Is US a `spent giant'? That reading of its problems is groundless
THERE'S a lot of talk these days about the United States being a spent economic force, a great military power weakened by debt and deficits. ``The United States has entered a period of economic and industrial decline that is likely to be permanent, much like the decline in British industrial supremacy that began around 1880,'' writes Michael Moffit in the fall issue of World Policy Journal. The New York investment adviser further contends that because of technological progress, things move much faster these days - ``so the pace of the decline is likely to accelerate to truly frightening proportions in the years ahead.''
That sort of claim, as economist Herbert Stein points out, is ``really groundless.''
During the 1960s and part of the '70s, most industrial countries, East and West, did grow faster than the United States. It was to a considerable degree a catch-up phase. It was normal and good that other peoples should approach the prosperity of Americans, even if the relative economic power (not the absolute economic might) of the US should decline as a result.
But over the past 11 years, notes Mr. Stein, who was chief economic adviser to President Nixon, the US economy has grown far faster than those of the Soviet Union and Eastern Europe, and decidedly faster than Western Europe's. Only Japan among the major industrial powers has grown at a more rapid pace than the US. And, despite all the fears of Japanese competitiveness, Japan with not half the population and few resources does not nearly match the US in total economic capacity.
``We are a very rich country, richer than we have ever been, and richer than other countries,'' says Stein.
Nor does Japan show much inclination to take on what have been American political and military responsibilities in the world.
Of course, the United States does have economic problems. It had a $148 billion budget deficit last year. But that deficit, as a proportion of total national output, has shrunk to a level that is not economically threatening.
The nation has easily the economic capability of closing the deficit with tax increases and spending cuts; American tax levels are the lowest among the industrial nations, except for Japan. The government only lacks the political will to do so, says Stein.
Even the international payments deficit need not be damaging. It means that the US total consumption of goods and services exceeds its national output by about 3 percent. Foreigners provide that extra amount of goods and services and finance it from their more abundant savings. Should they no longer want to finance their sale of those extra goods and services, the US will have to either cut back on those foreign items or substitute American goods and services. This will likely occur over a few years.
``That is not a disaster,'' says Stein.
The real decline of America would more likely arise from inadequate education, rampant drug abuse, or weakened morality than from its economic sins. From an economic standpoint, the US could tackle these social ills. It could pay teachers more, have them teach more hours per year. It could try harder to tackle poverty.
A recent Toronto Globe and Mail editorial notes: ``Americans may be slow to recognize some remarkable new challenges, but only a fool would count them out.''