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Why Does the U.S. Get All the Tornadoes?
Posted By Daniel W. Drezner
Sunday, January 22, 2012 - 8:02 PM
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Let's face it, there's a general anxiety about the future of America. There's Tom Friedman's column today, which my doctors have now forbade me from critiquing in order to keep my blood pressure down. Books suggesting the United States is kowtowing to China are forthcoming. The Economist recently observed on the highlights of a sobering survey of Harvard Business School graduates, which contained the following:
Fully 71% of the businesspeople polled expected America’s competitiveness to decline over the next three years. (National competitiveness is a slippery concept: countries do not compete in the same way that firms do. But the businessfolk in question answered some clearer questions, too.) Some 45% said that American firms will find it harder to compete in the global economy. A startling 64% said that American firms will find it harder to pay high wages and benefits.
Intriguingly, the Harvard alumni were gloomy about where America is headed, rather than how it is now. Some 57% felt that today the business environment in America is somewhat or much better than the global average; only 15% said it was worse. But when asked to compare its prospects with those of other industrialised economies, only 9% felt that America was pulling ahead; some 21% said it was falling behind. A striking 66% expected America to lose ground to Brazil, India and China; only 8% thought it would pull away from them.
This would seem to jibe with popular laments about why Apple can't make its products domestically. There are a lot of reasons, but a significant one is the lack of necessary skills for higher-end manufacturing. This is in no small part because American students shy away from the training necessary to do these kind of jobs even if they originally think they want to be engineers. Why? Because American college students don't like doing homework.
So, America is doomed, right?
To be honest, this sounds like a lot of pious baloney. As Michael Beckley points out in a new article in International Security, "The United States is not in decline; in fact, it is now wealthier, more innovative, and more militarily powerful compared to China than it was in 1991." The whole article is worth a read, and a good cautionary tale on the dangers of overestimating the ease of national catch-up:
The widespread misperception that China is catching up to the United States stems from a number of analytical flaws, the most common of which is the tendency to draw conclusions about the U.S.-China power balance from data that compare China only to its former self. For example, many studies note that the growth rates of China’s per capita income, value added in hightechnology industries, and military spending exceed those of the United States and then conclude that China is catching up. This focus on growth rates, however, obscures China’s decline relative to the United States in all of these categories. China’s growth rates are high because its starting point was low. China is rising, but it is not catching up.
What about the future? One could point to the last few months of modestly encouraging economic data, but that's ephemeral. Rather, there are three macrotrends that are worth observing now before (I suspect) they come up in the State of the Union:
1) The United States is successfully deleveraging. As the McKinsey Global Institute notes, the United States is actually doing a relatively good job of slimming down total debt -- i.e., consumer, investor and public debt combined. Sure, public debt has exploded, but as MGI points out, that really is the proper way of doing things after a financial bubble:
The deleveraging processes in Sweden and Finland in the 1990s offer relevant lessons today. Both endured credit bubbles and collapses, followed by recession, debt reduction, and eventually a return to robust economic growth. Their experiences and other historical examples show two distinct phases of deleveraging. In the first phase, lasting several years, households, corporations, and financial institutions reduce debt significantly. While this happens, economic growth is negative or minimal and government debt rises. In the second phase of deleveraging, GDP growth rebounds and then government debt is gradually reduced over many years....
As of January 2012, the United States is most closely following the Nordic path towards deleveraging. Debt in the financial sector has fallen back to levels last seen in 2000, before the credit bubble, and the ratio of corporate debt relative to GDP has also fallen. US households have made more progress in debt reduction than other countries, and may have roughly two more years before returning to sustainable levels of debt.
Indeed, the deleveraging is impressive enough for even Paul Krugman to start sounding optimistic:
the economy is depressed, in large part, because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. And if you squint hard at recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.
Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front.
2) Manufacturing is on the mend. Another positive trend, contra the Harvard Business School and the GOP presidential candidates, is in manufacturing. Some analysts have already predicted a revival in that sector, and now the data appears to be backing up that prediction. The Financial Times' Ed Crooks notes:
Plenty of economists and business leaders believe that US manufacturing is entering an upturn that is not just a bounce-back after the recession, but a sign of a longer-term structural improvement. Manufacturing employment has grown faster in the US since the recession than in any other leading developed economy, according to official figures. Productivity growth, subdued wages, the steady decline in the dollar since 2002 and rapid pay inflation in emerging economies have combined to make the US a more attractive location.
