Center for American Progress writeup:
Reviving the American Empire: America will still be a leader, perhaps the leader, but no longer the boss,” said Stephen S. Cohen, a Senior Fellow at the Center for American Progress, professor at University of California, Berkeley, and co-author of The End of Influence: When Other Countries Have the Money at a CAP event last Friday on America’s global position. Cohen was joined by co-author J. Bradford DeLong, fellow professor at U.C. Berkeley and Nina Hachigian, Senior Fellow at CAP and co-author of The Next American Century: How the U.S. Can Thrive as Other Powers Rise.
The inevitable “rebalancing of powers in the global economy” has generated conflicting book titles that steer the American public in one of two ways: The End of Influence or The Next American Century, said CAP Executive Vice President Sarah Rosen Wartell, who introduced the event. This polar view on America’s global standing depicts our future as either dire or promising with little room in between. If we want to influence change, Wartell said, we need to ask, “how do we shape that future ourselves?”
The United States emerged as the dominant economic, cultural, and military power in the world after World War II. As other nations began to develop, moving from agriculture to industry, they needed someone to buy their end products. Peasants in developing countries have little purchasing power, so the United States stepped in and bought “stuff” from all over the world, said Cohen. “We got the government out of the economy” and bought half of China’s GDP. “We imported so much more than we exported that now we cannot pay it off.”
The “United States, which had been a capital surplus high-savings country,” has become the world’s biggest borrower, said DeLong and the U.S. government is the world’s second biggest borrower. Seventy percent of our current debt happened since 2000. Rising income inequality created a negative cultural pattern where people “overleveraged” themselves to financially compete with one another, and all of this constrained the economic power of the United States and its government in a way that we hadn’t felt since 1917. DeLong suggests that this will be the “end of market liberalism,” which could turn the United States into a “normal country” without absolute power.
For the “past 10 years we fumbled our ability to move into the real industries of the future,” said DeLong. Finance became our major economic industry instead of electronic or bio-technological innovation. The best and the brightest chose to work for the financial sector instead of medicine, science, and engineering. We outsourced so much opportunity that we are no longer leaders in high tech or other industries we pioneered. This stunted innovation, and only served to increase the income gap.
DeLong suggested that the Obama administration can begin to fix this dilemma by appointing “competent economists” to the Federal Reserve Board to reduce and eliminate global imbalances that trap the United States and China in financial terror.
“Ninety-eight percent of economists think a weaker dollar will help the economy,” but it is a difficult sentiment to express without being seen as treasonous, Cohen explained. The value of the dollar must drop in order for us to save more. Our goods will become cheaper, we will export more, and bring down the trade deficit. But, at the same time, as we stopped importing from growing industrial economies, we might seen to be abandoning them and isolating ourselves.
Such isolation is impossible as the “world is getting smaller” because of globalization and communication, said DeLong. People all over the world will ask, why are the United States’ upper and middle classes so rich while we are so poor? This question coupled with the planet’s resource scarcities is the key political problem of the next 50 years.
The United States can no longer mobilize the resources we once could for the greater global good. Despite this fact and the macabre title of Cohen and DeLong’s book, the “end of American influence is nowhere on the horizon,” according to Hachigian. United States leadership is still “desperately needed” as no other powers are ready to take charge. We are experiencing a decline relative to rising powers such as China and India, but we’re coming off “such a high base” that doomsday is not near. Moreover, the answers to the most pressing problems for Americans are through collaboration with other powers. The United States should be brokering and facilitating consensus building on important issues such as climate change. That global leadership combined with cultural hegemony that declines at a much slower pace than cash “makes us quite influential.”