Summary: How will this recession end? My guess: with re-balancing of the global economy and a decline of the US dollar so that the our goods and services are again competitive. No more trade deficit, we can pay our debts, and there will be no serious outflow of jobs.
There are several schools of economic thinking about the current down cycle of the US economy.
- The mainstream consensus of neo-Keynesian economics: this is just another business cycle, to be treated with the usual tools. To see this analysis, read today’s op-ed in the New York Times by Joseph E. Stiglitz.
- There are a few heretics, even some apostates. The first question if the standard remedies of fiscal and monetary policy, plus devaluing the currency, will work this time. The latter question the Keynesian paradigm itself. Does it adequately consider the effect of rising debt levels? Might the insights of Hyman Minsky show the limts to the operating boundaries of Keynesian theories? Perhaps we need a fusion of Keynesian and Austrian economics?
- The members of the small Austrian school of economists, vocal but powerless to affect public policy.
What if the heretics and apostates — perhaps even the Austrians — are right, and this cycle is different? Let us explore this scenario and see what it says about America’s geopolitical (esp. military) strength…
- The current economic downturn takes us beyond the envelope in which mainstream economic theory works.
- This marks the end of the post-WWII economic regime, during the last 25 years of which American public policy allowed massive growth of debt — to both foreign and domestic creditors — and deterioration of the competitiveness of US goods and services on world markets (i.e., decreased ability to pay our foreign debtors).
The key source of disharmony in the global economy is our foreign borrowing and weakening competitiveness. Either would be bad; having both is deadly.
- These US policies have resulted in great distortions in global flows of capital and trade. For example, a funneling of a large fraction of world savings to the US (we do not invest, but spend it), including the oddity of savers in the world’s poorest nations funding consumption by the world’s richest nation.
- The current economic slowdown marks the begging of the long-predicted “re-balancing” of the global economy, in which these oddities disappear and more normal patterns return.
- The global dominance of the US depends on massive borrowing at low interest rates from a small number of governments, most Asians and oil-exporters, with no thought as to how or when we will repay these loans.
The restoration of normal economic relations probably requires the value of the US dollar to decline far below levels seen since President Nixon took us off the gold standard in 1971 (sparking the great inflation of the 1970’s). The greatest adjustment might be vs. the Chinese currency (the RMB or yuan), devaluing the USD/RMB by 1/3 to 1/2 (expert estimates vary widely).
- That will make our exports of goods and services far more competitive, allowing us to earn the foreign currency needed to repay our creditors.
- That will make imports of raw materials (e.g., oil) and goods (e.g., toys and TV’s from China) far more expensive.
- The net result will be a greatly reduced US trade deficit, and less foreign borrowings. The “outsourcing” of jobs to emerging nations will slow, as our workers become relatively more attractive for employers. (Wages here would not crash to those of the 3rd world, as American workers and facilities are far more productive).
The UK went through a similar process starting after WWI and ending with the election of Margaret Thatcher as Prime Minister in 1979. This is the decline and fall of the British Empire. In 1900 their web of military bases encircled the globe. As they grew poorer and the value of the pound fell, these bases became too expensive — an unaffordable luxury. Since the locals were unwilling to pay for the police services provided by the UK, the bases closed and the troops went home.
Now it is our turn.
Geopolitical Implications
This adjustment in the US economy might have consequences other than reducing our ability to buy overseas bases and fund wars. The stress on the economy might force reallocation — or even reductions — in federal spending. Increased military spending — new generation of stealth aircraft and capital warships, a larger armies, permanent occupation of Iraq and Afghanistan, a “star wars” missile defense shield — might become a fantasy. We could afford to spend 14% of GDP on defense during the Korean War, when our industries dominated the global economy. We could almost afford to spend 10% on defense during the Vietnam War. By massive government borrowing President Reagan could spend 7% on defense. In the coming decade we might find spending 3% of GDP too much to bear.