“Over the past decade, the US has had some huge gains in productivity, and we have seen unit labour costs actually falling,” says Chad Moutray, chief economist at the National Association of Manufacturers. “A lot of our members tell us that it sometimes is cheaper to produce in the US, especially because labour costs are lower.”
Now, whether this boom in manufacturing will lead to a corresponding boom in manufacturing employment is much more debatable. Still, as The Atlantic's Adam Davidson concludes: "the still-unfolding story of manufacturing’s transformation is, in many respects, that of our economic age. It’s a story with much good news for the nation as a whole. But it’s also one that is decidedly less inclusive than the story of the 20th century."
3) A predicted decline in energy insecurity. British Petroleum has issued their Energy Outlook for 2030. The Guardian's Richard Wachman provides a useful summary:
Growth in shale oil and gas supplies will make the US virtually self-sufficient in energy by 2030, according to a BP report published on Wednesday.
In a development with enormous geopolitical implications, the country's dependence on oil imports from potentially volatile countries in the Middle East and elsewhere would disappear, BP said, although Britain and western Europe would still need Gulf supplies.
BP's latest energy outlook forecasts a growth in unconventional energy sources, "including US shale oil and gas, Canadian oil sands and Brazilian deepwater, plus a gradual decline in demand, that would see [North America] become almost totally energy self-sufficient" in two decades.
BP's chief executive, Bob Dudley, said: "Our report challenges some long-held beliefs. Significant changes in US supply-and-demand prospects, for example, highlight the likelihood that import dependence in what is today's largest energy importer will decline substantially."
The report said the volume of oil imports in the US would fall below 1990s levels, largely due to rising domestic shale oil production and ethanol replacing crude. The US would also become a net exporter of natural gas.
Note that this will take a while, and doesn't mean that the U.S. will be energy independent. Still, it's quite a trend. Or, rather, trends.
Since the Second World War, the pattern in the global political economy has been for the United States to adjust to systemic shocks better than any potential challenger country. A lot of very smart people have predicted that this time was different -- the United States wouldn't be able to do it again. These trends suggest that maybe, just maybe, that might be wrong.
Am I missing anything?
EXPLORE:ECONOMICS, THUMBS, GLOBAL POLITICAL ECONOMY, HEGEMONIC STABILITY THEORY, HEGEMONY, UNITED STATES 
Predicting doom and gloom is always in vogue because it is easy to do. Even if it never ever happens when it was supposed to happen.
All one has to do is wait for the next economic disaster and claim, "See I told you X years ago this would happen" and then they suddenly get considered prophets. Even if they though what would happen next year happened next decade.
There is such a thing as business cycle. Rise and declines happen on a regular basis. More attention and money can be made being a doomsayer than being optimistic. People take comfort in impending doom as being more likely and honest than someone who they think is blowing smoke up their behinds.
If country A produces 1 unit at year 0 and increases output with 10% each year it will produce 117 units after 50 years.
If country B produces 20 units at year 0 and increases output with 3% each year it will produce 88 units after 50 years.
Boy, I hope this is right. I have pulmonary fibrosis, an eventually-terminal illness that kills as many as breast cancer, so I won’t have to worry about it. But I have a granddaughter, 11, who will have to go through the fire if, as I suspect, this is wrong. What the writer is missing is the coming fiscal collapse, followed inevitably by social and political collapse. The National Center for Policy Analysis now estimates the total unfunded liability of government at $211T. That $211 trillion promised but not in the bank. Those obligations cannot be met. Government is beyond Ponzi. And everyone is crying, “Fix it, but don’t cut me!” So politicians of both parties kick the can down the road. But it will soon be too heavy to kick. Hard to have “hegemony” when you can’t pay soldiers or police or fund basic services. I will link to this from my Old Jarhead blog.
Robert A. Hall
Author: The Coming Collapse of the American Republic
All royalties go to help wounded veterans
For a free PDF of my book, write tartanmarine(at)gmail.com
Yes, you are missing America's cultural decline
While I agree that the declinists overstate their case, some warnings are worth heeding. Our financial, military and political decline may be overstated, but I’m more concerned about our cultural decline.
