America is Not Dead: Part II

Following on from a previous article, I believe the decline of the United States is not inevitable. Rather, I have a somewhat different conclusion which as unreal as it may seem is extraordinarily likely.

Recently I wrote an article concerning the economic outlook of the United States, about which I remain very positive. You can read that article here. My summary conclusions rang along the following lines:

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”.

The article in question lacked factual evidence and substantiation (due to space constraints) and after being asked to substantiate my views by a number of readers�I decided to pen this article and explain my opinions in greater detail.

Essentially the short-term outlook for the United States economy is poor. Rising federal and public debts (over $11 trillion), deficits at the Federal and State levels, insolvent States, high unemployment, insignificant exports and declining incomes are all factors that sit atop the minds of the general public. I do not dispute that America has a difficult few years ahead.

In saying that, there have been a number of recessions in this country. There was even a Great Depression that saw the biggest negative declines in all the metrics I listed above, more so than we see in present day post-financial crisis America. There have also been two World Wars which created massive spending shortfalls and had a host of negative effects on the economy with long-lasting consequences. Yet despite such adversity, which frankly was all far worse than what we are faced with now, the genius of the American economy and the focus on a free-market system and efficient laws and public rights has allowed each successive generation to live better than the last. Over the last hundred years, the standard of living in the US has increased by more than 7 times. People nowadays, including those in the middle class, live better than Andrew Carnegie or John D. Rockefellar did.

The cause of such great strides in the progress of living standards was no accident. It occurred because of the human potential and economic and regulatory environment that exists in the United States, and there’s no reason why this country won’t continue to produce gains over the long-term. As long as the brightest minds in the world try to get into Harvard, MIT and Stanford, and Apple products are designed in California, America will prosper. There will always be problems facing the economy but the sheer ingenuity and intelligence of those who participate in it has overcome much worse challenges in the past.

Current account deficits and Federal debt increases are dangerous over time. It’s politically a very difficult game to play and there can be no long-term winner in that space. American ingenuity, however, will continue to surprise on the upside and will see the economy through this debt “crisis” and more serious adversity in the future. I agree that Federal spending above income is going to cause problems with creditor nations ten and twenty years down the road, but regardless the standard of living of the American people will be higher then than it is now. There are very, very few other countries in the world for which that will certainly apply.

A lot has been said about the inability of US consumers to save. Historically speaking consumers in the US did save and this was largely the result of adversity resulting from the Great Depression. Given the financial shocks we have seen is it realistic to assume because consumers were not saving that they will continue to do so? Or will there be some shift in culture back to normalcy in which consumers save more than 2% of their incomes? I would hazard a guess just because savings rate are negative does not mean they will stay that way. The US has very many avenues to pursue to close the fiscal hole and the country will do so, one way or another.

People, on average, try to better their situation all the time. For the most ambitious and those in search of a better life, the number one destination in terms of immigration has been and continues to be the United States. People from outside of the US know what real hardship is – they’ve seen it in their daily lives to an extent that the US has not seen in a century. And they continue to immigrate to the United States from all around the world, China included, at a rapid pace. Tony Blair, former Prime Minister of the United Kingdom, said it best: “America is a country where everyone is trying to get in but nobody wants to leave”. There’s good reason for that!

In essence the United States is the world’s dominant economy and that advantage will be eroded to some degree by countries like India, Brazil, China and South Africa. However because of the fabric of the people of the US and the economy’s ability to rebound and emerge stronger after what appeared to be impossible odds, the US will still be the world’s most prosperous country in the next 100 years. China has problems which are far vaster in an economic, environmental and social standpoint than the US does yet the ability of the US people know the problems they face; to question, demand answers and hold politicians accountable is one of the very reasons this country will not see it’s own demise. Rather, your kids and grandkids will live a better life than you did, and that’s the ultimate investment one can make.

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