A spate of articles and books in recent months (e.g., Fareed Zakaria’s The Post-American World) raise the question of whether America will remain the dominant economic power in the coming decades; no one really doubts that America will remain the dominant military power. I just returned from a two-week trip to China, which got me thinking about the subject since one can’t fail to be impressed by the rise of this Asian power.
I am ambivalent about the issue. On one hand, as an American I want my country to remain strong and prosperous; but I also am an internationalist, and want to see prosperity spread across the world. Fortunately, it need not be a zero-sum game. American greatness can coexist with rapid wealth generation in the emerging markets.
In fact, an argument can be made that American wealth is partially dependent on the rise of the developing world: our historic low interest rates and (until recently) extremely low inflation are due in part to the high savings rates and low labor costs in Asia and the Middle East.
The key looking forward is to realize that American dominance is not some force of nature that is destined to continue. It is instead the result of specific policies and characteristics of the American economy and society that must constantly be revisited, revised, and maintained. Mistakes have been made that have weakened America’s economic position, but these mistakes can be rectified.
Here are four missteps, coupled with new opportunities, to consider as we look towards a new administration and getting back on the right economic track:
1. Nowhere has the failure of leadership been more damaging than in the U.S. auto sector. Both Republican and Democratic administrations have coddled Detroit; a combination of corporate mismanagement and intransigent, short-sighted unions has blocked all efforts at meaningful fuel efficiency for decades. Free-market advocates are finally seeing some vindication, decades late, now that high gas prices and tumbling demand for SUVs is forcing Detroit to see what thinking people have known for decades: fuel-efficient cars are the wave of the future. It is too early to tell whether Detroit will be able to recover, but there are encouraging signs: GM is pursuing plug-in electric vehicles, and both Obama and McCain support a cap on carbon emissions (although McCain oddly seems to forget that he does).
2. One way America has become so affluent is by recruiting the best of the best from across the world. Skimming the cream from countries across the globe has helped the U.S. to the highest living standards for any country remotely comparable in size. However, since 9/11, the enactment of anti-immigrant policies has slowed the influx of engineers, computer scientists, biochemists, doctors, et al. While tighter immigration controls are no doubt warranted, America should be expanding visa applications for the best and the brightest. This is an area that doesn’t make headlines, but it should be watched carefully.
3. Green technology, nanotechnology, and biotechnology are likely to be the leading areas for rapid growth and breakout products that dramatically impact global society. The U.S. nanotechnology industry seems in good shape, but our biotech industry has suffered under the anti-science policies promulgated by the Bush Administration at the insistence of the religious right. Legitimate moral issues related to cloning need to be addressed, but blocking embryonic stem-cell research that has the potential to cure major illnesses is both unwise and unconscionable. The embryos used in the process are already slated for destruction; in fact, a consistent “pro-life” stance would oppose fertility clinics, a fact which the right never mentions. Both Obama and McCain support lifting the ban on federal funding for stem-cell research (but given McCain’s numerous reversals and pandering to the right, I am not confident he will maintain this position; we’ll see).
4. The final issue is more long-term: America’s debt. America is the world’s most heavily indebted nation, both the government and the people. This has been possible because the rest of the world has sought the safety of U.S.-backed treasuries, but it will not persist indefinitely (especially as other countries begin to consume more and the emerging markets become more attractive for investment). High levels of American debt will inevitably result in higher domestic interest rates and lower economic growth. Higher taxes are also likely, especially if the federal deficit continues to rise. Neither Obama’s nor McCain’s fiscal plans make tackling the debt a priority, but McCain’s plan is much worse overall; it would increase the deficit by an estimated $5.7 trillion over the next decade. Regardless of what the government does, individual Americans should get their fiscal houses in order: we need to pay down our debts and increase our saving rates.
In conclusion, predictions of America’s economic decline are probably premature. At the same time, continued American dominance is in no way preordained. It will take hard work and sound policies; as always, a little luck wouldn’t hurt either.