The dreams of so many brilliant thinkers, from neocons like William Kristol to visionaries like Thomas Barnett, will become moot. However desirable or feasible, we will no longer have the money to fund them. They will find themselves trumped by the bleak forecasts of Paul Kennedy, author of Rise and Fall of the Great Powers (1987).
Conclusions
This does not mean the end of America. America will outlast its empire.
We were a benign hegemon, perhaps the greatest hegemon in world history. We gave much and asked little. After victory in war we asked for no reparations; our enemies became our friends. Our soldiers return from overseas duty with neither tribute nor loot. The international order we created after WWII, both economic and geopolitical, saw the fastest growth in global wealth and income since the invention of agriculture. Our dreams of global peace brought forth the United Nations. Our dreams of exploration landed men on the moon. We can look back in pride at our half-century of dominance.
Afterword
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For more information about this topic
To see all posts about the new era now being born:
- About America – how can we reform it?
- About the Financial crisis – what’s happening? how will this end?
- About the End of the post-WWII geopolitical regime
Posts with speculation about the future, about structural changes to America and the world:
Speculation about the future, about structural changes to America and the world
- Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
- Say good-bye to the old America. Welcome to our new socialist paradise!, 17 September 2008
- Another voice warning about the nationalization of AIG, 18 September 2008
- Another step away from our Constitutional system, with applause, 19 September 2008
- America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
- Legal experts discuss if the Paulson Plan is legal, 21 September 2008
- German Finance Minister Peer Steinbrück explains how the world is changing, 30 September 2008
- America has changed. Why do so many foreigners see this, but so few Americans?, 1 October 2008
- America is changing. Read some chillling words from a liberal economist, 2 October 2008
- Does this economic crisis make the State stronger – or is it another step in the decline of the state?, 16 January 2009
- This financial crisis is the transition to a new world; like birth, it is painful, 11 February 2009
- Everything written about the economic crisis overlooks its true nature, 24 February 2009
- A look at the new world – after the downturn, 19 March 2009
As higher prices for overseas bases force the United States to withdraw from overseas bases, it would make make a great deal of difference whether other countries, such as perhaps China or Russia, expand in response or whether there simply becomes a void.
One of the lessons of the so-called “War on Terror” is that Bush’s statement that the terrorists “Can run but they cannot hide” is precisely incorrect. They have demonstrated that they can indeed hide while we have demonstrated that we can substantially immobilize them. They can hide but cannot maneuver.
The situation is somewhat like that of a disease in remission.
So long as we can immobilize them, we can reduce them to background noise. But if economic costs force us to withdraw our bases, then we would no longer be able to immobilize them. Therefore, either somebody else, such as the Russians or the Chinese, must proceed to immobilize them, or they will once again be able to maneuverer.
Thus, potentially, the present situation differs from post WWI Great Britain, where the United States substantially stepped into its shoes. ( Notwithstanding problems with isolationism, rejection of the League of Nations, etc., which are too technical to interest us just now. )
dckinder — please explain. I see no connection between our 800+ bases and the “remission” of terrorist activity, or their “imobilization.”
When it was my turn to serve, i took the Dick Cheney route – i got job deferments. Since then, i have had the deepest admiration for anyone who puts on a uniform and puts his/her life on the line. I just finished reading an article on Atimes about how the military is lowering its standards to keep up recuitment levels, And more about troops coming home with psych problems. I have to agree with Gen. Smedley Butler, “War is a Racket”.
“dckinder — please explain. I see no connection between our 800+ bases and the “remission” of terrorist activity, or their “imobilization.””
Without bases, it would have been difficult to launch the operation against Afghanistan – or to maintain our presence there. Likewise, it would be difficult to respond to potential alternative hotspots in such locales as Somalia. Such hotspots would provide them with shelters where they could more effectively organize.
dckinder – a few thoughts on this.
First, a thought experiment. What if we closed most of our foreign bases, retaining only the major ports and airfields?
