The Age of Uncertainty

These are unsettling times.  Lately we have been witness to a continuing carnival of a presidential election, a series of horrific terrorist attacks and massacres both here and abroad, plus the British Brexit vote.  People here, and in other countries, are unsettled and uncertain.  Indeed, the world is unsettled and uncertain.  In this country, the appeal of Donald Trump is baffling in many ways, but it is also understandable, given the wrenching changes underway in people's lives, and in the world, and the fear and uncertainty that this occasions. This kind of disruption, fear and uncertainty often leads people to seek simple solutions, scapegoats and demagogues.

The reasons behind all this uncertainty are the large-scale shifts in the world, and in the U.S. role in the world.  I call these "systemic changes" and I want to focus on the two most important ones:  first, the decline of the United States as the single dominant and determining global power; and second, the rise of transnational forces and threats that diminish the autonomy and power of ALL nation states, including the U.S.  We are no longer in control of events, either in our own back yard, or on the global stage, and this is discomfiting. 

First let me address the issue of the change of the U.S. role in the world.  Eight years ago, I wrote a book called "The End of the American Century" which addressed this phenomenon.  "The American Century," basically the second half of the 20th century was one of unprecedented global dominance by a single country, the United States.  This was evident in almost every sphere: politics, economics, the military, ideology, and culture.   The Soviet Union, our only real rival during that time, was strong militarily but not in any other respect.  Its standard of living by most measures was about a tenth of that in the U.S., something I can attest to from living in that country briefly in the 1970s

Even in the long course of history, it is rare to find countries or empires that so dominated the world: one thinks only of the Roman Empire or, maybe, the British Empire.  But all empires fade eventually.  Italy and Britain may be very pleasant places to live (and visit!) right now, but they are not the dominant powers they once were.  Something similar is happening to the United States.  This is not necessarily a bad thing, but it contributes to uncertainty.

For the U.S., it is not so much that we have suffered absolute decline, but rather have declined relative to other forces and countries.  The U.S still has the strongest military, the biggest economy, and the most durable and resilient political system.  But we no longer dominate the world as we did during the American Century.  China, for example, has experienced fabulous economic growth in recent decades, and is increasingly asserting itself on the global stage.  Europe, by combining, sort of, into the European Union has created an economic powerhouse, larger than the American one.  Neither China nor the EU is much of a military power just yet, but increasingly it seems that military power is not as useful and determinate as it once was.  Plus, as I will discuss below,  there are transnational forces that also cut into America's ability to shape the world.  So for Americans used to being #1, this relative decline can be unsettling, and speaks to the appeal of Trump's "America First" slogan.

So the relative decline of the U.S. in the global arena is the first major dimension of systemic change.  The other is the rise of transnationalism.  By transnational, I mean problems, forces, movements or institutions that transcend national boundaries, making them difficult for national governments to deal with.   These are proliferating in the modern world, but I will highlight those that have contributed especially to this age of uncertainty:  globalization of the economy; terrorism; and climate change.

Perhaps none of these merit my attention, since they've been so much in the news, and in the current electoral campaign.  Both Donald Trump and Bernie Sanders complained about the maverick status of multinational corporations.  As transnational institutions, these can easily shift operations from one country to another in search of cheaper labor or supplies, while remaining relatively immune from the regulations or taxation of government in any particular country.  Of course, a globalized economy does have its benefits, in terms of more efficient production and cheaper and more abundant consumer goods.  But it also hurts those workers who get left behind.  This is particularly true in manufacturing, which has faced a double whammy of automation and globalization, causing jobs in manufacturing to plunge from 28% of all jobs in 1970 to less than 10% today.  The problem is not going to go away.  The shrinking of manufacturing employment is global--not just in the U.S.

Globalization, automation and the decline of manufacturing have contributed to a stagnation of real earnings in the U.S.  For the average American family, household income is $4,000 less than it was 15 years ago.  Meanwhile economic inequality has grown much worse, with the top 1 percent of American households taking in more than half of the recent gains in income growth. Income and wealth inequality in the United States is now the highest it has been since before the Great Depression of the 1930s, as Bernie Sanders kept reminding us during his own run for the presidency. 

This issue is particularly egregious at the very top of the income scale.  In the 1950s, big-company CEOs earned about fifty times the pay of an average worker.  Even then, that ratio was very high compared to other countries.  But since then, CEO pay in the U.S. has skyrocketed compared to average salaries.  By 1990, average CEO pay was 100 times the average worker's salary.  By 2000, it was more than 500 times.  In Germany, that ratio was only 11 to 1; and in the United Kingdom, 25 to 1.

So it is not surprising that so many people are fearful and angry.  Even though the economy is growing, they are being left behind.  The dislocations caused by globalization though, can only be addressed by collective action, and that requires action by government, and cooperation among national governments.  A weak and ineffective government is no match for the power of large multinational corporations.

Terrorism is another transnational force that has frightened and destabilized us.  It often seems that governments are helpless in the face of this enemy, which is not located in any one region, supported by any particular country, or subject to any conventional norms of morality.   Social media, another transnational force, facilitates the organization, recruitment and concealment of terrorist groups.  Against transnational terrorists, particularly the fundamentalist brand, deterrence and threats are useless, and even conventional military force is only haphazardly effective.  America's vaunted military, the most awesome in the history of the world, is not by itself able to eliminate transnational terrorism.  This too causes fear and uncertainty, and a sense of powerlessness.  But, like the forces of globalization, the solution requires global action and cooperation.

Climate change, another transnational phenomenon, is even more threatening and dangerous than globalization and terrorism, though more baffling because of its inherent invisibility.  Even though the evidence for climate change is overwhelming and irrefutable, most people don't actually see it or experience it.  So they are open to the blandishments of politicians and the fossil fuel industry who prey on their ignorance and fears in claiming it does not exist.  And this contributes to our national sense of unease and uncertainty, since we are not sure what to believe and whom to trust.  Climate change, however, is literally a life-and-death issue that requires strong government action, national sacrifice and global cooperation.  All of these are difficult to imagine in the current political climate in the United States.

These transnational phenomena--globalization, terrorism and climate change-- all threaten the American way of life, and they are devilishly resistant to resolution in the way we have solved problems in the past.  Throwing money at them won't work.  Military power is either irrelevant or ineffectual.  Things have changed since The American Century when our country was, it seemed, both dominant and in control of our fate.  In both the domestic sphere and the international one, things are not like they used to be.  Thus appear opportunistic politicians who promise to roll back the clock, or to "make America great again."

However, America's greatness was never achieved by going back to the past, but rather by finding solutions to new problems, while holding fast to the values that unite us.  These include industry, innovation and individualism, but also compassion, tolerance, and civility.  The U.S. has survived through civil war, world wars, depressions, civil unrest and terrorism.  And we remain the world's oldest and most successful democracy; even if we do not brandish the power and influence we had during the Cold War years.

But we have created a kind of paradox of political life: at a time when we are in desperate need of effective government to address important domestic and international issues, government is increasingly unable to act. Democratic government is not often consensual, but it does, by its very nature, require compromise.  But in American politics, we have one candidate calling for a "political revolution" and another, a billionaire cloaked as a populist, calling for a return to the past and playing on people's fears, angers, and prejudice.  The polarization of American politics has made compromise almost unattainable, and in the process has practically paralyzed the operations of government.

