Aug

6

 You can read a lot lately about the end of the US dominance era. Many dare to compare the Roman empire with the United States. Examples can be demographics issues with "barbarians" entering the empire as workforce (as opposed to invaders) while the average "citizens" age increases, high military expenses to maintain presence along the borders, big trade deficit as rich consumers help grow poorer neighbors that produce at lower costs. Environment, food, climate change, and energy are additional problems, which are not exclusively "American", but require a global response. Let's leave aside the parallels between Romans and Americans. There are multiple futures ahead with profound implications from the U.S. perspective. The main drivers are related to:

- energy: peak oil and dependence from foreign sources;

- technology: what happens if the technology gap narrows in favor of competitors?;

- demography: older population and immigration issues;

- climate change;

- global governance and geopolitics: failing states and emergence of areas of regional/global power (Asia/resurgence of Russia).

There could be many other drivers, but, in my opinion, the analysis of the implications of the different future scenarios should start from the present situation.

Twenty years after the end of the cold war the US remains the only global power, however, I think that being global in the years past has shown itself to be too expensive for the benefits it gives. The efforts required to maintain a constant (or even increasing) high level of global presence are too high. The main point is that marginal costs are higher than marginal benefits. In summary, if this trend continues, the country could enter a long decline era, where vital resources are wasted to "guard the outposts of the empire" instead of being used to sustain the country's capitalistic and entrepreneurial spirit. Maybe a global strategy should be set aside in favor of a reduced and more focused intervention in specific critical areas and issues. At the same time, concerns about US "strategic competitors", should not be excessive. No country, from China to Russia and each for different reasons, can cultivate the ambition to become a global player for decades to come. The US should manage the comparative advantage in technology, military, innovation potential, financial markets, social development, property rights, education, and so forth, making a better use of its huge resources. The current trend of deficits and debt is not going in this direction. Many consider this trend acceptable and manageable. Actually, my personal opinion is that a continuously weaker currency, higher inflation, increasing private and public debt, a fragile credit system display that the current strategy (with the related cost and budget implications) cannot be sustained much longer. If we look at the stock market, which represents the economy, in the past ten years it has not grown that much. And, if we take into account exchange rates, the situation looks even less satisfactory. The wave of innovation (and source of huge profits) brought by the advent of the information age in the nineties was initiated and "owned" by US technology and US companies. Microsoft, Intel, Oracle, Cisco, Yahoo! and so forth are some examples. The last wave, still ongoing, but limited in its effects, is now represented by Google and Apple. This sector is getting mature and growth appears to be slower with time. In general, the stock market performance reflects a mature economy where growth can be sustained only at the cost of higher inflation. The US needs badly a new wave of innovation. Where is the next wave coming from? Will US companies once again be protagonists? This is what is really crucial in the next decade. Energy dependence is one important aspect, also from the national security perspective, to take into account in this scenario. Is alternative energy going to drive the new technological developments and the needed growth? Biotech? Nanotechnologies? Very difficult to say. Very important, however, is that resources be allocated properly to maintain the intellectual and cultural leadership in the various fields of human and economic interest and not dispersed to support global strategic efforts, which could reveal themselves as unsustainable in the long term.


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8 Comments so far

  1. Gregory Rehmke on August 6, 2008 11:57 pm

    Countries too long stable, like species in stable ecosystems, tend to accumulate parasites and attract predators. US businessmen and entrepreneurs each year have to carry more non-productive government parasites, cut through more clogging regulations, and fend off more litigating predators. As the tax and regulatory burden continues to grow (including theft via depreciating government currency), it becomes harder to compete with firms overseas less burdened by their governments.

  2. Curmudgeon 5349 on August 7, 2008 12:49 am

    The aspect of US economic policy that is really unsustainable and that will have to come to an end is the enormous partly explicit but mostly implicit govt subsidies to homeownership. No other country has anything like the GSE's that own or insure half (half!) of all mortgages. I hope once Fannie and Freddie are saved from their immediate troubles they will be merged and slimmed down to a much smaller size.

    Will this mean that Americans will have to pay more for mortgages? That some people will have to rent for a longer period before being able to own a home ? Probably yes. But so be it. Providing cheap mortgages is not an essential government function in the same sense as providing defense, pensions or bridges and highways. And the system as designed is unsafe and non-transparent. It causes overinvestment in residential structures relative to other investment.

