November 28, 2015

Are we in the midst of the rise of China and the decline of America? [graphs]

These may not be the best of times, but they are not yet the worst of times, either.

That may still be yet to come.

From “Grand Strategies” by Charles Hill:

The first principle of grand strategy is that one must understand what is going on in the world. The question “What’s happening?” is more than a cheerful greeting. Policies and decisions will from such an assessment, and confrontations may emerge from differing views about what is taking place and why. Yet those who are living through great historical events can rarely even glimpse the significance of what is going on all around them.

And what, you ask, are the “great historical events” that we are living through? Indeed, isn’t that the point of asking “what’s happening?”

That’s a great question. I’m not sure the answer. But I did see some graphs the other day that have started me to wonder.  and

For example:

We're facing a dearth of investment at the very time when our country needs it.

Quoted in The Atlantic, Michael Mandel, chief economist of the Progressive Policy Institute, says that

This recession is marked by a massive investment drought in the U.S., which will have long-term negative consequences. The proof: In the latest quarter, net domestic investment was only 3.3% of net national product, compared to 8.0%  in 2007. There’s been a rebound in investment since 2009, but it’s been very  mild–far less than the country needs.


Here’s another disturbing graph:


The accompanying quote is from Treasury Assistant Secretary for Economic Policy Dr. Jan Eberly:

The economy suffered a severe shock during the recession, with the result that economic activity, represented by the blue line, contracted sharply. Since then, GDP has recovered at a steady pace and now stands above its pre-recession level. However, GDP growth has merely kept pace with its trend (or potential) rate, the red line, which is a function of population growth, changes in labor supply, and productivity growth.  As a result, the gap between what our economy is producing and what it could produce if it were operating at the level implied by the trend has not closed much. The green bars show this unused capacity to have equaled 7.4% – or more than $1 trillion – of potential output in Q3 2011. This unused capacity represents workers who cannot find jobs, idle machinery, and foregone opportunities for growth; in this challenging economy, this chart underscores why we must continue to focus attention on investments in the economic recovery and long-run growth.

In other words, our county is not operating at capacity, not by a large margin.

But wait! There’s more! Our national debt is beyond levels that have crippled other countries.  Check this:

Explains Emily Goff, Research Assistant, Thomas A. Roe Institute for Economic Policy Studies, Heritage Foundation, that federal spending it killing us slowly by comparing our projected debt to other countries’ current debt.

Greece, Italy, Spain and other countries are suffering from a financial and economic crisis – fueled by unmanageable debt and monetary policy failure – that will surely affect the U.S. economy. As this graph shows, debt held by the public in the U.S. totals about 70 percent of the economy. For the U.S. to avoid going down the same path as Europe, Washington must curb federal spending.

The scary part about the spending is that it has nothing to do with the usual boogeyman of pork projects and earmarks. It’s nearly a problem of entitlements, a class of federal spending that is locked in year after year.

It’s benefits that we’ve awarded ourselves without a real way to pay for them. Says Patrick Louis Knudsen, Grover M. Hermann Senior Fellow in Federal Budgetary Affairs, Thomas A. Roe Institute for Economic Policy Studies, as he explains:

Since the adoption of President Johnson’s Great Society programs, spending on entitlement programs has grown more than five times faster than annually appropriated discretionary spending. The entitlements run on autopilot, with rare congressional oversight. This unsustainable rate of spending threatens to overwhelm the budget and smother the economy.

That’s just stupid. No company or family adds to their costs without checking afford to pay. If they don’t, it’s called bankruptcy. (One Congressional exception to this “rare congressional oversight, if I might add, is Congressman Chaffetz‘ plan to reform social security. Check it out here).

But the CBO said that Obamacare would be affordable…right? Wrong-o.

As this graph shows, under average historical levels of revenue, Medicare, Medicaid, and Social Security will consume all tax revenues by 2049. We must reform these entitlement programs now to make them fiscally sustainable and to ensure that seniors are protected from poverty, without burying younger generations under insurmountable levels of debt.” —

That’s Romina Boccia, Research Coordinator, Thomas A. Roe Institute for Economic Policy Studies.

Check out a plethora of other graphs at The Atlantic. They include looks at taxes, oil and gas subsidies, green investment, income disparity, and so on, including, very interestingly, that the wealthy pay almost all federal tax revenues.

The post  at The Atlantic “charts” out a lot of problems that all seem to return to complex issues our country has been debating for well over a century (or at least since Theodore Roosevelt took on Wall Street trusts in the early 1900s, if not earlier), namely the distribution of wealth and property and what is fair.

Without a doubt, the republic was founded to protect the rights of life, liberty, and property and more than ever individuals are questioning whose property is being protected. It’s one thing when every man has an equal opportunity; it’s another thing altogether when the game is rigged–through crony capitalism, sweet-heart deals, and corruption–against those who have less.

If these days and years will be seen as great, it will be because we will decide in coming months and years what course we will take, pass policies that reverse the trends and return America to its competitive edge and full solvency as the best investment in the world, or whether we will lapse into decline. Will we figure out a way to care for the poor and disadvantaged, to keep our promises to older generations, but refrain from pouring an unbearable burden on our children and grandchildren?

Or, perhaps better said: will we return America to a beacon on a hill, the leader of the free world?

I’ve saved one graph for last:

Notes: This index is weighted average of the share of a country in world GDP, trade, and in world net exports of capital. The index ranges from 0 to 100 percent (for creditors) but could assume negative values for net debtors. The weights for this figure are 0.6 for GDP (split equally between GDP measured at market and purchasing power parity exchange rates, respectively; 0.35 for trade; and 0.05 for net exports of capital.

If we are to see “morning in America” again, we have little time left to wait. Steven R. Weisman, editorial director, Peterson Institute for International Economics, say that

This chart from Arvind Subramanian’s new book, ‘Eclipse: Living in the Shadow of China’s Economic Dominance,’ is interesting in three respects. First, it tracks broadly the economic dominance of the previous two superpowers, the United States and Great Britain. Second, it suggests today that China has come close to matching the United States in terms of dominance.  Third, it suggests that under conservative assumption about economic growth for China and the United States, by 2030 the world may well see a G-1, with China as the economic hegemon.”

China eclipsing America?

Whether we are standing at the apex of American prosperity and leadership or whether we are at merely a point on a growth trajectory is up to us and who we select as our elected leaders in coming months. If these years are not seen by future generations as significant, then it is only because future prosperity and growth will eclipse what we saw in the past.

And that’s an eclipse I would rather see.

[The Atlantic]