Of course, this simply adds to people's frustration with politics and government, which accounts for polls showing record low levels of trust in the federal government.  This is not a happy situation for a system of government that is supposed to be based on popular will.  And it contributes to the turmoil, alienation, and uncertainty.

Keeping this democracy alive is, in my mind, the single biggest challenge we face at the moment and the key to addressing the systemic transformations we are facing.   In the current political environment, the bedrock principles of democracy--compromise, tolerance, participation, inclusion--are under threat.  There is a disturbing growth of authoritarianism in American political culture, with 44% of non-college grads (in 2011) approving of "having a strong leader who doesn't have to bother with Congress or elections."

The growing authoritarianism in the U.S. may be disturbing, but it is not terribly surprising.  Times of systemic change, fear and uncertainty, especially combined with economic downturn, often foster the emergence of demagogic politicians, and even dictators.  It is also understandable why so many Americans are lashing out at the whole system, given the vast gulf between rich and poor, the continuing pernicious impact of money in politics, and the seeming paralysis of government.

The solution is not to reject the system, but to improve it.  As Winston Churchill famously quipped: "Democracy is the worst form of government, except for all the others."  And democracy is uniquely suited to dealing with problems that are so complex and disruptive, because it demands participation, inclusion, compromise, respect for minorities, and due process.  The problems we are facing are unprecedented, in my view, and signal a systemic shift in U.S. politics and international relations.  The U.S. will not be "great" in the way we were before, but it remains the most important and admired country in the world, and it's involvement in global politics is indispensible.

(Based on a talk I gave at a Kiwanis Club 8/30/16)

Economic Inequality Put an End to the American Century

The biggest impediment to U.S recovery is economic inequality. This is the central argument in my article "The U.S. No Longer Makes the Grade: Economic Inequality Put an End to the 'American Century"" in the Phi Kappa Phi Forum, vol. 92, No. 3.  This article is available at Butler's "Digital Commons" site by clicking here.  The footnotes for the article are temporarily available at the Forum's website at this link.

Correction:  There is an important typo on page 7, column 1, 2nd paragraph.  The sentence there should read as follows:

"A recent global study by the International Monetary Fund, for example, found that countries with strong economic growth tended to have greater income equality than those with weak growth...."

 Comments and (civil!) discourse on this piece are welcome.

Zakaria on American Decline

The cover of Time magazine's March 14 issue features a piece by Fareed Zakaria, entitled "Yes, America Is In Decline." The inside story carries a less emphatic title: "Are America's Best Days Behind Us?" The article demonstrates how far Zakaria has come since his book (The Post American World) and mine (The End of the American Century) were first published in 2008. At that time, Zakaria viewed global changes as mostly coming from "The Rise of the Rest" rather than American decline. My book focussed on domestic American decline as the root of the problem, in combination with the rise of other global powers. I pointed out our differences at the time in a posting here on "Zakaria's Optimism."

Zakaria's story is accompanied by a graphic design (by Joe Magee) depicting the US flag falling apart--remarkably similar, I must say, to the cover design of my own book, with the U.S. flag in a vortex.

One can hardly call Zakaria's latest essay optimistic. That issue of Time presents a host of statistics and rankings, showing how poorly the US fares compared to both our past, and to other countries. The US ranks #10 in the world on the "Prosperity Index." We rank 6th in higher education enrollment; 11th in R&D spending; 27th in life expectancy; 31st in "Adequate food and shelter;" and 84th in the world on the domestic savings rate. (My book showed that, even in 2008, the US was falling behind on all of these measures).

Zakaria finds it especially unsettling that "Americans seem unable to grasp the magnitude of the challenges that face us. Despite the hyped talk of China's rise, most Americans operate on the assumption that the U.S. is still No. 1."

He concludes with the observation that we have to recognize our problems before we can adequately address them.

"For most of our history, we have become rich while remaining restless. Rather than resting on our laurels, we have feared getting fat and lazy. And that has been our greatest strength. In the past, worrying about decline has helped us avert that very condition. Let's hope it does so today."

This was the same overall message of my book.

The same issue of Time also includes a counterpoint article called "Don't Bet Against the United States."

Der Spiegel on "A Superpower in Decline"

Sometimes the most clear-eyed analysis of the United States comes from outside the country, and this may be especially true in these times when so many Americans are frightened and angry about the way things are going. Germany's weekly newsmagazine Der Spiegel has published a long and thoughtful piece about the United States, entitled "A Superpower in Decline: Is the American Dream Over?" which reflects and updates many of the themes I raised in The End of the American Century.

For those who would dismiss Spiegel's analysis as biased, left-wing, or "socialist," I should point out that the magazine is generally considered to have a conservative (and capitalist!) slant. It is enlightening, and a little sobering, to read an intelligent analysis of our problems from outside the cauldron of contemporary U.S. politics.

Below are a few excerpts from the Spiegel article, though I would encourage everyone to read the whole thing.

• America has long been a country of limitless possibility. But the dream has now become a nightmare for many. The US is now realizing just how fragile its success has become -- and how bitter its reality. Should the superpower not find a way out of crisis, it could spell trouble ahead for the global economy.

• Americans have lived beyond their means for decades. It was a culture long defined by a mantra of entitlement, one that promised opportunities for all while ignoring the risks.

• The country is reacting strangely irrationally to the loss of its importance -- it is a reaction characterized primarily by rage. Significant portions of America simply want to return to a supposedly idyllic past.

• The rich keep getting richer, with the top 0.1 percent of income earners making more money than the 120 million people at the bottom of the income scale.

• Since the beginning of the millennium, no new jobs are being created on balance, because the US economy has undergone structural change. Companies are dominated by investors interested only in the kinds of quick and large profits that can be achieved by reducing the workforce.

• In 1978, the average income for men in the United States was $45,879. In 2007, it was $45,113, adjusted for inflation.

• How strong is the cement holding together a society that manically declares any social thinking to be socialist?

• The United States of 2010 is a country that has become paralyzed and inhibited by allowing itself to be distracted by things that are, in reality, not a threat: homosexuality, Mexicans, Democratic Majority Leader Nancy Pelosi, health care reform and Obama.

Joseph Nye on American Power in the 21st Century

Harvard Professor Joseph Nye's work, especially his book Soft Power has much influenced my own thinking, and figures prominently in The End of the American Century. His ideas have directly or indirectly influenced the Obama administration, as reflected in Secretary Clinton's use of the term ''smart power.'' Both the rhetoric and actions of the Obama administration add substance to the concept.

Professor Nye's essay, "American Power in the 21st Century," is featured on the website of the China-U.S. Friendship Exchange, as a "comment" on my own "dialogue" there about The End of the American Century. This response to Nye's essay appears on that same site this month.

Professor Nye has long argued that power is multidimensional, that military power is increasingly irrelevant or dysfunctional, and that achieving foreign policy goals now rests on persuasion and cooperation as much as anything. I agree with him on all of this, and his marvelous formulation in this essay that ''on many transnational issues, empowering others can help to accomplish one's own goals.''