• We could invest some of the savings in a substantial increase in our long-range air- and sea-list capability – needed anyway.
• The small number of ops we conduct would be more expensive, but the long-term savings would be large.
• This would reduce tensions with some of our allies, as we tend to be poor tenants. The Philippine government had good reason to kick us out! Note the problems created by our bases in Okinawa and Saudi Arabia.
Second, how important were our bases in aiding the Northern Alliance to defeat the Taliban in Afghanistan? Would they have won if our support was limited to just training and support by our Special Operations Forces and money?
I suspect we often attribute success to force that in fact results from money – in both Afghanistan 2001 and the Sunni Arab regions of Iraq today. This might not boost our vanity, but buying victory is tried and effective method to wield geopolitical power. And it requires no foreign bases.
Fabius Maximus:
I will cogitate at some length on the points you have raised. I have no quick answer.
Quick answers! I am still trying to find the right questions…
Dear Sir
I believe it is obvious that the American Empire slowly, but certainly is about to come to an end. Personally I am a bit surprised by the fact: Great Britain lost its empire after two world wars. It only took a cold war and a war against terror to achieve the same thing for the USA. I know the cost of a Tomahawk or an aircraft carrier, but honestly it is difficult to compare Al Qaeda with the Wehrmacht. Surely it will take some more years to see the writing on the wall (as always – don’t waste your time on what pundits in TV are telling you. They are a part of the group-thinking in Washington), but when it comes they will be two major questions: How will the Americans react when they see what is going on and what will the effect be on the world?
I am not sure about the American reaction, but I am afraid that a new president in the United States somehow will try to use the only tool he or she will have left after the economy has gone down the tubes: The military. War with Iran? War with China? War with Russia? Take your bet! At least the Soviet Union had the decency of collapsing without firing a shot. I hope Americans will do the same, but the Iraq war tells a different story and that leaves me pessimistic.
Regarding the next question it is far more obvious: The empire of the United States will leave a vacuum, that will be filled by other players, like Iran, China, Russia and even non-governmental groups like Al Qaeda or Cosa Nostra. Perhaps also new city states like Singapore (my country Denmark has 5 million people – Tokyo alone has 35 million inhabitants if I am correct!). It will be a much more chaotic world than we see today and perhaps also more violent.
Yours sincerely, Robert
For reasons I can’t fully explain, my intuition tells me the following is highly relevant: “As Gazans pour across, a region alters” (LA Times, 24 January 2008)
It long has been my conjecture that the solution (or denouement, as the case may be) of the Israeli -Palestinian conflict will be neither a one state or a two state but rather a no state solution. See also, the Kenyan debacle as well as, of course, the illegal immigrant debate in the US.
Direct relevance to this thread. Debtor countries such as the US cannot run around effecting sanctions on other countries.
Deeper relevance, the “framework” with which we are approaching issues is literally breaking down.
Conversely, it is quite possible that a new order is asserting itself, that we are witnessing a metamorphosis rather than a collapse. I am suggesting nothing concerning the merit or lack thereof of the developments I describe.
Very high level of comment on this site. Congratulations Fabius for attracting a genuine audience. Robert above worries that the US eventually turn to the military when its economic dominance fails. Isnt it the case that we already have?
The general worry here that we cannot continue spending beyond our means, and that particularly we wont be able to afford overseas military bases anymore, seems rather old-fashioned to me. Current wisdom seems to be that China, Japan and the other creditor nations are simply paying us to be global policemen, while they busy themselves replacing us as principal global capitalists. The US has become something like Trent Dilfer for the San Francisco 49ers — an aged back-up quarterback kept on the roster at a minimum salary in case of emergencies.
How long will the American people put up with the humiliating experience of watching our beautiful towns overrun by foreign tourists while we ourselves can’t afford to go anywhere? If the next election pits Hillary against McCain, as pundits now predict, that suggests the American people will continue to do whatever their “leaders” tell them to.