I think everyone should read Charles Murray’s long piece in Saturday’s WSJ, “The New American Divide" to get an idea of what I'm talking about.
http://online.wsj.com/article/SB10001424052970204301404577170733817181646.html
It’s a lot easier to adjust to financial shocks by creating trillions of paper dollars to reinflate bank balance sheets than it is to reverse what is arguably the cultural degradation of America's citizenry.
Our poor and lower middle class lives in a cultural sewer of bad decisions and declining job prospects, while our ruling classes (See Codevilla’s indictment in the link below) are becoming insular, morally flabby, and prone to papering over their own problems with cash instead of character.
http://spectator.org/archives/2010/07/16/americas-ruling-class-and-the/print
This degradation DOES have political and economic consequences, which can be seen in massive mal-investment in politically connected industries and sectors (ethanol, Solyndra, etc.).
It is also evident in the mortgage meltdown, which was much more of a moral failing among borrowers, politicians, lenders, banks, regulators, etc. than it was a specific financial institution or sector.
Look at Sarbanes-Oxley or Dodd_Frank or the creation of the "Homeland Security" state to see the influence of cultural decline on our regulatory structure. We move from crisis to crisis, adding layers of controls and regulations that are specially designed to favor those with the relationships and access to power.
As for the relative strength of America to other nations, it isn't surprising that we still look good on paper. We still occupy the "commanding heights," and will for some time. This means we will remain politically, militarily, and financially powerful for a long time, even as our roots and branches are eaten away by cultural rot.
I hate to sound like a culture warrior or conservative curmudgeon here, but as more and more of America resembles Jersey Shore shows, Bourbon Street, or the Vegas strip, the foundation necessary to sustain our stability declines.
Rome looked invincible in the first century AD, but at the time, its eventual fall was nearly inevitable. I don't subscribe to the idea that we are in the same position or that such things can't be reversed in today's world. However, when the majority no longer believe in the 10 Commandments (or a secular social contract to comport yourself in such a way that you aren't destroying social capital)...
...and...
When the government has slipped the leash of the 10 Amendments (a necessary limit on one of the worlds most destructive forces), then things are not necessarily headed in the right direction.
It isn't all stats and balance sheets.
Cultural decline is in the eye of the reactionary wag
"We move from crisis to crisis, adding layers of controls and regulations that are specially designed to favor those with the relationships and access to power."
Actually its the weakening of regulations and controls which were the cause of every major economic disaster we have had in recent memory. The weak enforcement of regulation is designed to favor those with relationships and access to power.
"I hate to sound like a culture warrior or conservative curmudgeon here, but as more and more of America resembles Jersey Shore shows, Bourbon Street, or the Vegas strip, the foundation necessary to sustain our stability declines."
Well you ARE a curmugeon because America never resembled Leave it To Beaver except in the hazy false images of nostalgia.
"Rome looked invincible in the first century AD, but at the time, its eventual fall was nearly inevitable. "
Well then you need a history lesson as well, since it lasted 300 years after that. Even back then it was dysfunctional. Just nobody was taking notice outside the Italian Penninsula. Romans did most of the writing. Rome in its decline, looked in decline even from its neighbors by the time of its fall (hence constant incursion). It was having trouble feeding its people, financing its armies, it has become culturally no different from its neighbors. Christianity became de rigeur for the Empire and Barbarians alike by the time of its fall.
"When the government has slipped the leash of the 10 Amendments (a necessary limit on one of the worlds most destructive forces), then things are not necessarily headed in the right direction."
Now I know you are truly silly. 10 Commandments? The first 4 are rather sectarian in flavor, 3 more are moral failings but only criminal in the most repressive of regimes. That leaves 3 whose ideas are so universal that every civilized society follows them.
Great oversimplifications and horribly mistaken views of history abound across the world, especially when people start bundling entire centuries into one short span of time. If I had even just a penny for every time someone based their historical opinions of China purely from its height of pre-European imperialism power I could probably pay off the entire American debt.
As for the rest I have to note that cultural decline is always a relative matter that is very hard to realistically view but for now I tend less to 'young people aren't as good as people back in the Good Old Days' and more to 'the present is flawed but probably at least as good as, if not better than, the past'.
I don't believe you'd have enough pennies to pay off the debt.