But I disagree with him that ''American power in the twenty-first century is not one of decline'' and the difference lies mostly in how we view America's domestic record. In Soft Power, Nye identifies many elements of American soft power, including its economy, culture, values, and global image. But as I show in my book, the U.S. has lost ground in virtually every domain of such soft power, while also losing strength and credibility with its military power and its global reputation. Meanwhile, other regions or powers, like China, the EU, India and others have gained global soft power influence, often at the expense of the U.S.

The U.S. economy and standard of living, since World War II a source of envy and admiration worldwide, is no longer much of a model or aspiration for others. Its astounding growth over the last two decades, it turns out, was a hollow shell, built on ballooning levels of household and government debt. The current economic downturn-still not finished by a long shot-is bringing the United States back to a more ''natural'' economic position, much lower than before. Even before the current crash, by many measures more meaningful than GDP/capita-like quality of life indices-the U.S. was nowhere near the top of the global list.

While growing the economy, based mostly on increased consumption, the U.S. neglected health care, education, investments, R&D, and infrastructure, and allowed increased levels of poverty and inequality. On all of those measures, the U.S. fares poorly in comparison to other developed countries.

Global opinion surveys conducted by Pew, BBC and others show little enthusiasm in other countries for ''American-style democracy,'' for American ways of doing business, or for the spread of U.S. ideas and customs. Though global opinion about the U.S. has improved somewhat with the election of President Obama, far more people worldwide continue to see U.S. influence on the world as ''mostly negative'' rather than ''mostly positive.'' On this scale, among 15 countries, the U.S. ranks 10th, below Germany, Britain, Japan and China, according to a recent BBC poll.

While American culture remains popular in many places (though not, by all means, all), it is difficult to see how global infatuation with ''Desperate Housewives'' can help solve problems like terrorism or global warming. As Professor Nye notes in his first paragraph, even some of our closest allies now believe the era of U.S. global leadership is over. Even more emphatic assertions of that belief have come from leaders in China, Brazil, Peru, Iran and elsewhere.

American decline is not necessarily a bad thing, though, given the increasing interconnectedness of countries and global issues. It will be easier for the United States to interact cooperatively with other countries-and for them to deal with Washington-if the U.S. is not so dominant and domineering. President Obama has adopted a much more conciliatory and modest approach to other countries-viz. his speeches in Ankara and Cairo-and this befits a country that has less reason to crow about its superiority and exceptionalism. As Professor Nye points out, most of the big issues facing the U.S., and the rest of the world, are not susceptible to the application of power by a single country. More things are ''outside the control of even the most powerful state.''

The United States is certainly in decline, both in absolute terms, and relative to other countries. But it will remain an important and influential power, especially if it continues to adopt a less arrogant, more cooperative approach to the rest of the world.

Reality and Hope in the Obama Era

What follows is the first page from the new epilogue of the paperback edition of The End of the American Century, entitled "Reality and Hope in the Obama Era."

“What is required of us now is a new era of responsibility -- a recognition, on the part of every American, that we have duties to ourselves, our nation and the world." --President Barack Obama, January 20, 2009

Much has changed, for better and for worse, since the hardbound edition of this book first went to press in early 2008. Indeed, the publication of the book in October of that year coincided with both the exhilarating finale of the 2008 presidential elections, and the meltdown of the U.S. economy. The election of Barack Obama fulfilled the first criterion of the “best-case scenario” that I posed in Chapter 10: new political leadership. Both for who he is and what he says, Obama provides the best possible hope of restoring some of America’s domestic health and international reputation, after the catastrophic lost decade of the George W. Bush administration. President Obama wants to fix the many American problems enumerated in this book—health care, education, infrastructure, the environment among them—and in the first months of his administration had already initiated policies and legislation to do so. He also pledged from the outset to withdraw U.S. forces from Iraq, to abide by international law, and to be more cooperative and multilateral in dealing with other countries.

On the other hand, as I cautioned even for the best case scenario, new leadership will not reverse or solve the problems of American decline. The problems facing this country are so systemic and deep seated—most of them long-preceding the Bush administration—that even radical changes will have only minimal impact on the trajectory of America’s decline. Furthermore, the debt-induced economic crisis that I presaged at the end of Chapter 1 is already well underway. Much of the country’s economic growth of the last twenty years was fueled by government and consumer debt, creating a giant country-sized Ponzi scheme that was bound to implode. President Obama’s well-intentioned and necessary—but enormous-- spending plans to fix things will only hugely inflate the country’s already unprecedented levels of debt. It is difficult to see how the country will extricate itself from this mess. Certainly the time frame is many years, perhaps a decade or more, and not the cheerful predictions of most economists and politicians that we will be out of the woods in a few months or years.

On the international scene, the events of the last year have been a good-news, bad-news story. The election of an African-American as President of the United States gave a huge boost to this country’s international reputation. Obama’s message of hope, reconciliation, humility and multilateralism was welcomed all across the globe, and promised to allay—at least somewhat—the ill will fostered by the Bush administration’s arrogance and belligerence. However, during America’s lost decade, much of the rest of the world had moved on, and beyond, the United States. Almost nowhere is the country still viewed as the “city on the hill” to be followed and emulated. Increasingly, foreign leaders and their populations have dismissed, criticized or mocked the U.S. and its policies. This tendency has accelerated as the rest of the world has had to bear the brunt of America’s economic and financial mismanagement. When the Chinese Prime Minister, for example, complained about “the unsustainable model of development characterized by prolonged low savings and high consumption,” there was no question which country he was referring to.

Dialogue and Forum on "The End of the American Century"

An extended "dialogue" on the themes of The End of the American Century has been posted on the website of the China-U.S. Friendship Exchange at this link. The interview with me was conducted by the organization's founder and president, Dr. Sheng-Wei Wang, who is based in Hong Kong. The interview focuses especially on America's changing global role and its relationship with China.

This November issue of the China-U.S. Friendship blog also includes two other essays on themes related to my book: "American Power in the 21st Century" by Harvard's Joseph Nye (author of Soft Power); and "Peace, Not War, the Best Strategy," by Professor of Geopolitics Madhav Das Nalapat at the Manipal Academy of Higher Education in India. Those two essays are accessible at this link.

My responses to those two essays will appear in the next (December) issue of China-U.S. Friendship.com.

Kolko's "The World in Crisis"

The American revisionist historian Gabriel Kolko has published a new book, The World in Crisis, with a subtitle that is the same as my book, The End of the American Century. The book is a collection of essays, written since 2004, most of which have appeared in print or online though often, according to the author, revised and updated for this publication. The common theme is "the decline of American power, the limits of its military technology, and the end of a century in which the United States had the pretension to lead the world." (p. 3).

These themes are similar to those of my own book, and Kolko concludes, as I do, that America's "century of domination is now ending." But there are substantial differences as well. First of all, while Kolko's first two chapters address America's financial crisis, the clear focus of the book is on America's foreign policy and global role. In The End of the American Century, I see the roots of America's decline as much in the domestic arena as in the global one, though they are closely linked. Secondly, Kolko sees the decline of American power beginning very early--as early as the Korean War in the 1950s, whereas I see the decline beginning in the 1970s, and mostly as a result of domestic factors: especially growing consumerism, individualism, poverty, inequality and debt.

