Decline Of The U.S.?
By Steve GillmanFuturists suggest that we can know something about what will happen by looking at trends that are in place and have reason to stay in place. Saying when something will happen is difficult, but certainly anyone who watched the trend in ever riskier loans and constantly increasing debt could have safely predicted that at some point we would have serious financial trouble in the United States. Many people did predict it.
Look closely at the trends in China and India, and you can see that days of the United States being the preeminent economic and military power in the world are limited. In my lifetime I expect to see the U.S. as the number three power. This is almost inevitable, but surprisingly not such a bad thing.I have recently seen some interesting statistics related to this, and read some analysis that is hard to argue with.
First, consider Per Capita Gross Domestic Product (GDP). That’s the amount produced in a country per person. In the United States it averages almost $46,000. In China it is $5,400 and in India $2,600. Then look at the populations of these countries: U.S.: 300 million; China 1.33 billion,; India 1.1 billion. Now let’s focus on China and do some simple math.
Suppose China becomes just half as productive as the U.S. A Per Capita GDP of $23,000 times a population of 1.33 billion people equals an economy of 30.6 trillion dollars, more than double the size of the United States economy (13.8 trillion). The situation is similar for India, and both countries are projected to have such gains in the coming decades. They already have much higher annual rates of growth than the United States.
Now, you might wonder why the U.S. can’t just start growing faster, or why they are likely to increase their productivity more than the U.S. The explanation is once again very simple. They are starting from a lower base, and therefore are more able to grow faster.
Millions of Chinese farmers don’t yet have tractors, but they’re buying them. As they do, productivity can triple in one year. Is there anything a U.S farmer can do to similarly triple productivity so quickly? Not likely. All the tools of productivity are already being used here, but not there, so of course they can grow more quickly. You don’t need to be an economist to understand this.
And they don’t need to come anywhere near our productivity to become a larger economy. Population matters too. When the United States reaches the point where it’s only four times as productive as China, they will the larger economy overall. Money, of course, means power, and the balance of power will clearly shift not only economically, but militarily.
Some might fear that and hope to stop it, but it’s a losing battle. The British Empire went through the same thing, trying vainly to maintain its power as the economies of the United States and others passed theirs and caused a shift. In the end, they are the fifth largest economy and falling.
Now for the good news. The best times for the people of Great Britain came after the fall of the empire. Individual incomes and quality of life climbed dramatically. The average British citizen today has a much richer life than those alive at the height of the Empire’s power. There are two reasons for this:
1. There are costs to maintaining military superiority, and those costs are a direct drag on the prospects for individual prosperity.
2. The rising of economies around the world meant new markets. A rising sea truly does lift all boats (we should add to this metaphor “at least those that can float”).
Conclusion? Those of us who live in the United States don’t necessarily lose anything important from the coming shifts in power. That is, unless our fear of those changes causes us to make expensive and dangerous policies which try to prevent the inevitable.
Some other interesting facts I dug up:
The Canton Fair, sometimes called The China Import & Export Fair, has been held in China in the spring and fall since 1957. It’s the biggest business fair in the world, it’s going on now (late October), and business is booming. There are 53,000 exhibitors, and buyers from 200 countries. Tens of billions of dollars of contracts were signed at the spring fair. Apparently even though exports to the U.S. and Europe are slowing, exports to its Asian countries, Russia, Latin American, Africa, and the Middle East are growing fast.
United States total household debt as a percentage of GDP: Over 100%.
China’s total household debt as a percentage of GDP: 13%.
We may be in trouble for a while with debt levels like this.
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Tags: China, decline of U.S., economy, Great Britain, India
October 26th, 2008 at 1:51 pm
According to Nobel Peace Prize winner Francisco De Soto, real wealth can be summed up in the land property underneath one’s feet. So far, the U.S. has the market cornered in red-tape free business and home ownership, even though some homes are failing. There’s still a lot of equity in the U.S. which drives fiscal and global effects.
October 26th, 2008 at 5:54 pm
That is one of the real source of wealth in the U.S., particularly because it is so easy here to tap into that equity. Of course, there is a lot of land in China and India, so as soon as they get there property law and other legal frameworks in place they will certainly surpass us, just by virtue of the numbers of people that will be producing goods and services. On paper the value of land can look good, but what is it worth until it is actually used for something?