America is Not Dead!

China is rising and the US is in terminal decline. Is the end near and what do the next 100 years hold for global economic dominance?

I write today after reading and spending some time contemplating a piece by brilliant economist Paul Krugman in the New York Times last week.

For anybody that is not aware, Krugman is an American economist and commentator and the Professor of Economics and International Affairs at Princeton University. He won the Nobel Memorial Prize in Economics in 2008 for a pair of new economic thought models, whereby he attempted to explain with some success patterns of international trade and the geographic concentration of wealth by examining the impact of economies of scale and consumer preferences for diverse goods and services. In summary Krugman is one of the world’s most respected economists.

Krugman’s article which I refer to above is about the future of the United States as an independent and sustainable sovereign nation. He cuts no bones about his thoughts and calls a spade a spade right from the opening salvo:

“We’ve always known that America’s reign as the world’s greatest nation would eventually end. But most of us imagined that our downfall, when it came, would be something grand and tragic.”

His point of view is so fierce that he likens the decline of the United States more to that of Poland than to that of Rome:

“Instead of re-enacting the decline and fall of Rome, we’re re-enacting the dissolution of 18th-century Poland.”

To be the fair the gist of Krugman’s article is to highlight the apparent lack of political efficiency that Republican senators are creating by “vetoing” various Democrat votes. He uses the example of the appointment of Martha Johnson as Head of the General Service Administration which was put “on hold” by Senator Christopher Bond of Missouri (who happens to be Republican).

While I understand the viewpoints of Mr. Krugman and his frustration with the political situation and illusory embargo the G.O.P. is putting on government efficiency, his article made me sit back and look at the bigger picture of the US as a whole and the future of this country.

There is currently a lot of negative sentiment against the US revolving mainly around the unsustainable fiscal deficit that exists and the weakening and seemingly eroding purchasing power of the US dollar. The outlook for increased government debt and debt costs is putting paid to many theories of recovery and ideals that people will, one day, be back in jobs. The rise of China and their mammoth trillion dollars reserves is also posing a grave threat to the dominance of the United States in the world economy.

Well-known author John Mauldin, in one of his weekly letters recently, predicted a domino effect of sovereign debt beginning with a Greek default and proceeding all the way to a default by the United States.

I think it’s important to add a little bit of context to this debate. In my mind, the US is not dead. China is a country that has been in a formalized existence for more than 5000 years, and is only now beginning to challenge the United States. The US, on the other hand, was born just 234 years ago. This country is just starting, and we ain’t seen nothing yet!

I am totally aware of the problems the US faces and the risks of default and declining economic power of the nation. However, I’m totally confident that in the next 100 years the United States will still be the dominant economic power in the world, with the highest standards of living and the greatest value add to the world economy.

Warren Buffett recently made the biggest acquisition of his career in railroads, when he bought Burlington Northern Santa Fe. Why railroads? “It’s an all-in bet on the future of the US economy”, said Buffett. And given the great man’s prowess, I see no reason to jump on the bandwagon, disagree and declare, “America Is Dead”!

For a follow up article, read America is Not Dead: Part II

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Comments

  • Sam Cass

    February 17, 2010

    Good points. China has bigger problems to deal with. At some point economic development and closed political system will become incompatible. One or the other will have to break.

    The US is still the most innovative country in the world. It's easier to make things cheaper if you have a massive pool of underpaid labor. It's much harder to continuously innovate.

    There's still no country on Earth that can compete with the US in this area.

    Boom and busts have been a natural part of the US. During every bust the pundits have been calling for the end of the US.

  • chriscd

    March 27, 2010

    The two party system also creates necessary roadblocks. You don't want every appointment or piece of legislation to be approved. Dissenting views usually make bills, laws, appointments better.

    I think the US's biggest problem is the growng mentality that the Gov't owes me something and should take care of me. The entitlement generation will bankrupt the country if it isn't turned around.

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