Kolko's book is World in Crisis: The End of the American Century, published by Pluto Press in 2009.

Entering A Systemic Revolution

The collapse of the United States as the global hegemon constitutes a “systemic revolution” that will transform both the U.S. and the rest of the globe. Such a revolution is different from “normal” political revolutions, which entail an overthrow of the government. A systemic revolution ushers in even broader and more enduring changes in economy, society and culture, and it also transcends national boundaries, affecting other countries and the global system itself. It is a global paradigm shift, and we are right smack in the middle of it.

This is the opening paragraph of my article "Entering a Systemic Revolution" which appears in the online journal Logos: A Journal of Modern Society and Culture (volume 8, issue 2). The article can be accessed here through my Selected Works page.

The article is a revised version of a lecture I gave in March at a conference on "The Past and Future of Revolutions" at Northeastern Illinois University.

In the article, I compare the current global situation to previous "systemic revolutions", among them the French Revolution of 1789, the Industrial Revolution, the Darwinian Revolution, and the anti-communist revolutions of 1989. Like those epochal changes, the domestic and international decline of the U.S. will affect both the United States and the rest of the world, and will bring fundamental and global changes in politics, economics, culture, and ideology.

Can America Fail?

In its spring 2009 issue, The Wilson Quarterly featured a series of articles entitled "Decline or Renewal?" addressing the "scenarios for postcrisis America." The lead article, "Can America Fail?" was written by Kishore Mahbubani of the National University of Singapore, and the author of The New Asian Hemisphere: The Irresistible Shift of Global Power to the East (2009). The subtitle of that article is "A sympathetic critic issues a wake-up call for an America mired in groupthink and blind to its own shortcomings" which, in my mind, is also a pretty accurate description of yours truly!

Mahbubani believes that the U.S. has been "engulfed by a culture of individual irresponsibility" and sees many of the country's policies as deeply injurious to the rest of the world. Our policies on the Middle East, the invasion of Iraq, our double standard on nuclear proliferation, and our policies (or lack of them) on global warming "have injured the 6.5 billion other people who inhabit the world." Mahbubani thinks Americans need to be able to see our country the way others see us, to recognize and address our own shortcomings, and to be prepared to work harder, consumer less, and--especially--to sacrifice.

The two other essays in the Wilson Quarterly are a counterpoint to Mahbubani's article, but also illustrate exactly the problem Mahbubani addresses: Americans "mired in groupthink" and blind to their own shortcomings. The article by Tyler Cowen, Professor of Economics at George Mason University, asserts (without any evidence provided) that "today, the rest of the world is looking to the United States to pull it out of a recession." He also asserts, astoundingly, that the current financial crisis "has underscored the continuing strength of American global influence." Equally questionable, and more fodder for Mahbubani's observations, is Arthur Herman's assertion that "America is still the most innovative and creative economy in the world."

The editors of The Wilson Quarterly invited me to submit a response to these three articles, and a version of the following appeared in their "Letters" section in the Summer 2009 issue (page 6).

.............................
On the question of U.S. decline, Kishore Mahbubani hits the nail on the head by pointing to the inability of American thinkers and policy-makers “to listen to other voices on the planet.” Indeed, his point is illustrated by the contributions by others in the same issue who seem to assume that other countries want the U.S. to lead and who believe that the American economy is still the most dynamic in the world.

If one simply asks other people in the world what they think, these casual assumptions wither away. Global opinion surveys conducted by Pew, BBC and others show little enthusiasm in other countries for “American-style democracy,” for American ways of doing business, or for the spread of U.S. ideas and customs. Though global opinion about the U.S. has improved somewhat with the election of President Obama, far more people worldwide continue to see U.S. influence on the world as “mostly negative” rather than “mostly positive.” On this scale, among 15 countries, the U.S. ranks 10th, below Germany, Britain, Japan and China, according to a recent BBC poll.

It is difficult to see how the U.S. economy could be seen as so vital, innovative and creative at a time when the core parts of it are collapsing under the weight of innovative stagnation and stupefying levels of incompetence, greed, corruption. Manufacturing has steadily declined as a component of GDP, replaced increasingly by financial services. The U.S. does not actually produce much any more. Now the financial sector has proven a hollow shell, after fostering and encouraging record levels of both consumer spending and debt. This can no longer be sustained, so the U.S. economy is bound to decline, and probably by a lot. As Professor Mahbubani astutely points out, “the time has come for Americans to spend less and work harder.”

Federal Debt Approaches 100% of GDP

Even when The End of the American Century went to press in early 2008, the U.S. federal debt was reaching alarming levels, and was a central element of my forecasts of U.S. economic decline. At that point, the White House's Office of Management and Budget projected the gross federal debt to expand to $10.6 trillion by 2009, constituting 72% of GDP.

Since then, the federal red ink has become a tidal wave. The OMB now expects the debt at the end of this year to be $12.7 trillion, and to expand to over $15 trillion by 2011, which would then be (at 97% of GDP) almost as large as the entire economy (see chart).



David Leonhardt of the New York Times, one of the few economists to have been tracking and raising concerns about the deficits, writes that erasing the deficits "will be one of the great political issues of the coming decade." In his article "Sea of Red Ink" in the June 10 issue, he reports on a New York Times analysis of the composition of the debt accumulation over the last decade, "with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II."

The analysis finds that the growth in the federal debt since 2001 comes from four main sources. The first, the business cycle (especially the 2001 recession and the current downturn) is the largest component, accounting for 37%. Another 33% of the recent debt comes from legislation signed by President Bush, including his tax cuts. Another 20% derives from President Obama's continuation of several Bush policies, including spending on the Iraq War and the Wall Street bailouts. Only about 10% comes from new Obama policies, including the stimulus bill, and news spending on health care, education, energy and other areas.

Leonhardt sees little hope that the Obama administration can reduce or eliminate the deficits with "pay-as-you-go" government spending plans. The solution, he writes, "is no mystery" and involves inevitable tax increases and government spending cuts. These are political tinderboxes, of course, and pose a huge challenge to President Obama's leadership skills.

The End of the American Century, Global Change and China

The following is a slightly edited version of my lecture in Shanghai on May 9 on "The End of the American Century, Global Change and China." The lecture was accompanied by a powerpoint presentation with much of the data and evidence I referred to, and the lecture was translated simultaneously into Chinese (see previous post on details of the forum).
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Perhaps it is no accident that the first translation of The End of the American Century is into Chinese, since China is the most prominent “rising power” mentioned in a book that is primarily directed at the decline of the one power that has been dominant for the last half-century. The role of China is also important because of the huge and growing size of the Chinese economy, and the multifaceted interdependence of China and the United States. In my book, I see raw military power as increasingly irrelevant both for the United States and for other countries, as the biggest problems the world is facing—climate change, environmental deterioration, pandemic disease, poverty, terrorism, etc.—are simply not susceptible to military solutions. Addressing those problems requires international cooperation. Such cooperation also facilitates trade and economic growth, which are keys to reducing the poverty and inequality that provide the breeding ground for discontent and violence.

