Over the past two or three years a lot of ink has been spilled to explain that this the 21st century will be the Asian Century. Yet, in a Washington Post article last Sunday, Council on Foreign Relations President Richard Haass makes the argument that it's really going to be the second American Century.
I think Haass is on to something. In fact, I wrote a similar article entitled "American Renewal" that ran last week in the Australia's American Review magazine. Haass and I recognize that at first glance this may seem a bit of a bizarre notion in view of U.S. retreat from Iraq and Afghanistan, the crumbling U.S. infrastructure, the relative decline of American schools, America's mounting debt, and its low economic growth. Nevertheless, as Haass notes, we are probably already in the second decade of the next American Century.
For example, despite all the hoopla over the rise of China and India, the United States has by far the world's largest economy. At nominal exchange rates, it is twice as large as China's and although China will continue to grow, it will do so at a somewhat slower rate while the U.S. economy is likely to resume growing at a somewhat higher rate, meaning that the U.S. will remain the world's largest economy for a very long time and perhaps forever. Haass rightly, in my view, does this comparison at nominal exchange rates. If one uses purchasing power parity (ppp) exchange rates, China's economy is about three fourths the size of the U.S. economy and is forecast by the IMF and other analysts to surpass the U.S. economy in the next five to eight years. Even that may not happen, especially if adjustments are made for the environmental degradation, excess investment and capacity, and non-performing loans of the Chinese economy. But regardless of this, in terms of international buying and power, it is the nominal exchange rate, not the ppp rate, that counts.
The United States clearly has the world's most powerful armed forces and in any case there is no power in a position to challenge the United States. With all its problems, America looks pretty good when compared to the European countries of the EU now suffering economic stagnation, financial uncertainty, unemployment rates over 25 percent in some cases, and aging and shrinking populations. Nor is Japan with its rapidly aging and also shrinking population, its 200 percent of GDP national debt, and its two decades of deflation an attractive picture. Russia is Russia, potentially rich but hobbled by corruption and inept government and with a mostly commodities based economy. It is not a challenger for global influence to the United States. As Haass says, the other great powers are not great.
In addition, the United States is blessed with a growing and relatively younger population and it has just had a huge bonanza in the form of the development of huge reserves of inexpensive shale gas and oil. This means that America has become the most competitive location from which to produce a wide variety of goods and also that America has essentially become energy independent. Moreover, the combination of continued population growth and renewed productive capacity means America has the potential for renewed growth at a much higher rate.
So, that's the good news and the reasons why this century may well be the next American Century. Yet, there is a critical question. Will Americans benefit from this American Century. Or, would they be better off if the century were, in fact, to be the Asian or BRIC or Emerging Markets Century?
Despite America's many strengths and advantages, the average American citizen is not doing very well and doesn't feel very good about his or her future. According to a recent Allstate/National Journal poll, 59 percent of Americans fear falling out of the middle class. The statistics validate this fear. Over the past decade, the incomes of people in the bottom 93 percent of the income distribution have experienced stagnant or falling incomes. Only those in the top 7 percent have seen their incomes rise and really the only ones who have gotten big increases are those in the top 3 percent of the income distribution. Meanwhile, the deterioration of the infrastructure and of public services along with the evaporation of pensions and the rising costs of medical care have meant rising costs for all those whose incomes are falling or stagnating.
So while the average Chinese or Indian or Indonesian or Mexican has seen his/her living standard rise, the average American is watching his/her's fall. If that continues, what's the point of having an American Century. Maybe we should let the Asians have it.
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