"Women shouldn’t vote"

An interesting Freakonomics article with the author of The 'Tyranny of Dead Ideas', Matt Miller.

It isn’t hard to think of ideas that were once considered conventional wisdom — “Women shouldn’t vote,” “People should be segregated by race” — but were eventually laid to rest.

In his book The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash A New Prosperity, Matt Miller writes that the country’s biggest problem right now isn’t the suffering economy, but a few outdated ideas that “prevent us from responding forcefully in this new situation to improve people’s lives.”

He identifies some of the most damaging of these “dead ideas” and predicts which ideas might eventually replace them.

Miller is a senior fellow at the Center for American Progress, a contributing editor at Fortune, and the host of public radio’s Left, Right & Center program. He is a senior adviser to global management and consulting firm McKinsey & Company, and he served at the Clinton White House from 1993 to 1995 as a senior adviser in the Office of Management and Budget.

He has agreed to answer a few of our questions about the book and talk about the three dead ideas he thinks did the most to get us into the economic and financial crisis we’re in now.

What are dead ideas and why does society keep them around?

Dead ideas are eternal, universal phenomena that plague all of us. They’re the result of an essential vulnerability in human psychology: our slowness in updating the way we think about the world even when the world itself radically changes.

So the book is about the trouble we get into because of the things we think we know. Think of dead ideas as conventional wisdoms that retain their power long after it makes any sense to hold onto them — or beliefs that, while comforting, are so at odds with reality that they amount to delusions that hold us back.

By the way, dead ideas don’t just apply to our economic lives, though that’s the focus of the book. They’re prevalent in businesses and nonprofit organizations, which often get stuck in old ways of doing things long after these habits become a threat to their success, or even survival. And anyone who’s been married for any length of time knows that dead ideas can take hold in relationships as well.

Why do we keep these dead ideas around? In part because we’re human, which means it takes a huge shock — like today’s economic crisis or a spouse’s threat of divorce — to force us to wake up to the fact that we’re not seeing things right, and in part because powerful constituencies form around the status quo and make it hard to change.

So what dead idea is most responsible for the recent A.I.G. bonuses?

It is the idea that “Money follows merit” — by which I mean that market capitalism is a meritocracy in which people basically end up, in economic terms, where they deserve to. As we can see by how fiercely Wall Street resists change, financiers cling to the idea that their outsized rewards reflect something superior about their performance in the “free market” — as opposed to being the result of rigged compensation systems that reward failure or mediocrity as often as success.

Do you find yourself clinging to any ideas that you already know are dead?

Absolutely! Truth is, most of us probably couldn’t get through the day without a few dead ideas. In my professional life, the deadest idea I cling to is that “Rational analysis can lead to constructive change” — which, if you’ve read any history, may never have been that “alive” an idea in the first place. The biggest dead idea I’m in the grip of at home is that my daughter (who turns 12 this month) is still a little girl.

Can you name the three dead ideas you think did the most to bring about the current recession/ financial crisis and whether they’ve since died, are currently on their way out, or may stick around longer?

“Financial markets can regulate themselves.”

This dead idea was a major culprit in today’s mess. Modest, common-sense rules — like adequate capital requirements or scrutiny of credit default swaps — could have avoided much of the pain we’re going through. This idea has plainly been exposed as a relic (even Alan Greenspan, its chief champion, now says so). But we won’t know it’s dead for sure until we see how the battle over financial regulatory reform plays out.

“Your company should take care of you.”

This dead idea is making the recession far worse than it needs to be. I refer to our employer-based system of health care benefits. Each day in this recession, 14,000 people have lost their health coverage; that’s 100,000 every week. And it’s all because we have a system that inanely links your health coverage to your job.

Unfortunately, Washington doesn’t seem ready to move past employer-based health care yet, even though this dead idea hurts both worker security and business competitiveness. Politically, it seems too big a departure from what people are used to. But I’m hopeful that any big health reform will, for the first time, include ways for people to access group coverage outside the employment setting, which could let a parallel system evolve that in time kills this dead idea for good.

“Taxes hurt the economy (and they’re always too high).”

Most people will get a tax cut as we muscle through this recession; but once the downturn has passed, taxes will rise more broadly over the next decade no matter who is in power, because we’re retiring the baby boom, which means doubling the number of people on Social Security and Medicare. The good news is that when this happens, the economy will be fine. But for political reasons, this is an undiscussable fact. Worse, this dead idea stops us from reforming our tax system to better promote prosperity, even as we raise more revenue. In my view, this means cutting taxes on payrolls and corporations and raising taxes on dirty energy.

What two new ideas is the current economic climate most likely to bring about?

One of my “destined ideas” in the book is that “Only government can save business” — not just in the sense of plugging the hole in the banking system or rescuing Detroit, but in playing a bigger role in assuring basic health care and pension security (and thus relieving corporate America of this burden). It may take the next decade to play out, but the idea that government now needs to play a more active (and smarter) role has been set in motion.

Another is the idea that “Only the (lower) upper class can save us from inequality.” The revolt of the professional class (which I dub the Lower Uppers) against the undeserving ultrarich is underway.

It’s epitomized by the revulsion against bankers who’ve walked away with millions after gambling with junk securities that wrecked the economy. The Obama team and Congress are led by Lower Uppers, and they’re poised to reign in excesses at the top — partly through taxes, and partly through reforms in executive compensation. This may take the edge off the inequality that’s grown so extreme in recent years.