I understand that most of you are involved in business, trade or finance in various capacities, so I will focus my remarks today on economic issues, at least those in the United States. Given the scope and speed of the global financial collapse, economic issues are, indeed, on the minds of just about everyone. The U.S. economy is a core aspect of my treatment of the decline of the U.S. as a global power—but it is by no means the only one. And while I do, necessarily, devote a lot of attention to economics, I am myself a political scientist rather than economist. What I do in my book, and want to do here, is to look at the varied and interrelated dimensions of U.S. decline. Because it is the symbiosis of all these aspects of U.S. and global change that makes the current situation so distinctive, even unique. Many analysts in the U.S. see the current economic predicament of the country to be similar to those of other economic downturns in recent decades. I believe the combination of U.S. economic, social and political decay, and the simultaneous rise of other countries in the world—like China—means a much different outcome and future for the United States.

For those of you who have not yet read my book, let me provide a summary of the overall approach. Keep in mind that the English version of my book went to press in early 2008, well before the ongoing economic collapse of the United States, and appeared in English in the fall, just as the scale of the catastrophe was unfolding. The essential argument of my book is that the U.S. has come to the end of its long period of economic affluence and global dominance. Most Americans—even, at last, the experts!—are starting to see the handwriting on the wall now, as we see collapsing around us the stock market, housing markets, job markets, banks, manufacturing, retail stores and news media. These are all interrelated, and driven by longer term problems that pressed against us before President Obama, and even before the disastrous administration of George W. Bush. The 20th Century, often called “The American Century” had already come to a close before the awful terrorist attacks of September 11.

America’s decline is a result of three convergent and interrelated phenomena: the deterioration of the U.S. itself—especially in the economic realm but in many other respects as well; the increasing influence of other global powers; and the changed nature of global interactions. The decade-long convergence of all three of these phenomena marks a global shift of historic proportions, and one that defines a much different place in the world for the United States and its citizens.

The central aspects of U.S. decline is economic. The federal government, the state governments, and most households have been living beyond their means for a generation, and the result is unprecedented levels of government, household, mortgage and consumer debt. Americans citizens spend and consume more than they earn, and the United States as a whole consumes more than it produces. This has posed a burden on the rest of the world that is unsustainable in the long run. I will come back to these economic issues in a few minutes.

The U.S. has also fallen behind other countries in many other areas where we flourished during The American Century. The educational system, once considered the world’s best, now ranks near the bottom among developed countries. Health care shows the worst results, on average, of any of the countries of the Organization for Economic Cooperation and Development (OECD). The U.S. has higher poverty rates, more violence, and greater inequality than almost any other OECD country. Our roads, highways, bridges and dams—most built near the beginning of the American Century—are decrepit and in need of major investments. Even the country’s vaunted political system, tarnished by private interests, money and low levels of political participation, is no longer a model for emulation much of anywhere in the world.
While the U.S. has been on a long slide, both with our domestic health and our international reputation, other countries and regions have been moving ahead, and gaining confidence and clout. China is now the world’s workshop, and has the fastest sustained economic growth of any country in history. The European Union has brought together 27 countries into a peaceful and healthy community—an economic bloc bigger than the U.S. and with many countries more successful than the U.S. in providing health care, education and welfare to their citizens. Many other countries are increasingly prosperous, confident and assertive, to the point of challenging U.S. dominance in their own parts of the globe.

In addition, globalization has changed the rules of the game. Labor and capital move more easily around the world, making it more difficult for the U.S.—or any government—to control economic development. Organizations that span national borders—international and non-governmental organizations, multinational corporations, terrorist groups--are for good or ill challenging the power and influence of countries. All of this make global politics more complex, and less subject to the influence of single nation-states, especially go-it-alone ones as the U.S. has been for the last eight years.

President Obama is making noble efforts to bolster America’s global reputation and reverse its decline, but in my view, it is too little and too late. The rest of the world has already caught up or caught on, and is not much interested in the U.S. resuming its global leadership. Furthermore, what the world needs now, in confronting problems--of global warming, pollution, nuclear proliferation, terrorism, poverty and epidemic disease—is cooperation and compromise rather than “leadership.”

In my book, I buttress all of these assertions by using data, showing both trend data over time in the U.S., and data comparing the U.S. to other wealthy countries. In both kinds of comparisons the US does not fare very well. Let’s look at some of these figures, focusing on the economic ones.

The End of the American Century can be seen as a descendant of the 1985 book by the Yale historian Paul Kennedy, The Rise and Fall of the Great Powers. Kennedy studied the big empires of the past—Rome, Britain, Spain, among others—and concluded that each of them foundered on what he called “imperial overstretch.” This is the tendency for big powers to become so “stretched” by foreign ventures, expansion or wars that they end up bankrupting themselves at home, leading to social and economic decay. Kennedy predicted in the mid-1980s that the same thing would happen to the Soviet Union, and even hinted that the U.S. was also vulnerable to the problem of imperial overstretch and debt. When he published that book in 1985, the U.S. federal debt was about 45% of the economy (GDP), which Kennedy said was historically unprecedented for any large power in peacetime. The only exception was France on the eve of the French Revolution.

But look what happened in the two decades after the publication of Kennedy’s book. The US federal debt mushroomed from less than half of GDP to over two-thirds of GDP. The problem escalated with the administration of G.W. Bush, who sharply increased defense spending for the wars in Iraq and Afghanistan, while simultaneously cutting income taxes. When I wrote my book in 2007-2008, I thought the size of the debt was alarming, as it approached $10 trillion. But then the financial crisis hit the United States, the stock market collapsed (by half), unemployment skyrocketed, and Congress and the President approved huge financial bailout plans that sent the federal debt even higher. The federal budget of the new Obama administration, calling for huge new spending on education, health care, infrastructure and the environment (all vitally needed but terribly expensive), is sending the federal debt burdens to levels unseen since World War II. Within a few years, even according to the President’s optimistic assumptions, the gross federal debt will reach 100% of the size of the economy. I should point out that these huge debt levels do not even include the “unfunded liabilities” for Social Security and Medicare, which would add another $45 trillion. The government has put aside no money to pay for retirement and health care benefits for senior citizens, who will increase greatly in numbers as the “baby boomers” begins retiring in the next few years.

The federal government debt, though, is only one aspect of the multiple levels of indebtedness in the United States. Another aspect of this is the trade deficit. For most of the years since World War II, the U.S. maintained a rough balance of exports and imports. But during the 1990s, as imports soared and exports declined, the trade balance got seriously out of whack, reaching records levels in both absolute terms and as a percent of GDP. The huge increase in imports, many of them from China, helped the U.S. standard of living, but was not matched by similar productivity, output or exports from the US.

A third aspect of US debt—what some called the “triple deficit”—is household and consumer debt. Over the last two decades, Americans have built up record levels of consumer debt. The household savings rate (savings as a percent of household income) have always been relatively low in the US compared to other countries, but in the last twenty years have declined sharply. By 2005, this number had dipped below zero for the first time since the Great Depression. Most Americans have saved almost nothing for their retirement years, at a time when most employers are no longer providing retirement pensions for their employees. This presages a sharp decline in the standard of living, and dramatic increases in poverty, as the population ages. On this dimension too, the US compares unfavorably with most other wealthy countries.

