Wednesday, April 27, 2011

The End of Empire

Various observers, including myself, have been speculating for years on the resemblance of America in the 21st century to the Rome described by Gibbon in The Fall of the Roman Empire. Especially after George W. led the country into a useless and illegal war in Iraq, all of it on America’s already overdrawn credit card, and the madness emanating from the fundamentalist revival of recent years, the comparison has become all but inevitable, if always couched in the future tense. Now, however, the IMF has dropped what Brett Arends has called a “bombshell.” Its latest economic forecast of economic activity has predicted that “China’s economy will surpass that of America in real terms in 2016—just five years from now” (Brett Arends, “IMF Bombshell: Age of America Nears End,” Yahoo Finance, April 26, 2011, online). That’s five (5) years from now, folks. The figures are based on something called “purchasing power parities,” a figure Arends calls the true figure for comparison because it “compares what people earn and spend in real terms in their domestic economies.” As Arends explains the figures, by 2016, China’s economy is predicted to expand from $11.2 trillion this year to “$19 trillion in 2016.” The U.S economy will also rise, but at a slower rate: from “$15.2 trillion this year to $18.8 trillion” in 2016. America’s share of world output would thus shrink to 17.7% while China’s will rise to 18% and beyond. For a comparison, Arends startles us with this: 10 years ago the U.S. economy was three times the size of China’s.

Now there are lots of ramifications to this prediction, but one cited by Arends has great relevance to our current mess. He quotes Ralph Gomory, a professor at NYU’s Stern Business School, comparing China’s “state-guided capitalism,” with our “free” one:

What we have seen, he [Gomory] said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That's very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.” (Emphasis mine.)

I think that tells us a lot of what we need to know. Apparently, Chinese businessmen are not allowed to sell their own country down the river; quite the opposite, in fact. Chinese policy has emphasized “national expansion and power,” while the U.S. has allowed its corporate giants and speculating Wall Steeters to outsource the world’s premier production enterprise along with the American jobs that once went with it—enriching themselves, of course, via lower costs, but bankrupting the nation.

Again, the ramifications for what Arends calls a “paradigm shift” are massive, not just regarding who becomes the world’s military hegemon (we can hardly afford the wars we’re already stuck in, not to mention the 700 or so military bases we maintain), but especially with respect to the value of the dollar, because when it is replaced as the world’s reserve currency, no one can predict what will happen. It’s a fair bet, though, that it won’t be good—which is probably why gold has been shooting up in value recently.

For the average American, though, this is going to be strange. Most of us have had the “good” fortune to grow up in an America that essentially ruled the world. Its way of life and opportunities for average people were said to be the standard by which the world measured such things. Indeed, it was only a short time ago that the Bushies were prating on about our responsibilities, military and didactic, as the “only remaining Superpower.” To suddenly be living in a nation which has lost its mojo (the U.S. credit rating has already been downgraded by Standard & Poor’s) and has to ask or petition rather than command is going to feel like a brave new world, indeed. Oh there will still be cheerleaders and politicians who will insist it ain’t so, or who will blame it on the poor. But the odor of change is already blowin’ in the wind and it won’t be the kind Bob Dylan was singing about.

Lawrence DiStasi

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