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Fabius Maximus replies: “How long will the American people put up with the humiliating experience of watching our beautiful towns overrun by foreign tourists while we ourselves can’t afford to go anywhere?”
A long time, I suspect. The US dollar must depreciate in value so that our goods and services are again competitive on world markets, and so that the outflow of jobs slows. This is just life. There were other options, but they are long lost.
If the current wisdom is that “our creditors are paying us to be global policeman”, then the CW is wrong. Nobody is paying us (the first Gulf War was extraordinary in that respect). Our creditors are *loaning* us money, which they expect to get back.
Also, I would like to see evidence that there is any quid pro quo between, for example, between China and the US, about our role as global cop. More likely they consider us either rival powers or fools (for running an Empire from which we get little benefit). Or both.
As for foreign tourists visiting here, get used to it. We need the foreign currency. Most likely the US Dollar must fall far more, esp. vs. Asian and oil-exporter currencies, as a result of past actions. Not much we can do now to prevent it, no matter who wins the election. The task is to manage the decline and plan for the next innings. In the game of history there are almost always more innings.
Here is an interesting article that discusses many of the same dynamics as this series of posts: “Waving Goodbye to Hegemony“, by Parag Khanna of The New America Foundation, in the New York Times magazine (27 January 2008).
It’s an interesting speculative exercies to imagine what lies beyond the post-WWII economic and geopolitical regime. However, do Parag Khanna and his readers recognize that this vision rests on a tower of assumptions?
Hat tip to Zenpundit!
The overall point is good but just a pick: ” neo-Keynesian economics”. Keynes would have been horrified at the current situation, and would have been fighting with everything he had to avoid it (and would have sued anyone who linked his name with this shamefull debacle).
Remember, it was Keynes blueprint that created the greatest wave of (real) prosperity the world has ever seen post WW2. It was complex and a large part of it was designed to prevent jst these huge imbalances and speculative ‘capital’ flows that have created this new 1929. Keynes has been too simplistically characterised as just “Govt spend more money”. Nonesense, he was well aware (wrote several papers on it) about the dangers of inflation, both asset and goods and the need for good management, regulation and controls to avoid it.
Quite correctly he identified that an asset boom is just as dangerous to an economy as a wage boom. Trouble is that Anglo Saxon Govt’s everywhere now try to avoid wage booms (for Joe Soap that is, CEOs are ok) by union smashing, wage arbitrage, etc, but love asset booms (which surprise, surprise benefit a small rich minority). Both destroy economies.
Asset booms eventually flow into general prices anyway, so most Govt’s have responded by fiddling their inflation numbers (Google real inflation). They also fiddle their unemployment numbers as well …. but that, as they say, is another story.
As the great Mogambo Guro says “better hold onto a soup spoon and a cup, as they don’t supply them at the soup kitchens”.
Another way to look at it is that we have had socialism for the rich and powerful (people and organisations) for the last 30 years and FU capitalism for the rest of us (and people wonder why I have become a conservative libertarian now).
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Fabius Maximus replies: Since I cannot talk with the dead, I do not know Keynes’ view of our situation. However, our situation is IMO a direct result of his theories — both for good and for ill.
The overall level of debt in an economy is not a significant variable in Keynesian economics (in any varient). Since unspecified, it has grown until reaching levels at which it becomes a primary factor.
In this sense the crisis of our economy is a Thomas Kuhn-like paradiigm crisis. But this is not like astronomy. Economics is a science of major importance in the operation of America, and theoretical problems in economics have large real-world effects.
Why is this a pick? Economists call their theory “neo-Keynesian”, so that is its name.
The primary reason I suspect we are at the end of the “Keynesian” goes directly back to Keynes. His theory did not consider the aggreagate level of debt as a key factor. While increasing debt is not inevitable in a system run according to his theories — debt incurred during recessions could be paid down during booms — it is a missing variable, with little attention on its adverse effects. So paying down debt is painful even in booms, and Keynes gives no reason to do so, we have not done so. And here we are.