The American propensity to spend rather than save is partly a culture phenomenon—the strong strain of materialism in U.S. culture—but also partly due to the increasing influence of the financial services sector in the U.S. in recent years. Manufacturing has declined steadily as a share of GDP in the U.S. The U.S. doesn’t actually produce much any more. Increasingly, manufacturing has been replaced by financial services. Banks and mortgage companies make money by getting people to borrow, and therefore go into debt. One small but telling example of this is the dozens of credit card offers that most Americans get in the mail. I get several such offers a week, for example. But so do many of my students, most of whom have no income at all! As a consequence, credit card debt is at a record high, and the average household has about $10,000 in credit card debt. Consumer and household debt overall totals about $13 trillion—the size of the entire U.S. economy.

The bottom line is that the U.S. has become a consumer society, consuming far more than we produce or earn, and this can not be sustained. Consumption accounts for almost three-quarters of GDP in the US—a record for any large economy in modern history. As we have seen, much of that consumption is fueled by debt. Americans will have to save more and spend less. This will entail a substantial contraction in the U.S. economy, as workers are laid off and consumer spending declines. Unfortunately, this will also mean a decline in tax revenues, just at the time when government spending is increasing. The U.S. stock market has already declined by 50% since its highs of 2008. The economy as a whole is shrinking, at the fastest rate since the Great Depression. Most economists think that this economic decline will bottom out fairly soon, and that the worst is over. But given the problems I have mentioned, I think it is possible that the US GDP could contract by as much as one-third—roughly the same decline that the U.S. experienced during the height of the Great Depression in 1929-1933. It took the U.S. economy about 4 years to recover from that decline.

U.S. economic decline is just one element—albeit an important one—of the diminishing U.S. power, influence and reputation in the world. Global surveys show little enthusiasm around the world now for “American-style” democracy, for the American way of doing business, or for the spread of US customs and ideas. People in most countries think it would be better if another country rivaled the U.S. in military power. And a recent BBC poll of people in 21 countries found many more believing that the U.S. role in the world was “mostly negative” rather than “mostly positive.” China ranked slightly ahead of the U.S. on this question.

At the same time that U.S. power and influence is diminishing, some other countries are growing stronger, more confident and more assertive. Possible rivals for influence with the U.S. include the “BRIC” countries—Brazil, Russia, India and China—and also the European Union, which now includes 27 countries with a population and GNP larger than that of the United States. The “rising” BRIC countries have had very fast rates of economic growth in recent years and, at least until the economic crisis this year, were expected to perform even better in the near future. By another measure, the growth in stock market value, these rising powers are also outpacing the U.S. The U.S. stock market grew exceptionally fast from 2002-2007, rising at an average rate of about 15% per year. But each of the BRIC countries experienced stock market growth at least twice that of the U.S. in those years. As a percent of the world’s total stock market, the U.S. share has shrunk by almost half over the last thirty years.

Perhaps even more astonishing is the declining relative influence of U.S. banks, a phenomenon accelerated, of course, by the collapse of so many financial institutions in the U.S. Measured by market capitalization, a year ago four of the largest banks in the world were American. Now only two are. And four of the top ten are now Chinese!

These changes in the U.S. and the rest of the world signal a fundamental transformation of global politics and economics, and will require adjustments by people and governments alike around the world. For the United States and its citizens, these changes will be particularly wrenching. The U.S. economy will decline—probably by a lot, as will the standard of living in the U.S. For Americans used to a rising tide of affluence and spending, this will be a difficult adjustment. And it will also be difficult for Americans, psychologically, to deal with our diminished stature in the globe. Many changes are necessary to help restore America’s economic, social and political health. It seems to me that President Obama is cognizant of these needs, and is moving amazingly rapidly to address them. But the task is a difficult one, and a long-term one.

I am not really in a position to suggest what will happen, or should happen, in China. That is for you to decide, not me! But I was told me you would be interested in how I see all of this affecting China, so let me just mention a few things. First, of all, as should be obvious from my presentation, it seems to me that China is going to have to rely less on the U.S. market for helping fuel China’s economic growth. Americans will simply have to spend less, which means buying less of China’s many exports. It would seem that this would require, and offer the opportunity, for Chinese manufacturers to focus more on the domestic Chinese market, which will inevitably improve the standard of living of people in China. (This is an argument also made by Paul Krugman during his recent visit to China).

Even so, the U.S. and China both need each other for the economic health and development of both countries. And the rest of the world needs these two big powers to cooperate in solving global issues of trade, the environment, poverty, terrorism, nuclear proliferation, etc. So the interdependence of the two countries should continue and increase. China’s growing economy and international influence comes with increasing global responsibilities along these lines as well. China, for example, has now surpassed the United States as the leading emitter of carbon gasses that contribute to global warming. In my mind, global warming is the single greatest threat to the globe, and it requires serious work and attention. The problem can not be solved without the participation and cooperation of the U.S. and China.

Due to what has happened in the U.S., in China, and in the global community, China should by now certainly be considered an equal partner with the U.S. and other big powers in helping to shape this new global environment. I believe, from what your leaders say, that China is ready to play a bigger role in the world. And with a new, enlightened leadership in Washington, I am hoping the feelings will be mutual.

Immobility Furthering Decline

Caleb Hamman

chamman@butler.edu

In a time of financial turmoil and drastic inequality, one would hope the American Dream to be functioning well. This notion, that hard work will bring success to anyone in the United States, has always been central to America’s ideological fabric. Despite such tradition, recent research suggests a need to reevaluate the accuracy of the American Dream.

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Ongoing work at the Economic Mobility Project (EMP) has been attempting to do just that. A nonpartisan effort funded by the Pew Charitable Trusts, EMP has been conducting the most detailed research of U.S. economic mobility to date. Its findings, thoroughly concerning, strongly reinforce the arguments of The End of the American Century.

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Using longitudinal income data, EMP researchers find the United States to be a more class stratified society than commonly believed. Despite the popularity of “rags to riches” notions, the EMP finds that, on average, children born into the poorest fifth of households have only a 6 percent chance of making it to the top income quintile. Conversely, 42 percent will remain in the poorest group. More than six in ten of these impoverished children never become even middleclass.

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Similar mobility barriers exist at the top. While 39 percent of children born into the richest income quintile will remain there, only 9 percent will fall to the bottom. EMP finds remnants of mobility remains in the middleclass, although even these children are more likely to fall into poverty than they are to rise to wealth.

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The project’s findings are particularly disturbing in the areas of gender and race. Women, already suffering multifaceted disparity with men, are also less mobile than their male counterparts. Compared to these, it is considerably harder for women born into poor families to become wealthy. Similarly, it is also easier for wealthy women to become poor.

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The racial contrast is even starker. Black children are half as likely as their white counterparts to move from extreme poverty to extreme wealth. Simultaneously, black children born into the bottom income bracket are almost twice as likely as white children to remain there. Incredibly, EMP finds that nearly three in four middleclass black children will fall into poverty—a condition tremendously difficult for them to escape.

