get off the ground...They call for reducing the overall carbon content of fuel sold in the state by 10 percent by 2020. Refiners will either have to mix low-carbon fuels into what they sell over time in order to make the required cuts or buy credits to offset the amount by which the fuel they sell exceeds the standards."

A new rule will boost mass transit, writes Matthew Yglesias: "Mass transit has, according to its fans, a staggering array of benefits. It reduces pollution, improves quality of life, and anchors vibrant walkable communities. It boosts public health and makes people happier. But relatively few transit-boosters understand that existing federal guidelines for assessing which new projects to fund not only exclude those considerations, they make it extremely difficult for newly built transit to meet those objectives. A new proposed rule from the Department of Transportation, now entering its 60-day comment period to let people raise objections, should change all that for the better...Transit projects should be built where it’s cheapest to serve the most riders. This principle can and should stand on its own."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.