The steady socialization of risk has benefited the middle class as well as the rich — such as insuring houses built in areas prone to floods and hurricanes — but, of course, to the rich much more. That’s how our government has always worked. Just more so now that is has grown so large.
I have never won a debate with Fabius yet, so probably I should back off of my global policeman thesis. However, we have certainly played that role for the western European countries and Japan, and we have provided a different kind of umbrella under which China has grown. As another CW has it, they all still need us as consumers of last resort.
A more important point may be that national sovereignty is less and less important in the global economy. Global finance and capital are now making the major wealth-creating decisions, under the legal umbrella of institutions like GATT, while the state now performs mainly taxing and policing activities.
This is not to deny the major theme of this thread that the US, and necessarily Europe too (since they are even more the product of the Keynesian regime) are in for a major shock.
Plato’s Cave —
I. I agree that we have acted as the global cop. Our disagreement was..
1. Have we been paid for this role? I said no, with a few exceptions (i.e., Gulf War I).
2. Do the governments and peoples of the other major powers believe our global policing benefits them, overall? It is difficult to say, but I guess that the answer is “mixed” — at best. We could quickly learn the value they place on our police services: just ask them to pay. I suspect we all know what the answer would be.
Unless, of course, we reconfigured our Armed Forces as mercenaries. If they governed our forces, they might it worth paying for some fraction of their upkeep (probably not 100%, even then).
II. As for national sovereignty being less important… During the global expansion the amity of nations reigns, and global mechanisms like GATT run smoothly. But things might change during a long global downturn. As Ambrose Bierce said, friendship is a boat that holds two in fair weather — but only one in foul.
How many sharp political minds, like Fabius, could quote Ambrose Bierce? The quid pro quo between the US and nations like France, Germany and England is mutual agreement about the western world order. Their payment to us for guarding its borders is to allow us to continue to have the larger share. That allowance includes not opposing too rigidly foolish adventures like our invasion of Iraq, which, had it succeeded, might have diminished their share. If ancient Rome is not the exact metaphor for this partnership of un-equals, or “the willing”, then the Italian crime families might be.
Which is simply another way of stating your original thesis, that all empires fail eventually.
Well put. Still, I thing we would rather have them support us with cash than “allowing us to have the larger share”!
As the articles quoted in the “Defense Death Spiral” post show, this game is ending as it collapses due to mismanagement (on many levels) and the costs of Empire (with no offsetting revenue).
Michael Klare’s article on the role of oil in the US economic collapse (on Asia Times, among other places) is interesting in this context. Your original comment here focuses on our dwindling cash flow; Klare’s focuses on our dwindling capital assets. He mentions that SWFs (sovereign wealth funds — mainly oil producing nations) over the last ten years have accumulated around three trillion of US assets. Finally, our ability to buy or borrow (cash flow) depends on our capital assets. Like the sub-prime borrowers, we are starting to be foreclosed.
Single-factor explanations of national-level processes — like Klare’s “it is all about oil” — are the sugar doughnuts of the analytical world. Appealing, fun to eat, but empty calories. They work by exaggeration, ignoring contrary evidence, and gross over-simplification.
There are many things — long-term and historical (i.e., will be mentioned in 22nd century history texts about us) trends that combine to produce our present situation. I doubt that oil is even in the top five factors. Perhaps not even in the top ten.
Note oil prices have not risen vs. other industrial commodities over the past few years, or vs. commodities in general over the past year. For more on this see More answers about Peak Oil! (or just better phrased questions).
When global oil production peaks — today or 2020 — THAT will make oil one of the major factors affecting the global economy.
