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Dear America,

We seem more dispirited than at any time since the Great Depression. Yes, the recession is enervating. Yes, the fall of Soviet communism creates a public-policy vacuum. And yes, our political system is failing us. But something else is happening. In the most un-American way, we seem paralyzed to do anything about our manifold problems. Instead, we are seeking scapegoats--most recently, Japan. It is a dangerous game. If you think we have economic difficulties now, try more protectionism.

We have some reason to be angry at the Japanese. Their markets are just not as open as ours--to investment or to products. And their comments about the U.S. are often grossly misleading. But some sting, because they have the ring of truth. Many of our schools are failing. Crime and drugs are rampant. Our budget deficit is out of control. Corporate managers, pushed by a short-sighted financial system, are often blind to anything but the next quarter's profits. We demand government entitlements, but we refuse to pay for them....You know the litany.

What to do? For starters, accept our new role in the world. With the end of the cold war, we need not be the world's policeman. Understand that national security no longer means ICBMs but rather a strong economy. Such attitudes should not degenerate into isolationism but should enable us to focus on world trade and domestic problems.

This, in many ways, is a defining moment in American history. For one thing, the former Soviet republics, Eastern Europe, and the market-oriented nations of Latin America are all promising opportunities. For another, we have a substantial peace dividend coming to us--as much as $300 billion in reduced military expenditures over the next decade. We can and should debate how the money should be used-- for tax cuts, a reduced deficit, or social spending.

This magazine prefers two solutions: tax cuts that spur capital investment and public spending on infrastructure and human capital--not just schools but worker training and apprenticeships. Any needed taxes should be levied on consumption, not income. For instance, increased gasoline taxes would spur conservation, reduce oil imports, and raise significant revenue for the commonweal.

In part, we are held back from substantial reform by a government system that is beholden to special interests. The way we finance our elections is akin to bribery. Campaign-finance reform is urgently needed. We are also handicapped by an ideological bias against long-term planning, as though industrial planning were somehow un-American. Yet our defense buildup was a form of industrial planning. Why retreat from planning our defense cuts? We should minimize government intervention, but that hardly means no role at all in strategic planning.

In other cases, such as regulation, less government is needed. Our antitrust policies were formed when U.S. Steel was a kingpin and General Motors worried only about Ford and Chrysler. Today, we need to permit joint research and risk-sharing on expensive projects and technologies.

Drugs, crime, and welfare dependency are much tougher problems. But we know certain things work. Head Start works for preschoolers. Certain schools work in educating disadvantaged children. Certain drug-rehabilitation programs work. Certain job-training programs work. We can make no better investment than training our people for a more complex and competitive world.

No social program will be good enough if the economy remains weak. There is nothing wrong with the work ethic of most Americans--from single mothers who mop floors for a living to unemployed auto workers. On Jan. 15, many thousands of unemployed lined up for hours in freezing weather to apply for 1,000 new jobs posted by the Sheraton Chicago Hotel. Laziness is not the problem--a lack of jobs is.

And we won't create enough jobs if we don't restructure our policies to spur investment and education. If we don't change, the Japanese view of America as a nation in decline will prove to be correct. If that happens, don't blame Japan. The choice is ours.

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