"Actually its the weakening of regulations and controls which were the cause of every major economic disaster we have had in recent memory. The weak enforcement of regulation is designed to favor those with relationships and access to power."
I have no problem with rational regulation. Your response shows that you would rather react to what you disagree with than what I said. I'm not proposing an unregulated environment. I'm arguing that layer after layer of regulations is bad policy.
"Well you ARE a curmugeon because America never resembled Leave it To Beaver except in the hazy false images of nostalgia."
Completely non-responsive to my point, but I'm sure you enjoyed writing your opinion.
"Rome looked invincible in the first century AD, but at the time, its eventual fall was nearly inevitable. "
"Well then you need a history lesson as well, since it lasted 300 years after that. Even back then it was dysfunctional. Just nobody was taking notice outside the Italian Penninsula. Romans did most of the writing. Rome in its decline, looked in decline even from its neighbors by the time of its fall (hence constant incursion). It was having trouble feeding its people, financing its armies, it has become culturally no different from its neighbors. Christianity became de rigeur for the Empire and Barbarians alike by the time of its fall."
I am well aware of the timing. I used the First Century because many consider that the apex of the empire. Those who like the US to Rome overstate their case, as do those who say there aren't any lessons to be learned.
"Now I know you are truly silly. 10 Commandments? The first 4 are rather sectarian in flavor, 3 more are moral failings but only criminal in the most repressive of regimes. That leaves 3 whose ideas are so universal that every civilized society follows them."
You apparently are too interested in scoring debating points than you are responding to anything I've written. My use of the 10 commandments is based upon my view that it benefits society to accept a "contract to comport yourself in such a way that you aren't destroying social capital."
I'm sure there might be arguments against such limitations on personal behavior. There may even be an argument that such commandments aren't necessary. You just didn't make any such arguments, as your sentence above is (again) completely non-responsive.
It's really simple. Whether motivated religious or secular views, a society where the vast majority avoid "moral failings" criminal or otherwise, and practice good behavior "are so universal that every civilized society follows them" is probably not in a cultural decline.
None of this should be particularly controversial.
Is it your view that America needn't worry about its culture? Do you agree with Prof. Drezner's post? Does the quality of character of our leaders and/or the people who elect them not matter?
That might be an interesting argument. To bad you failed to make it.
Fair enough. It's hard to address such a pithy topic on a blog post without oversimplifying, so I guess I'll cop to the charge.
I'll ask you the same question that I asked the less polite Spood...
Is it your view that America needn't worry about its culture? Do you agree with Prof. Drezner's post? Does the quality of character of our leaders and/or the people who elect them not matter?
Is it all numbers, manufacturing indexes and trade balances? If it is, then I have no choice but to agree with the good professor. I often make the exact same type of case when I hear declinist rantings.
I'm not a declinist, but I do worry about the hollowing out of our culture. Call me crazy.
SPOOD does love his straw men, doesn't he.
There is little point "engaging" SPOOD in debate, since his concept of such can be defined as:
1) You post something.
2) SPOOD waddles in and erects a statue made entirely of straw.
3) He then procedes to piss all over the leg of that straw man.
4) He then waddles offstage feeling very pleased with himself.
That's it. Nothing more. No less.
In re. to Bruno
On our leaders I personally don't think that they're really that different from any president over the past fifty years and the only reason they aren't the same as presidents before then* is that the U.S was much more isolationist prior to World War II and the 1950s presidents were trying to figure out how the U.S should operate in a post-European dominated world. In all honesty if you put our 1980s through early 21st century presidents and presidential candidates (with the possible exception of George W. Bush) and put them in the 1940s through 1970s I don't think much would change. Reagan, Bush, Clinton and Obama? I could see them deciding to send hundreds of thousands of soldiers to South Vietnam, agreeing to test bans with the Soviets, making peace with China or tolerating dictators in Southeast Asia, South America and Africa. George W. Bush would be even more likely to see it as a chance to have a great clash against an evil enemy.
As for the people, they also don't seem that different to me. I wasn't alive in the 1950s through 1970s so I have no first hand experience on what society was like back then but based on votes, historical records and events I don't think they were that different from the people of the 1990s and 2000s. In fact if I changed the clothes I'd say that things have actually gotten slightly better with a decline in racism, homophobia and sexism. Yes, they still exist but in the 1950s the idea of an African-American (I know Obama has some Caucasian ancestry but he seems to identify as African-American) or female president or the strong chance of gay marriage legalized throughout the nation (which I expect in no more than fifteen years at the most) would be something in the fanciful sci-fi novels along with long rants on why anarchism on the moon is the best form of government.
