theadanews.com - Ada, Oklahoma

Community News Network

December 26, 2012

Will 2013 mark the beginning of American decline?

"A modest man," Winston Churchill supposedly quipped about Clement Attlee, his successor as prime minister, "but then he has so much to be modest about." We should say the same about economists, particularly their ability to forecast anything in a useful and timely manner.

Those predicting an imminent American economic decline have usually been no exception. This time, though, they may be on to something.

Prevailing arguments about when the era of U.S. dominance would end, and which country would supplant it, have been wildly and consistently wrong for half a century. In the 1950s, Soviet leader Nikita Khrushchev was taken seriously when he told Western ambassadors "We will bury you." Today, his country no longer exists. In the 1980s, Japan was supposedly going to be No. 1; now the question is whether the precipitous decline in its working-age population will generate a fiscal crisis.

The Germans - or Europeans more broadly - were thought to be on the brink of elbowing aside the United States several times, including in the run-up to the global financial crisis in 2008, when the euro seemed to threaten the dollar's role as the pre- eminent reserve currency. Remember when Brazilian model Gisele Bundchen was quoted as saying she preferred to be paid in euros? Now the euro-area economy looks very sick indeed, and Bundchen is apparently long American icons (she married football player Tom Brady).

Becoming the world's top economic dog isn't easy. That's because any contender - China or anyone else - needs to answer three tough questions.

First, do they have secure property rights for individuals? Who would trust their rainy-day funds or their most innovative ideas in a country where, when the going gets tough, the state gets your stuff? China has a big current-account surplus and lots of foreign-exchange reserves. They also have a 2,000-year tradition of putting the government before the individual. Think about all the ways this went wrong for the Soviet Union.

Second, is the financial system viable in its current form? Japan had a great economic-transformation story - and an even greater debt-fueled asset-price bubble when its banks went mad in the mid-1980s. How confident are you that China, Brazil or other emerging markets aren't headed down the same road?

Third, is debt - both public and private - on an unsustainable path? Mismanaged debt has brought Europe to its current low point, both in the form of direct public borrowing (see Greece) and in the equally painful form of private-sector borrowing that goes bad, with nasty implications for the government's balance sheet (ask the Irish and Spanish about this).

Even so, the U.S. has serious economic, social and political problems. Just look at the current budget debacle. Democrats and Republicans are at each other's throats, struggling theatrically, rather like Holmes and Moriarty above Reichenbach Falls. If they get a fiscal deal done in the next few weeks, do you really think it will result in a sensible tax system, or bring long-term health-care spending under control? Are we going to invest more in education? Will we really have a frank discussion about what kind of social-insurance programs we want, and how to pay for them?

I'm also well aware that incentives to take excessive risk remain at the heart of Wall Street. The Dodd-Frank financial reforms contain some useful measures but do too little to significantly alter the balance of power between global megabanks and the rest of us. The Federal Reserve seems to be edging in the right direction on regulation but it is moving too slowly to make any difference for the next cycle.

And the U.S. is now entering perhaps the most dangerous phase of its long-standing tax revolt, in which Republicans insist on holding down federal revenue while the population is aging, but they won't propose specific cuts in social programs, precisely because they know that Medicare and Social Security remain immensely popular.

As a result, the political logic of the moment leads to continued increases in U.S. government borrowing, about half of which is financed, for now, by international savings at low interest rates. Our post-crisis monetary policy is contriving to keep those rates very low for a long time, presumably setting the table for a further round of mismanaged risk taking in the financial sector (just as it did after 2001).

 So while no country will rise up to take America's place as the world's leading economy, its global position is indeed threatened - by its own reluctance to have an honest conversation about the federal budget and by the unwillingness of its political leadership to confront powerful interests on Wall Street.

Sooner or later, it will be America's turn to fall out of favor with investors and to see its own interest rates rise. It is hard to know when that day will come, or precisely what pressures the country will face.

Let me only venture one forecast: We will not be ready.

             

Simon Johnson is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is co-author of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You."

 

1
Text Only | Photo Reprints
Community News Network
  • Why a see-through mouse is a big deal for scientists

    A group of Caltech researchers announced in Cell Thursday their success in making an entire organism transparent. Unfortunately, this isn't any kind of "Invisible Man" scenario: The organism in question is a mouse, and the mouse in question is quite dead.