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As such findings suggest, the American Dream is not as dynamic as many believe it to be. In fact, U.S. mobility levels are actually lower than those of many developed countries. As the EMP reports, the two major international comparisons to date have placed U.S. mobility levels either last or second-to-last among nations analyzed (which have included mostly Western Europe and Scandinavia). As EMP’s authors put, “the view that America is ‘the land of opportunity’ doesn’t entirely square with the facts.”

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In light of the numerous economic, political, and social issues contributing to U.S. decline, the discovery of immobility is particularly troubling. As Americans become more economically and politically unequal, the stakes of socioeconomic outcomes continue to rise. That these outcomes are out of the hands of many is more than a contributor to The End of the American Century—it is an issue of fundamental fairness and a contradiction of one of America’s most cherished ideals.

Global Views of US Improve, But Still Negative

A BBC poll of citizens of 21 countries shows that the global image of the U.S. has improved slightly in the last year, but is still largely negative. Far more countries (12) have predominantly negative views of the U.S. than have predominantly positive views (6). On average, across all countries, positive views of the U.S. have increased over the last year from 35% to 40%, but those are still outweighed by the negative views (43%, down from 47%). Respondents in each country were asked if they felt "the following countries are having a mainly positive or mainly negative influence on the world."

Negative feelings about U.S. influence were particularly strong among America's closest neighbors and allies. In the UK, 45% thought U.S. influence was mostly negative; France, 53%; Mexico 54%; Canada 55%; Spain 56%; and Germany 65%. In a ranking of all the countries in the survey, Germany was viewed as having the most positive influence, whereas the U.S. ranked 10th on the list, just below China.

Another BBC poll of 17 countries showed an overwhelming majority--67%--believing that the election of President Obama "will lead to improved relations between the United States and the rest of the world."

These polls were conducted between November 21, 2008 and February 1, 2009.

The BBC polls confirm that there has been some softening of global views about the U.S., at least partially due to President Obama. But they also reveal the persistence, depth and breadth of animosity to the U.S., and how far the U.S. has to go to recover from the damage to the country's reputation. As I suggested in The End of the American Century, the decline of the U.S. and its reputation was deep-seated, and preceded the Bush administration. George W. Bush made things far worse, but new leadership in D.C.--even a very positive influence like Barack Obama--can not easily or quickly restore America's reputation, or its global leadership.

Lecture on the Rising Powers and the Decline of the US

On April 1, I gave a lecture on "The Rising Powers and the Decline of the U.S." as part of the Foreign Policy Association's "Great Decisions" series, sponsored by the Mid-North Shepherd's Center in Indianapolis. A video of this presentation (50 minutes) including pictures of the slides in my powerpoint presentation, is viewable at this link. (You might want to fast-forward through the first few minutes, where we struggled with the microphones and audio!).

Andrew Bacevich on The Limits of U.S. Power

Andrew Bacevich’s book The Limits of Power: The End of American Exceptionalism, has much in common with my own book The End of the American Century but is, if anything, even more pessimistic about the outlook for the United States. Bacevich, a retired military officer and currently professor of history and international relations at Boston University, recently visited Butler as part of the Drew Brahos lecture series.

The Limits of Power sees three interrelated crises afflicting the U.S.: the crisis of profligacy; the political crisis; and the military crisis. The guiding ideological light in his book is the early 20th century American theologian, Reinhold Niebuhr (who I also quote in my book). During the Cold War, Niebuhr complained about U.S. tendency to hubris and sanctimony, which Bacevich views as even more prevalent now, becoming “the paramount expressions of American statecraft.”

As Bacevich sees it, our failures abroad (including especially the Iraq War) are a function of our unending consumer appetites at home. “The collective capacity of our domestic political economy to satisfy those appetites has not kept pace with demand. As a result, sustaining our pursuit of life, liberty and happiness at home requires increasingly that Americans look beyond our borders. Whether the issue at hand is oil, credit, or the availability of cheap consumer goods, we expect the world to accommodate the American way of life.”

“Centered on consumption and individual autonomy, the exercise of freedom is contributing to the gradual erosion of our national power.”

The Iraq War is just the latest step in the gradual erosion of U.S. power, weakening us both externally and internally as we refuse to face up to our own problems. He includes a wonderfully revealing quote from Defense Secretary Donald Rumsfeld from October 2001:

“We have two choices. Either we change the way we live, or we change the way they live. We choose the latter.”

Bacevich is scathingly critical of the American political system, which he sees broken and corrupted by an imperial presidency, a “feckless” Congress, and an incompetent national security structure. Our democracy has been hijacked, he says, by a political elite who “have a vested interest in perpetuating the crises that provide the source of their power.”

These are powerful charges and surprisingly radical, coming from someone who has been part of the establishment and who considers himself a conservative. When Butler faculty and students met with him over breakfast, we raised the question of whether the capitalist system itself was broken, given the arguments he made in his book and his lecture. However, even though he sees little hope for any kind of economic or political recovery in the U.S., Bacevich maintains a firm commitment to capitalism and democracy. Many of us found this to be paradoxical. If the system is broken and can’t be fixed, shouldn’t we be searching for some alternative?

The Limits of Power is a powerful and sobering analysis and critique of the American prospect. The message is similar to that of my book, though there are differences. Bacevich focuses more on the U.S. itself, whereas I link what is happening in the U.S. with broader international and global trends. While both of us decry American consumerism, he focuses more on the cultural (and even spiritual) aspects of this, while I spend more time on the economic and social consequences of it. Neither one of us is terribly optimistic about the outcome, but the last pages of my book offer some inklings of hope, whereas the last paragraph of The Limits of Power is thoroughly downbeat. He quotes, once again, Niebuhr to the effect that social orders inevitably destroy themselves in an effort to prove they are indestructible. “Clinging doggedly to the conviction that the rules to which other nations must submit don’t apply,” concludes Bacevich,

“Americans appear determined to affirm Niebuhr’s axiom of willful self destruction.”

The Limits of Power: The End of American Exceptionalism (American Empire Project)

The US Economy Will Shrink (A Lot), and It Should

The U.S. economic stimulus plan passed by Congress aims to regenerate economic growth, spending and consumption. But it is almost certainly bound to fail, and not for the reasons given by partisans on both sides of the Congressional aisle. In spite of the stimulus, the economy will continue to contract. This is inevitable; it is necessary; and it is even desirable. The main task of the government should be protecting those who are displaced and impoverished during this contraction and retrenchment.

The U.S. economy must contract because it is way too large, in numerous respects. It is too large given the U.S. levels of production and exports. It is built largely on consumption and debt, not output. And it is too large for the rest of the world, even given the size and wealth of the country.

The U.S. economy is big—about 28% of global GDP. But the U.S. accounts for only about 8% of global exports; 16% of manufacturing value-added output, and 5% of the world’s population.

The main contributor to the outsized US GDP is consumption, where the U.S. is indeed the world’s leader. Consumption accounts for about 72% of US GDP, which is a record for any large economy in modern history. As we are now learning, this consumption has been built on a mountain of consumer and household debt, which now totals some $13 trillion—approximately the size of the entire U.S. economy. This is unsustainable.