  3. Ronald Weber on August 7, 2008 9:03 am

    You are all so negative about the US! Do you have any better option to suggest? Russia? China? South America? France or Germany (unless you are a retiree)? Socialist Italy maybe? Did I hear secular Japan? The US is still the dominant power from all perspectives: military, general quality of life, corporate and household assets, innovation, number of issued patents, market access, education (I don't see US students fleeing to Chinese universities!), market size, and please give me a break about the sovereign wealth funds, they are peanuts in size compared to the volume of US pension funds!

  4. steve leslie on August 7, 2008 9:17 am

    There was a time when the term "Cadillac of the Industry" meant something. It was a metaphor for something special, something that was of the highest calibre, had prestige and immediately identified one with success. This was before the nouveau rich began driving BMWs. My father owned his fair share of Cadillacs and Chevrolets and it was a real treat to ride in and drive one on a Sunday afternoon. The classic Cadillac with the tail fins was a true head turner. In fact, many people were lifelong Chevy and Cadillac owners because of this attribution. With the recent struggles of General Motors,threats of bankruptcy, and escalating oil prices, I wonder if the enduring symbol of Cadillac will soon become an anachronism. I think of The Cadillac Ranch outside Amarillo Texas. A memorial to a bygone era. I listen to the Bruce Springsteen tribute to Cadillac Ranch and sit here thinking.

  5. Luigi Mauro on August 7, 2008 6:04 pm

    Probably every posture or situation bears its downside. Thus, when the US confronted the Soviet Union, it was barely as global as it is. Military expenses were high, too. But mass psichology was pretty different: we had a clear and identified enemy. Not only has that enemy dissolved but somehow it has joined and begun enjoying our capitalist system (yeah, we’ll see). Even China, perhaps, is no longer a communist country as we used to mean. Some speak of authoritative capitalism, and I’m not sure what they mean or what country they are thinking about (China among the others, perhaps?).
    When things change, above all significantly, no way to refer to the past in order to model the present or even worst to try to model the future. We attempt this because the uncertainty is a potent attractor of fears and alarmism. These feelings or behaviors are often seen negatively but sometimes they are beneficial. So is it the fear that makes us worry about the future destiny of the US or is it simply alarmism? Well, some talk about presentism. We are immersed in the present, too much. Of course, difficult not to be. However the debate keeps the attention alive. Nowadays, no other country or continent can be compared to the US. And to achieve the level of maturity of every US system (education, military, social, financial, etc.) takes very long. That’s why I do not expect that in 20 years the world will be upside down. Nevertheless, things can change. And some day they will.
    Being prepared to change - some would better say prepared to accept change - also means having the proper attitude to drive change. Also this posture is expensive.
    On the other hand even the isolationist posture the US kept in between the two World Wars showed to be expensive. Isolation didn’t pay. Will being a global actor not pay? Say it has paid so far. But many expect the world will change (significantly) next decades. I think there will be a need for a Grand Strategy that would be very welcome next couple of years. This implies a clear understanding of what’s happening in the world. Then the US will need to decide whether (and/or when) to go alone or to cooperate.

  6. michael bonderer on August 7, 2008 6:58 pm

    Hey Paolo, thanks for the heads-up. We're good though. Get some sleep. Everything's cool.

  7. acetrader on August 8, 2008 10:38 am

    Mike is right….the kids are allright. Pretty soon I’ll be driving my Chevy Volt or Tesla down main street! Don’t forget the world’s neverending want for all things Western culture as well!

  8. Jens on August 10, 2008 12:09 pm

    @Ronald Weber

    >You are all so negative about the US!

    We are realistic?

    >Do you have any better option to suggest?

    Yes.

    > Russia? China? France or Germany, Socialist Italy, Japan?

    Yes, all of them. It is called Eurasia!

    > The US is still the dominant power from all > perspectives:

    No, it isnt.

    > military

    In the air and on the sea, not on the ground.

    > general quality of life

    The average person in western Europe has a much higher quality of life. This is really a no-brainer!

    >household assets

    In Europe the governments are bankrupt, in the US it is the households.

    >number of issued patents How much higher than in the EU?

    I don't know out of my head.

    >market access

    ??

    > education

    Many of the best universities are still in the US. But the broad education is bad. Toyota built a car factory in Canada, despite high US subs offered, because US workers were considered not smart enough to build the cars. The last time they had to draw comics to teach them. No kidding!

    >I don't see US students fleeing to Chinese universities!

    Me neither. But I see Chinese returning to China after graduating because of better opportunities.

    >market size

    This I don't know. But the major finance city is London, not NYC anymore. Does this answer your questions?

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