Every now and again, it’s worthwhile touching base with reality – which, in the context of the global economy, means saying a few positive things about the United States. This is the case whether you think the global economy is going to recover over the next year or two, or suffer and even worse crash.
Let’s focus on the positive scenario. In this view, the main crisis is over and the world economy is gradually and rather shakily resuming a path of growth. This recovery is being and will continue to be led by emerging economies, variously labeled as ‘Chindia’ – a composite name for China and India and hence for East and South Asia – or as ‘BRIC’, which includes Brazil and Russia, as well as China and India. The central idea is that the developing/ emerging economies will take the lead, whilst the developed economies, ie North America and Western Europe, as well as Japan, will lag.
Given the demographic, social and economic dynamics at work in at least ‘BIC’ – I find it difficult to relate to a kleptocracy that is suffering demographic implosion and the economy of which is based entirely on raw materials (ie Russia), as a serious country, let alone an economic power – it is difficult to argue with this scenario. Indeed, it could hardly be any other way. However, it is still essential to avoid being dazzled by the rapid relative growth of what are still very small economies, when comparing these to the major economies – namely the US, the EU and Japan. True, China is set to pass Japan before long and, may eventually exceed Europe and America too. But that is a long-term assessment based on extrapolating growth rates from the recent past. Given their huge populations, China and India should become as big and bigger than the US, – but there are many pitfalls on the way to that happening.
More immediately relevant, they are currently marginal players on the world stage. That is not an insult – in economics, the margin is the most important place to be and, indeed, China is now the key player in terms of global growth. But that does not change the fact that it is punching above its weight – thanks to a massive government stimulus program that far exceeds anything applied in any developed country. The Chinese economy cannot, in the foreseeable future, drive the world economy except in very short-term bursts. Those who think it can will learn otherwise.
In other words, within the positive scenario for the global economy, the dynamic developing economies can run ahead, but not very far. They are constrained by the fact that the bulk of global demand still comes from the big developed economies – the US, EU and Japan. Of these, Japan is in dire straits, as its long-term demographic problems and ongoing fiscal irresponsibility have brought it to the edge of financial collapse. It is no exaggeration to say that Japan now poses by far the greatest threat to the global economy of any country – and this issue is receiving increasing attention in the West.
As for Europe, it is mired in its own demographic decline, as well as facing the accumulating damage wrought by the attempt to impose a monetary union on very diverse economies. For these and other reasons, Europe is doomed to be a laggard within a global economic recovery. So, it would appear, is the US, given its massive debt burdens and the need to restructure its economy from the excesses of the last decade or two.
But there are major differences between the US on the one hand, and Europe (including its various peripheral bits) on the other. These include the critical demographic divergence – the US population is growing and is expected to continue to do so, while that of Europe is declining. They include the even more critical cultural differences – in the US, the culture is entrepreneurial so that starting businesses, taking risks and an ensuing high failure rate are all regarded positively, rather than negatively. And they include the singular physical, geographic and geo-political advantages which have driven the US to global primacy and near-hegemony.
It is, of course, possible to totally undermine and ultimately destroy all these advantages. Many people, especially in the US itself, believe that this has already happened, or at least is happening in a process that is irreversible. They may be right. But then if they believe that any of the other major powers — both those on the down escalator (Europe and Japan) or apparently on the up escalator (China, India and Brazil) — can be unaffected, let alone actually benefit, from a socio-economic collapse in the US, they are spouting wishful thinking, detached from basic facts.
That’s why it’s unnecessary to examine the negative scenario: a global crash led by the US would wreak havoc on everyone else, whilst no other country or bloc has the resources and strength available to aid its recovery that the US possesses. Whichever way you look at it, the US remains the central player and will be so for many years to come.