You’ve read a few of the things I’ve written about economics and commented nicely, but in the realm of economics I admit I am less than an expert. What I would like to know is how similar the United States situation is to the relative situation of the United Kingdom circa 1900. What was the economic, social, and geo-political relationships and what patterns from that time period might we discern to evaluate the relative nature to today? Is there some economic standard rolling pattern that can be adapted to allow us to prolong, sustain, ignore, or repudiate the economic recessionary evidence?
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Fabius Maximus replies: Great questions. Here are a few thoughts on this.
First, the easy comparison is to post-WWI UK. Weakened, unable to bear its “given” or assumed role, currency grossly overvalued, too intellectually rigid to adapt.
Second, the pre-WWI era has so little structurally in common with ours. Our societies are far more “mobilized” — far more government control of society and economy. Comparisons are difficult, perhaps not useful.
From here, the core issue seems to be that technology has accelerated the pace of change beyond the ability of the human nervous system to adapt. Consider that according to Glubb, the lifecycle of a hegemon was about two centuries. However, the change in the cost and power of weapons systems, and the rapid diffusion of change through technology, may have increased the speed of that lifecycle fourfold, if American hegemony only lasted fifty years.
The immense amount of resources squandered on weaponry prior, during, and since WWII, and as a more trivial example on light trucks and sports utility vehicles to transport a single individual to a sedentary job on a daily basis, seem to have been major factors.
Consider that whereas today we have space-based weapons, nuclear aircraft carriers, thousands of MIRVed missles, millions of cars… and that when this nation was founded, the peak technologies for war and transportation were the horsecollar, the sailing ship, the cannon, all crafted by hand. The vocabulary and concepts and behaviors of our essentially unchanged Cro-Magnon bodies and minds are not adequate to cope with all of this, and its feedback-loop high-speed interconnectedness. Earlier in this thread dckinder stated the alternatives clearly: “it is quite possible that a new order is asserting itself, that we are witnessing a metamorphosis rather than a collapse.” Which it is to be remains to be seen, but it is clear that neither the cliches of left nor right will be a part of it. Unfortunately, complexity intellectually leads to stress on the nervous system, and oversimplification, however invalid, leads to relaxation, and the latter feels better than the former. We have met the enemy and he is us, as Pogo stated long ago.
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Fabius Maximus replies: “From here, the core issue seems to be that technology has accelerated the pace of change beyond the ability of the human nervous system to adapt.”
Quite flattering to us, but is it true?
Consider those born in the ante-bellus US who died in the early 20th century. Like Bat Masterson, born 1853 — gunfighter and lawman in the wild west — died 1921 as a sports writer for the NY Daily Telegraph. Have we seen changes anything like these people did?
selil – I’d recommend that you check out George Orwell’s essays from between WWI and WWII. If you dig into some of his more obscure work, you will be able to see the local level socioeconomic similarities between Imperial British culture and Imperial American culture. Public apathy while the middle class erodes away, leader worship, willful ignorance of the state of military affairs abroad; all while expanding the military meddling abroad.
It doesn’t really explain geo-political relationships, but it does give a good view of Britain’s editorial pages from the mid ‘thirties to late ‘forties (Orwell was a journalist and self-described democratic-socialist pamphleteer as well as a novelist).
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Fabius Maximus replies: I strongly second this motion. As a fun and insightful place to start, I recommend “Shooting an Elephant“, New Writing, Autumn 1936. Then wander around that site; you will profit greatly from it.
Fabius’ comments on the current economic situation are always sharp, and more obvious now than when first written in January. However his rosy view of America’s fifty years as global hegemon (the inspiring “vision” of travelling to the moon, etc) shifts the analysis from economic factors to ones of “character” and national values. We got to this point, not because of a weakening of American character, but because of specific needs and demands of large financial and productive powers, translated into public policy by an obediant state and sold to its citizens through a broad cultural melange of advertising, propaganda and ideology.
We can’t understand how to correct our economic ship, or even predict how it will end up, without understanding the actors and agents who have captured and driven it to this point. As a first step, we have to admit that unregulated (yet state-supported) free-market private enterprise has neither solved our economic needs nor our social and human ones.