Furthermore, much of U.S. debt is owed to other countries. About half of the federal debt and a quarter of corporate bond debt is held by foreigners. As former Senator Hillary Clinton pointed out in 2007, "16% of our entire economy is being loaned to us by the Central Banks of other nations."

These huge levels of consumption are a drain on the planet, its resources and its people. The U.S. has only 1 in 20 of the globe’s people, but we consume a quarter of the world’s fossil fuels; 29% of “materials” (including minerals, metals and synthetics); 19% of forestry products; and 14% of its water. The U.S. is also the world’s biggest contributor to environmental pollution, greenhouse gas emissions (a quarter of the world’s total) and global warming. At 5% of the globe, we leave a huge carbon footprint.

In the 1970s Yale historian Paul Kennedy, writing in The Rise and Fall of the Great Powers, suggested that eventually the U.S. would have to decline to its “natural” share of the world’s wealth and power, which he estimated should be in the 16-18% range, rather than the 30-40% held by the U.S. at that time. This would indicate a cutting of the U.S. economy by half.. But so would many of the economic indicators I mention above. Consumption, debt, and borrowing all need to be reduced by about that amount, as should petroleum and energy use.

Given the hugely bloated size of the U.S. economy, and of U.S. consumption, and of consumer and government debt, it is hard to see how the economic stimulus package will make much of a dent in things. The economy is bound to decline, and needs to.

This contraction has already begun. The country’s GDP shrunk last quarter at an annualized rate of 3.8 %. If this continues, it will be the largest yearly decline in the US economy since 1946. But a much larger decline will be necessary to bring the economy back to a more natural, balanced and sustainable level. The contraction of GDP is likely to continue for several years, at the very least. This would be unprecedented for the postwar period, when only once (1974-75) did the economy contract two years in a row.

Such a decline could be on a scale of that of the 1930s. The main problem then, as now, will be the reduction in employment, and the consequent growth in poverty. It is hopeless throwing good money after bad in an effort to revive growth, consumption and debt. Instead, the federal and state governments should focus on alleviating the suffering that this contraction will entail, by increasing funds for unemployment compensation, Medicaid, welfare, job retraining and education.

Many people will suffer in this transition, and they should be helped. For most people, though, this economic retrenchment will simply mean belt-tightening. Our standard of living will decline, in ways most of us have not experienced before. But we are still a highly developed wealthy country, and will remain so. Once the U.S. economy has stabilized at a more natural size, it will grow again. And this time, it can happen in a way that is not so destructive of the planet, other peoples, and our souls.

The Measure of America

The Social Science Research Council and Columbia University Press have published a remarkable and eye-opening book, called The Measure of America: American Human Development Report 2008-2009, which could function as a companion and statistical supplement to The End of the American Century. In analyzing the domestic situation of the U.S., The Measure of America has many of the same themes, and similar (and supporting) evidence as my book. Like my book, it shows that on most measures of societal development, the U.S. has declined over recent decades, and lost ground compared to other countries.

The Measure of America is modeled on the annual Human Development Report published since 1990 by the United Nations Development Programme. That series attempted to get away from the raw economic indicator of Gross Domestic Product, and to determine the level of human development in each country. The “human development index” used by UNDP, an alternative to GDP, was “a composite index measuring average achievement in the three basic dimensions of human development—a long and healthy life, knowledge, and a decent standard of living.” (From the Human Development Report 2006).

The Nobel Prize winning economist Amartya Sen was instrumental in developing the Human Development Report, and wrote the Foreword to The Measure of America. There, he writes that

“we have to judge the success of a society, including its economy, not just in terms of national wealth or the ubiquitous GNP, but in terms of the freedoms and capabilities that people enjoy to live as they would value living” (p. xi).

Sen observes that this approach has been “remarkably neglected in the United States in particular” and notes in this country “a major discrepancy between opulence and achievement.” The U.S. may be on some measures the world’s wealthiest nation, but “its accomplishments in longevity, secure health, fine education and other such basic features of good living are considerably below those of many other—often much poorer—countries.” He also notes, as I do in my book, that the position of the U.S. relative to other countries has been “steadily falling” over the years (p. xii).

The book itself assembles data in clearly presented tables on the three main “building blocks” of the human development index: a long and healthy life; access to knowledge; and a decent standard of living. In all three areas, the U.S. fares poorly in comparison to other countries. Compared to other wealthy countries, for example, the U.S. ranks #24 in life expectancy; #18 in high school graduation rates; and #2 in poverty rates (you don’t want to rank high on that one!).

The data shows the downward trend for the U.S. over time in most of these measures as well. And for the overall index, the U.S. world rank dropped from #2 in 1980 (behind only Switzerland) to #12 in 2005. Countries ahead of us include much of western Europe, Canada, Australia and Japan.

(The American Human Development Project also maintains a useful website at this link.)

These are all trends and themes presented in The End of the American Century, where I also use authoritative data (including many of the same measures used in The Measure of America). They point out how far the U.S. has fallen, and how much work we have to do. The problems of the U.S., both economic and social, predate the disastrous Bush presidency, which simply exacerbated them all. It took more than eight years to dig us into this hole, and will take at least that long to recover. But we have to recognize these problems and understand them before we can begin to solve them.

The Measure of America: American Human Development Report, 2008-2009 (A Columbia / SSRC Book)

Interview and Review of "The End of the American Century"

David Hoppe interviewed me and wrote a story on my book in the 1/28 issue of Nuvo magazine. I believe he nicely captures the essence of the book, and my thinking about the current situation and place of the U.S. The story can be found at this link.

Retrenchment, Not Recovery

Economists and politicians are debating whether we are in a recession or a depression, and how many months or years it will take to recover from the downturn. As I have argued on this blog and in my book, what is now happening to the economy is not typical or normal. I would call it a "retrenchment" rather than a recession. In that sense, it is a permanent correction, and will result in a substantial and long-term contraction of GDP, the standard of living and the stock market. It will take many years to return to where we were. The problem is that the U.S. government and consumer have both been living on borrowed money for a generation, so that most of the gains of that period are illusory. We were never really that wealthy, and now we have to start paying for that extravagance.

A similar argument is made in an interesting article entitled "Will There Be A Recovery?" by Paul Craig Roberts, a former Assistant Secretary of the Treasury in the Reagan administration. He also sees the current situation as different from past recessions. Recovery in the past could be stimulated by cuts in interest rates, allowing consumers to spend more against rising real wages. This would lead the economy to rebound.

Now it is different though. For one thing, for most workers, real wages have remained stagnant for almost twenty years. Consumers have maxed out their credit and can no longer borrow so freely. And interest rates are already at rock bottom levels.

"And there’s another problem," says Roberts. "Much of what American consumers purchase today is made offshore. Stimulating consumer demand in America puts factories back to work, but those factories are located elsewhere in the world." The U.S. consumed more than it produced, by borrowing from abroad. But this source of funds is also drying up now.

These are all themes that I raised in The End of the American Century. While I do not totally agree with all of Roberts' arguments, his overall point is a good one. There will not be a recovery, like recoveries in the past. The task for the U.S., and the Obama administration, is to figure out how to navigate this difficult transition, and to convince U.S. citizens that we can live a good life without all the excesses of the past.

Take a look at Roberts' essay, and offer your thoughts in the Comments section here.