Mark Tran, business editor of the Guardian, has a piece today on the risks that the American economy and empire is on the verge of collapse. “It takes a brave soul to argue that America, the world’s largest economy and by far its most potent military power, is about to go into decline, when it is widely perceived as a hyperpower. But Independent Strategy, a financial research company for institutional investors, has made the case in a paper that is making the rounds of big investment banks such as Goldman Sachs.”Well maybe we are headed for a fall, but there are a couple of problems with the reasoning he (or rather the Independent Strategy report) presents:
“The dollar will go on down because the good empire has the same faultlines as many other empires: unsustainable living standards at the core depend on flows of wealth from the periphery,” says Independent Strategy in terms that would not be out of a place in a Marxist textbook. “The US no longer earns the return needed to sustain these flows. The costs of war and unilateralism will increase the thirst for capital, but reduce the return earned by it.”
Yes, this could come from a Marxist economics book, but that’s the problem. The statement fundamentally confuses Wallersteinian world-system analysis (which sees all capitalist economies whether US or Japan or Europe as extracting surplus value from the third world) and the less grand-theoretical observation that the U.S.’s current account deficit is unsustainable (see Robert Shapiro’s excellent discussion in Slate). After all, it’s not Africa or Latin America funding our trade deficit, it’s Dutch and Japanese and British investors. And there’s no reason to think that capital’s return will be any less, it’s just that someone else is providing the capital and reaping the benefits.
Paul Kennedy, the British historian, wrote the best-selling The Rise and Fall of the Great Powers back in 1988, where he coined the phrase “imperial overstretch”. It was a great read, but then the US embarked on a record-breaking expansion that lasted 10 years and saw Wall Street shoot up to over 11,000 points. But that great economic expansion turned out not to be so great after all, culminating in a wave of financial misreporting and outright fraud at Enron and WorldCom.
What Enron reveals is that a boom (which turned out to be unsustainable, because built on a lot of speculative activity) sapped the political will of regulators and the cautiousness of investors. That’s it. It’s a cautionary tale, but no more than the scandals of the 1920s or 1890s. And, after painful adjustments, America did just fine after those.
If the empire is on the verge of collapse, it will likely be for broader reasons than just the vicissitudes of economic performance. Whether Paul Kennedy or Kondratieff, the cycles of history approach are never very good predictors of the future.
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