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.

The Bankruptcy of American Economics

It is not just the American economy that is bankrupt, but the profession of economics as well. It is partly the interaction of these two that has led to the collapse of the American economy and the huge economic hole we find ourselves in.


Paul Krugman provides a devastating critique of his own profession in the Sept. 6 New York Times Magazine , in an essay entitled “How Did Economists Get it So Wrong?” Krugman, a Princeton economist, New York Times columnist and Nobel prize winner, believes that

American economics, as a field “got in trouble because economists were seduced by the vision of a perfect, frictionless market system.”

The profession was blind to the possibility of catastrophic failures in a market economy, he asserts.

In a June lecture at the London School of Economics, Krugman argued that most

macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst.”

Others besides Krugman are dissecting the economics field, and finding serious problems with it. Britain’s influential Economist magazine had a cover story (7/18) on “Modern Economic Theory: Where it Went wrong—and how the crisis is changing it.” They quote the LSE’s Willem Buiter saying that a training in modern macroeconomics was “a severe handicap” at the onset of the financial crisis. The main problem was that in many macroeconomic models, insolvencies simply cannot occur.
So much for those models.

The problem of economics is even worse, I think, because the discipline has been so intolerant of dissenting views. Modern economic theory is as much an ideology as anything else, with a faith in the market that ignores both reality and those who challenge the dominant paradigm. As the New York Times put it in a story last March:

“For years, economists who have challenged free market theory have been the Rodney Dangerfields of the profession. Often ignored or belittled because they questioned the orthodoxy, they say, they have been shut out of many economics departments and the most prestigious economics journals. They got no respect.”

I saw this firsthand at my university a decade ago, when we were attempting to create a department of economics within the college of liberal arts and sciences. I was on the search committee to hire an economics professor to begin building that program. But it soon became clear that there was a basic inconsistency between the goals of the liberal arts curriculum—free inquiry, critical thinking, competing ideas—and that of the economics profession. The candidates we considered most interesting , with provocative ideas and wide-ranging interests, were largely outcasts in their own discipline, which favored narrow specialties, and strict adherence to the free market ideology. “They got no respect” from the economics discipline, so didn’t have the necessary credentials, and couldn’t be hired. Eventually, the university gave up on trying to create an economics department in the liberal arts college.

Not only is the narrow ideology of modern American economics inconsistent with the traditions of critical thinking, it has proved totally incompetent at predicting the crisis, or figuring out how to get out of it. There are a few exceptions, like Paul Krugman, Yale’s Robert Schiller, and Columbia’s Joseph Stiglitz—all Nobel laureates—and some economics writers like the New York Times’ David Leonhardt. But until now, most of them have been voices in the wilderness, trying unsuccessfully to point out the problems of mounting debt, growing inequality, and neglect of economic and social infrastructure.

President Obama , I believe, recognizes the problems and is trying to remedy them, but he is caught in a vise between huge accumulated needs of the U.S.—for example in health care and education—and the unprecedented level of government and consumer debt.

From an outsider’s perspective—that of a non-economist—it seems to me that the problem is pretty obvious and simple, and the solution is equally obvious and simple, but horribly painful. The problem is that for a generation, American government and citizens have both been living well beyond their means, borrowing to pay for the plethora of consumer goods most of us enjoy. But in the meantime, we have neglected the poor, the schools, the health care system, infrastructure, the environment, and most of the rest of the world. We have lots of goodies, but the society is ailing, and we have passed the buck to the next generation.

The painful solution is that Americans will have to spend and consume less, pay more in taxes, and be prepared for a long-term contraction in the economy. There is evidence of this already, with people finally beginning to save, and to practice “consumer thrift.” But more saving and less spending simply contributes to a contraction of the economy. Banks, retailers, the service and entertainment industry have all depended on people borrowing to spend. As this changes, all these industries will decline, and the economy will decline.

Most American economists, including those with the President, are predicting an imminent end to the recession, and a relatively quick economic recovery. So far, virtually all such predictions have proved overly optimistic and wrong. I think those predictions are based on flawed economic models, and do not account for the depths of the hole we have dug ourselves into. We are in for a very long slog.

While I agree with President Obama and Professor Krugman on most things, I disagree with them that the solution is more spending, by government and consumers, to prime the economy. What we need now is belt-tightening, and a return to a more modest standard of living—perhaps comparable to what we had in the 1970s. This will entail a continuing and severe contraction of the U.S. economy, to return to equilibrium. In the long run, though, it will be best for both the U.S. and the rest of the world.

But you won’t hear this from many economists

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.

Is the Global Economy a Ponzi Scheme?

In his Sunday New York Times column, Thomas Friedman quotes a climate expert, Joe Romm, who nicely captures a problem that I discuss in my book, and in several blogs posted here(especially "The US Economy Will Shrink A Lot, and It Should.").

"We created a way of raising standards of living that we can't possibly pass on to our children. . .We have been getting rich by depleting all of our natural stocks--water, hydrocarbons, forests, rivers, fish and arable land--and not by generating renewable flows."

This led me to Joe Romm's blog, climateprogress.org, where he has a thoughtful and thought-provoking entry entitled "Is the Global Economy a Ponzi Scheme?" The essay, and that site, are worth a look, and I have added a link to it in my blogroll.

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.