On economics, I'm not an economist so I can't really argue numbers with any of them. In fact I dislike numbers in general, I'm usually more interested in other areas of politics. However I can say that historically speaking the U.S has gone through very good and very bad times going right back to the end of the 18th century. Considering the vast amount of wealth here, the large and well educated population**, the fairly good rule of law, a democratic system that insulates against violent change and the geographic security we have I would say that the U.S has a far better chance than many nations of recovering from serious damage. Can we return to 1990s highs? I doubt that. Can we get closer to pre-2007 wealth. On that I'm more hopeful. Indeed I'm more doubtful of the ability of the so-called BRICS to replace the U.S in global wealth and power.
*Though I suspect that they have more in common with pre-WWII presidents than many would say.
** Yes, compared to a great deal of the world a U.S education is worth more than most.
Cultural decline is reactionary moaning
>>I have no problem with rational regulation. Your response shows that you would rather react to what you disagree with than what I said. I'm not proposing an unregulated environment. I'm arguing that layer after layer of regulations is bad policy.
The problem is not generally in the regulation itself, its in the enforcement of them or lack of will to enforce them. De-regulation has been the herald of most of our recent economic disasters. If anything our current economy is under-regulated.
>>Completely non-responsive to my point, but I'm sure you enjoyed writing your opinion.
Definitely. Frankly there have always been people who complain about the culture of their day as being too permissive, too proly, too anti-intellectual. It has never been a rational argument.
>>I am well aware of the timing. I used the First Century because many consider that the apex of the empire. Those who like the US to Rome overstate their case, as do those who say there aren't any lessons to be learned.
Actually comparing the US to Rome is never a good one to make. When one looks at it, Rome is practically an alien culture to modern thinkers. Especially those of a democratic bent.
>>You apparently are too interested in scoring debating points than you are responding to anything I've written. My use of the 10 commandments is based upon my view that it benefits society to accept a "contract to comport yourself in such a way that you aren't destroying social capital."
Really? You come off as mouthing much of the same points as those who complain that the only problem with Americans is they don't "embrace the good book enough". You specifically used a sectarian reference point here and now you are trying to claim a more generalized idea than previously stated.
>>>It's really simple. Whether motivated religious or secular views, a society where the vast majority avoid "moral failings" criminal or otherwise, and practice good behavior "are so universal that every civilized society follows them" is probably not in a cultural decline.
I don't believe in the concept of "cultural decline" whatsoever. People have been predicting cultural decline since they started to put pens to paper.
It is a construct of reactionary/nostalgic thinking of its day. Its from people who want to be the arbiters of culture but don't really understand how it works. Its always some comment about how present times aren't moral/religious/ethical enough. It always overlooks the basic strengths of an open society and the marketplace of ideas/culture. Same crap, different century.
>>>Is it your view that America needn't worry about its culture? Do you agree with Prof. Drezner's post? Does the quality of character of our leaders and/or the people who elect them not matter?
We NEVER need to worry about America's culture. The only culture of America is a culture of democracy. Taking from the many and putting it in the blender. It's strength lies in its ability to appropriate, absorb and change with times. It is a polyglot, uncontrolled, unpredictable, force of pure chaos. I wouldn't have it any other way.
I gladly accept your insults since I have zero respect for you
Johnnyboy, If I ever find myself on the same side of an argument with you, I think I will consider self-immolation.
Your posts are usually nothing more than rehashed fertilizer, conspiracy theories and bigoted ramblings. If you don't like what I am saying, my suggestion is that you come up with something more intelligent in response besides slinging crap.
So where is my strawman here? How am I pissing on your leg? Please do tell or STFU.
I read Charles Murray's piece, which was quite good.