    July 31, 2014

  • Screen Shot 2014-07-31 at 2.12.55 PM.png VIDEO: Five-year-old doesn't want her brother to grow up

    Sadie, an adorable 5-year-old from Phoenix, wants her brother to stay young forever, so much so that her emotional reaction to the thought of him getting older has drawn more than 10 million views on YouTube.

    July 31, 2014 1 Photo

  • lockport-police.jpg Police department turns to Facebook for guidance on use of 'negro'

    What seems to be a data entry mistake by a small town police department in western New York has turned into a social media firestorm centered around the word "negro" and whether it's acceptable to use in modern society.

    July 31, 2014 3 Photos

  • The virtues of lying

    Two computational scientists set out recently to simulate the effects of lying in a virtual human population. Their results, published in the Proceedings of the Royal Society B, show that lying is essential for the growth of a cohesive social network.

    July 31, 2014

  • Sunburn isn't the only sign of summer that can leave you itchy and blistered

    You've got a rash. You quickly rule out the usual suspects: You haven't been gardening or hiking or even picnicking, so it's probably not a plant irritant such as poison ivy or wild parsnip; likewise, it's probably not chiggers or ticks carrying Lyme disease; and you haven't been swimming in a pond, which can harbor the parasite that causes swimmer's itch.

    July 30, 2014

  • Survey results in legislation to battle sexual assault on campus

    Missouri U.S. Sen. Claire McCaskill joined a bipartisan group of senators Wednesday to announce legislation that aims to reduce the number of sexual assaults on college campuses.

    July 30, 2014

  • An alarming threat to airlines that no one's talking about

    It's been an abysmal year for the flying public. Planes have crashed in bad weather, disappeared over the Indian Ocean and tragically crossed paths with anti-aircraft missiles over Ukraine.

    July 30, 2014

  • Sharknado.jpg Sharknado 2 set to attack viewers tonight

    In the face of another "Sharknado" TV movie (the even-more-inane "Sharknado 2: The Second One," premiering Wednesday night on Syfy), there isn't much for a critic to say except to echo what the characters themselves so frequently scream when confronted by a great white shark spinning toward them in a funnel cloud:
    "LOOK OUT!!"

    July 30, 2014 1 Photo

  • 20140729-AMX-GIVHAN292.jpg Spanx stretches into new territory with jeans, but promised magic is elusive

    The Spanx empire of stomach-flattening, thigh-slimming, jiggle-reducing foundation garments has expanded to include what the brand promises is the mother of all body-shaping miracles: Spanx jeans.

    July 29, 2014 1 Photo

  • Medical marijuana opponents' most powerful argument is at odds with a mountain of research

    Opponents of marijuana legalization are rapidly losing the battle for hearts and minds. Simply put, the public understands that however you measure the consequences of marijuana use, the drug is significantly less harmful to users and society than tobacco or alcohol.

    July 29, 2014

AP Video
Couple Channel Grief Into Soldiers' Retreat WWI Aviation Still Alive at Aerodrome in NY Raw: Rescuers at Taiwan Explosion Scene Raw: Woman Who Faced Death Over Faith in N.H. Clinton Before 9-11: Could Have Killed Bin Laden Netanyahu Vows to Destroy Hamas Tunnels Obama Slams Republicans Over Lawsuit House Leaders Trade Blame for Inaction Malaysian PM: Stop Fighting in Ukraine Cantor Warns of Instability, Terror in Farewell Ravens' Ray Rice: 'I Made a Huge Mistake' Florida Panther Rebound Upsets Ranchers Small Plane Crash in San Diego Parking Lot Busy Franco's Not Afraid of Overexposure Fighting Blocks Access to Ukraine Crash Site Dangerous Bacteria Kills One in Florida Workers Dig for Survivors After India Landslide Texas Scientists Study Ebola Virus Smartphone Powered Paper Plane Debuts at Airshow Southern Accent Reduction Class Cancelled in TN
Stocks
Poll

Are you pleased that Oklahoma has repealed Common Core standards for public school students?

Yes
No
     View Results