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Fabius Maximus replies: As in so many comments about these things, I agree with Bob about the specfics — but not the deeper causes. Money is not everything, or even the most important thing. Our powerlessness results from a missing link … in our minds.
Just to mention two aspects of this problem … The will to power is a part of the human soul omited from our view for methodological reasons, but refused to go away. As has the need for a ground or foundation for our “values” or “beliefs.” Without these we become motes, easily blown aside by those with stronger beliefs.
200 years ago Tocqueville saw this problem clearly. From Allan Bloom’s The Closing of the American Mind” (p 255):
In democracy, the freest of societies, men turn out to be more willing to accept doctrines that tell them that they are determined, that is not free. No one by himself seems to be able, or have the right, to control events, which appear to be moved by impersonal forces. … In a democracy where men already think they are weak, they are too open to theories that each that they are weak, which, by making individuals think that controlling action is impossible, have the effect of wakening them further.”
A new wrinkle:
High fuel costs mean high transportation costs which, in turn, discourage outsourcing.
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”
fabius-
Your key idea to make our way out of economic disaster is to inflate the currency, with well-understood effects.
Is there another option? How about work our way out of debt the old fashioned way? I understand that this would require a massive shift in how money flows in the world, and this would require a massive effort to get Americans care about their high levels of debt. However, I think that the outcomes could be more positive than a slow death of American power.
Also, is protectionism an option?
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Fabius Maximus replies: “Your key idea to make our way out of economic disaster is to inflate the currency.” Not so. I said that our currency must devalue vs. those of our trading partners. That is an “inflationary” event, but need not cause “inflation.” We might avoid inflation if the process is managed well — or if offset by domestic factors such as widespread loan defaults.
As for alternatives, working off the debt by exports of goods and services is difficult (almost impossible) with an overvalued currency. Our trade figures and the outflow of jobs show this process at work.
Protectionism is an option. More than that, it might be a popular option if we have a long downturn. I have notes for an article on this which I might complete sometime. Protectionism on a scale able to help us would probably IMO initiate (or accellerate) the end of the post-WWII geopolitical regime — and the end of US hegemony.
Fabius, good point, it is probably accurate to note that the new pace of change began in Bat Masterson’s time, and was most likely very disconcerting in ways for his generation. It’s also pertinent that in his lifetime there were three wars that have had serious consequences we are still dealing with… the errors of post-Civil-War reconstruction and our ongoing racial and economic class problems, the imperial overreach of the Spanish-American War which ended up with us having a Guantanamo at which to lose our collective soul… and of course World War One which has left us with such wonderful conditions in the Balkans and the Middle East.
The overall problem for us being that in addition to these and related changes in our way of life, in a time frame where certainly Masterson’s grandchildren or great-grandchildren could be alive, we have added airpower and mechanized warfare, atomic and biological and chemical weaponry, instantaneous (practically) transmission of information, relative easy worldwide travel, propaganda capabilities previously undreamt of, and a population and industrial expansion that in and of itself forms a fourth way that the entire planet could be depopulated (above and beyond the WMD triad).
So we have to cope with the results of all the changes in Masterson’s lifetime, plus those of nearly a century of the technology being used to accelerate the changes it has caused… with, essentially the same physical and mental ‘operating system’ of the agrarian times in which he was born. Seems like what the Brits would call a ‘rum go’ no matter how the comparison stacks up;-).
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Fabius Maximus replies: An alternative perspective is that Bat Masterson’s time saw rapid change, which has slowed down since then. Consider your list: how much has changed since WWII?
* Transportation systems have improved, but not like the change from walking and horses to engines (train and cars).
* Medical care has improved, but nothing like the massive effects of basic public health systems (e.g., clean water) and vaccines.