One of the adages I have found most true is that when you "subsidize" bad behavior, you get more of it. This rings true for anything from welfare (the state will take care of my children born out of wedlock) to Social Security (so, I shouldn't save for my retirement?!) and hundreds of examples in between. If you couple that with the inflation created by the central bank, the barriers to entry that exist in industries to protect the established players (i.e., the plethora of licensing fees, banking regulations keeping newer, smaller banks out), the high tax rates (so business owners hire fewer people), and the rigid regulations that stifle industry, you get a pretty stark environment for the lower and middle class trying to make their break. Not to mention that high schools and colleges are emphasizing (pretty much useless) liberal arts concentrations---where college kids emerge with what is essentially a non-dischargeable mortgage and no skills to speak of.
You're conflating some issues, which I think is most apparent with your Solyndra example and your citation of the housing bust. These should be properly understood as failures of government. The DOE gave $535 million to Solyndra from taxpayers to finance financially un-viable solar panels to fuel the "green jobs" agenda (which ironically, could never create net jobs because it siphons wealth from the productive private-sector to do so).
Using the Dep't of Housing and Urban Development to drive more subprime housing loans through Fannie and Freddie were gov't policies! I don't understand why this is still not understood, at least with those who advocate liberty (the statists are hopeless). If you inject poison into someone's veins, it will course through the entire body, greatly-harming or killing the host. I see the "slicing and dicing" of these mortgages the same way: if the mortgages were made with proper risk actually factored into them by the banks (and not artificially subverted by gov't policies), then the derivatives Wall Street created would have been sound to begin with!
Concerning your last several paragraphs, I certainly don't think that faith is the answer. There are certain principles of ethics that result in man's happiness and success: e.g., productiveness, honestly, and independence. You don't need to believe that Zenon, God of the Universe told people how to live on earth thousands of years ago to recognize what is good for people on earth.
"So where is my strawman here?"
Yawn.
SPOOD decides to expand his arsenal of debating "skills".
Oh, look, ad-homs.
Yes, that'll do SPOOD nicely.....
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” - Charles Darwin
America's competitive edge has always derived most from it's ability to adjust to new global environments and even shape the world around it. The economic problems we are currently facing stem largely from America not sufficiently adjusting in the post-Cold War era to the very globalization it created. We've of course been galvanized by terrorism, but really haven't felt threatened economically until the past few years. That is why the rise of China receives so much attention today. China embodies much of our fears of globalization, and we're constantly looking for the next challenge to overcome.
As a young American, I have no intention of being labeled the "Generation of American Decline." I'm confident that America will do what it has always done--adapt to suceed. I recognize it won't be easy, but I'm a hard-nosed optimist willing to do my part. The future is only as bright as the effort we put into shaping it.
Since numbers and energy are in no way my specialty all I can say is that Mr. LeVine seems to be far more skeptical of the promise of American energy independence. Personally I'm a bit suspicious of the sources of these promises, I wonder if their numbers come from the same black hole as the promises of wealth from legalized marijuana.
a loud hard sklap to obama's face
Here we go....
http://www.debka.com/article/21673/
Well, considering that Obama didn't want that sanctions law...
.... then I'd have to say that this is, in reality, a slap to the face of an AIPAC-controlled Congress.
eom
The two biggest trends that would stave off the decline of American Hegemony would be to have a total housing debt restructuring to help people pay down debt even further and help consumption rebound as well as craft a coherent industrial policy to get companies to invest in manufacturing in America to help reduce the trade deficit as well as create employment/increase economic activity.
For 10 years, the US destroyed US computers, cell phones, digital cameras, and fertilizer, the basic components of smart munitions. The US destroyed US ground and air vehicles. The US burned billions of gallons of gasoline, diesel fuel, and aviation fuel. The US did this to itself. China made products and sold them for profit and used fuels to move passengers and cargo for profit. China did nothing wrong; the US chose to lose. The US trades with half of the world because the US says the other half is bad. Americans are slave owners, Jim Crow enforcers, and genocidal mass murderers of native Americans because the US forgets that all countries have skeletons in their closets. China trades with 100% of the world. China has done nothing wrong; the US has chosen to lose the trade competition. 13% of US pupil's major in science, engineering, and technology while 50% of China's pupil's major in the sciences. Based on differences in populations, China produces 17 times as many scientists as the US. Recent tests show that the Chinese score 1st and 1st in math and science while the US is 31st in math and 23rd in science. China has done nothing wrong; Americans have chosen other subjects and have chosen to study less effectively. Twice in this decade, US corporate and financial leaders have proved to the entire world that US business and financial leaders are liars, thieves, and criminals. In the accounting scandal of 2002-2003, 40,000 US CEO's, CFO's, COO's, senior executives, presidents, and vice presidents lied about corporate profits to cheat their firms and investors out of bonusses that they did not earn. In the financial scandal of 2008 to the present, US financial firms created sub-prime mortgages, made them 40% of the US mortgage market, created mortgage-backed securities for insurance, created hedge funds to bet against their securities, coerced ratings agencies to give AAA ratings to securities that should not have had AAA ratings, and sold the fraudulent securities to investors all over the world. Twice in this decade, US business and financial leaders cheated NATO, Europe, the Middle East, Asia, Latin America, and the US. China did not force the US to do this; the US did this to itself. The US voted for Bush and Cheney twice and for stalemate in 2010. The US lost 2 wars under Bush and Cheney, and the US national debt earned a downgrade in 2011 because of US political stalemate. China has fought no wars, has over $3 trillion in cash, and has no political stalemate. America's problems are America's fault.
