The subtext of political debate these days is that the United States is in decline. The unemployment, still near 8 percent, remains at recession levels. The stalemate between the president and his Republican critics seems unending. However, those on Wall Street believe America isn't in decline.
By Robert Samuelson
January 28, 2013
Real Clear Markets
The American Century is dead. Long live the next American Century.
The subtext of political debate these days is that the United States is in decline - a proposition often portrayed as self-evident. The economy lacks dynamism; unemployment near 8 percent remains at recession levels. The president and his Republican critics barely talk to each other; stalemate seems unending. But what if America isn't in decline? A powerful rebuttal comes from an unlikely place: Wall Street.
In a report to clients, analysts at Goldman Sachs argue that the United States still has the world's strongest economy - and will have for years. There is a growing "awareness of the key economic, institutional, human capital and geopolitical advantages the U.S. enjoys over other economies," contend Goldman's analysts.
As proof, they deploy voluminous facts. For starters, the U.S. economy is still the world's largest by a long shot. Gross domestic product (GDP) is almost $16 trillion, "nearly double the second largest (China), 2.5 times the third largest (Japan)." Per capita GDP is about $50,000; although 10 other countries have higher figures, most of the countries are small - say, Luxembourg. The size of the U.S. market makes it an attractive investment location.
Next, natural resources. In a world ravenous for food and energy, the United States has plenty of both. Its arable land is five times China's and nearly twice Brazil's. The advances in "fracking" and horizontal drilling have opened vast natural gas and oil reserves that, until recently, seemed too expensive to develop. The International Energy Agency predicts that the United States will become the world's largest oil producer - albeit temporarily - by 2020.
In turn, the oil and gas boom bolsters employment. A study by IHS , a consulting firm, estimates that it has already created 1.7 million direct and indirect jobs. By 2020, there should be 1.3 million more, reckons IHS. Secure and inexpensive natural gas also encourages an expansion of U.S. manufacturing, Goldman argues. That's another plus.
Poorly skilled workers are often counted as a U.S. economic liability. Goldman's perspective is different. American workers will remain younger and more energetic than their rapidly aging rivals. By 2050, workers' median age in China and Japan will be about 50, a decade higher than in America. Moreover, the United States attracts motivated immigrants, including "highly educated talent." A Gallup survey of 151 countries found the United States was the top choice for those wanting to move, at 23 percent. At 7 percent, the United Kingdom was second.
Finally, Goldman expects the United States to remain the leader in innovation. America performs the largest amount of research and development (31 percent of the global total in 2012) and has more of the best universities (29 out of the top 50, according to one British ranking).
Up to a point, this is convincing. America's strengths have been underestimated. Compared with Europe and Japan - the world's other enclaves of affluence - our prospects are brighter. But the Goldman report, which advises investors where to put their money, is an incomplete guide to the future. It may explain why U.S. stocks have recovered to near pre-crisis records. But it's not how most people view national "decline."
If your neighbor's house burns down and only half of yours does, you are relatively better off than your neighbor - but you're worse off than you used to be. It's in that sense that America's prospects exceed Europe's and Japan's. But this advantage doesn't erase the huge economic losses suffered by millions of Americans. Most will reasonably conclude that their country is in decline. Demoralized, they will be less supportive of U.S. economic, political and military leadership abroad. This is how domestic disappointment translates into global retreat.
But "Is America in decline?" may be the wrong question. The truth is that most of the affluent world - again, the United States, Europe and Japan - faces similar threats.
First: Their welfare states are overwhelmed. Aging societies face a collision between promised benefits and acceptable taxes. Either the first must be cut, or the second must be raised. The politics are poisonous. As the Goldman report notes, how the United States handles its debt creates enormous uncertainty. The same is true elsewhere.
Second: Economic management is breaking down. Before the 2007-09 financial crisis, most economists thought they could avoid deep slumps and engineer acceptable recoveries. Confidence has given way to contentious disagreements. Policies are improvised.
Third: Global markets have run ahead of global politics. Countries depend increasingly on international trade and money flows. But globalized commerce is menaced by nationalistic, ethnic, religious and political differences among nations.
A second American Century, though possible, seems a stretch. The harder question is whether the affluent world can defeat these deeper and more persistent threats to political and economic stability.
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