* Warfare has changed only slightly since WWII, nothing like that from pre-Civil War era (e.g., Napoleonic Wars) to WWI.
I wrote about this briefly in “Let us light a candle while we walk, lest we fear what lies ahead.”
“Medical care has improved {since WWII}, but nothing like the massive effects of basic public health systems (e.g., clean water) and vaccines.”
Oh yes, in the very field of medicine there was such an improvement since WWII, with comparably massive effects. Antibiotics.
Of course, the very first such substance (arsphenamine, limited against syphilis) became available in 1910, but the first large-spectrum product of the class, sulfonamide, was produced shortly before WWII, in 1935. Applications of penicillin were developed during WWII, and the whole menagerie of antiobiotics afterwards.
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Fabius Maximus replies: I do not understand your point. Antibiotics, as you note, date from either before or during WWII — not “since WWII.” Suflonamide, which you mention. Penicillin was discovered in 1928, with mass production during WWII (we produced 2.3 million doses for the invasion of Normandy).
Ok, if “since WWII” = “after WWII”, then you have a point. Nevertheless, note that the vast majority of antibiotics classes were developed and applied (especially for civilian use) after WWII. Thus the revolutionary full-scale impact of antibiotics on mortality and life spans took place after WWII — just like the full-scale impact of vaccination occurred after Pasteur produced his vaccines industrially, though empirical inoculations against smallpox were performed since the late 18th century.
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Lifespan can mean different things, often it means the (deceptive) average age at death. For most of human history infant mortality was the most important factor in life expectancy,the average man who reached adulthood had got passed the most dangerous time of life. Public health systems were by far the biggest factor in reducing infant mortality and thus increasing life spans ever (apart from the lower classes geting enough to eat of course).
FM editorial note: The comment policy — appearing at the end of every post and on the Comment Policy Page — says “make them brief (250 words max)”. This was 580 words (the lenght of a post), and has been truncated at 310 words.}
America is more than a financial system. It is an ideal, and in years past was called the “noble experiment”. Why? Up the 21st century, ours has been the only political infrastructure that allowed the individual to realize his or her individual talents (and bring them to fruition) so easily. We are not a nation of geniuses – rather, we are (perhaps, were) capable of bringing whatever genius that lies in each and every one of us (that had drive and some ambition) to fruition, efficiently and, for the most part, productively.
Over the last 20 years or so (my timeframe is not exact, and you could arguably expand or contract it based upon the inclusion or deletion of various criteria) we have lost some of that efficiency, much of that productiveness, and quite a bit of that individual drive and ambition.
The “WHY” of that sea change would fill up more than one blog, indeed some of it can be found on these very pages. What is more important is that it IS.
Can we get it back? We still have much of the political framework in place that allowed it initially flourish. However, we have lost much of the social framework, especially that part that engenders both drive and ambition, and to a lessor extent, the part that engenders the efficiency and productive models as well. Again, the “WHY” of that would fill volumes, it perhaps more instructive to focus on the “WHAT” of it. As it, what, if anything, can we do about it as a nation, and as an individual.
I believe that two areas that can be easily affected that can show the most improvement over the shortest time would be increasing both the quantity and the quality of our country’s education, and increasing the awareness of personal responsibility within our nation. {snip}
Why not starting a real demanding energy efficiency and “green” energy program for the USA?
Implement domestic projects that will reduce your imports, create jobs in the USA and replace spendings to crude oil exporting contries with spendings to companies within the US.
The capita primary energy consuption of the USA is so incredibly high, that there must be a huge saving potential, when we use the other developed countries as reference.
Such a program is not as “sexy” as current attempts to solve the problem by securing the oil supply, however an 2-3% annual reduction of primiry energy consumption will convert one strategic weakness of the USA in a strength within a few decades.
The USA has many advantages like huge domestic market, many oppurtunities to use alternative energy, currently a low energy efficiency, which allows at the beginnnig high yields for low invest, very good universities, and an educated workforce etc.