But where is consumer spending power going to come from
Big hole in this theory.
WHY did American consumers become so over-leveraged? Was it merely that there was so much cool new stuff to buy and everyone was irresponsible; or was it because wages, in real terms, had flatlined over the course of decades?
So women entered the workforce, boosting family spending power; but once that trend maxed out, the only way to continue boosting spending power was via credit.
So now we're all deleveraging; will real wage increases then boost American spending power, allowing the economy - 70 percent of which, we so often hear, is powered by consumer spending - to surge forward? The answer seems to be no - it's contained in one of your excerpts:
Productivity growth, subdued wages, the steady decline in the dollar since 2002 and rapid pay inflation in emerging economies have combined to make the US a more attractive location.
NYT did a piece a few weeks back on how manufacturing employment in some places is indeed beginning to pick up - but the new hires are being paid half of what long-time workers make, if that.
Unless American wages rise, growth is not possible without re-leveraging once people are done de-leveraging. But American wages can't rise; that makes us less competitive, right? That's the cul-de-sac we're stuck in.
I'm not sure if this is meant to be part of the myth or not: "There are a lot of reasons, but a significant one is the lack of necessary skills for higher-end manufacturing. This is in no small part because American students shy away from the training necessary to do these kind of jobs even if they originally think they want to be engineers."
But this is a myth. The linked figures show that US engineering majors averaged around 126,000 per year in the 2000s, lower than the mid-1980s, but up from the 1990s, when a good number of them went unemployed in the recession. As the WSJ story notes, the salaries for engineers in engineering jobs are lower than what they get in finance and consulting jobs. There is no shortage of trained engineers, and they do not lack of jobs overall, but over a third of BA-holding S &E (a broader set than engineers alone) hold job unrelated to their degrees.
In reality, for many Americans, engineering is really a stepping-stone degree to later, get into patent law, management consulting, finance/quant, or medicine.
Those, who stay in engineering/R&D careers, tend to find their work offshored and have to routinely re-train, in a game of musical chairs for the remaining jobs. It's not feasible to expect many engineers to be doing start-up companies for their entire careers. Instead, they should try to get a job at National Security or some other govt agency and move their way up from there.
There's one silver lining to the developments here and that's that the US is finally activating the shale reserves, which in effect, will insure that the US is able to keep things going, even if the dollar isn't the reserve currency in the decades ahead. Fluctuating energy costs will not put a stranglehold on the economy, as they'll be a type of floor on that sort of scenario.
And also understand this, no one in east Asia trusts the Chinese system, to protect one's wealth and assets. Thus, given the long term political stability of America, it's highly likely that a chunk of international savings, will funnel its way through US based equities, bonds, cash, commodities, land, etc. In other words, even if electronics are designed and built in Asia, the wealth generated from those ventures, will seep back towards America for safekeeping. Putin has insured that the new ex-SSR won't do the trick for anyone who isn't a former party member. The best analogy would be the Asian industrialists', North America-as-Switzerland for cash/asset pool diversification.
America's competitive edge has always derived most from it's ability to adjust to new global environments and even shape realestate101 the world around it. The economic problems we are currently facing stem largely from America not sufficiently adjusting in the post-Cold War era to the very globalization it created. We've of course been galvanized by terrorism, but really haven't felt threatened economically until the past few years.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.
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May/June 2013
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