.comment-link {margin-left:.6em;}

Tom Coburn is a Big Fat Jerk


Home of the Barking Moonbat


Friday, March 04, 2005

But it IS the economy, stupid!

First, a personal message to our president:


Second, a word from our favorite Economic Meltdown Theorist, Stephen Roach:

The long history of global economic leadership is replete with countless other examples of the demise of the powerful -- a pattern well documented and analyzed by Yale historian Paul Kennedy (see The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000, Random House, New York, 1987).  Starting 500 years ago with a world dominated by Ming China, the Ottoman Empire, India’s Mogul Empire, Moscovy, Tokugawa Japan, and the great nation-states of western Europe, Kennedy posits a simple but elegant thesis as to why these and the other strains of global leadership that were to follow were destined to fail.  In almost all these cases, he argues, the global projection of military power ultimately outstripped the nation’s domestic economic base.  Countless other examples in history fit this script to a tee


On the surface, a strict application of the Kennedy model suggests little reason to worry. 


I suspect there is a good deal more to the economics of over-reach than simply the defense-spending share of GDP.   Should a nation’s defense commitment be scaled by its actual GDP or by the factors that ultimately determine potential output growth in the future?  In my view, the key is the wherewithal of any nation to fund its leadership role.  Two factors will ultimately be decisive in that regard: national saving and productivity growth.  On both counts, there are grounds for concern -- the US is either in trouble right now (saving) or possibly headed for a rude awakening (productivity).  The national saving rate is critical because it determines what a nation can plow back into investment in new technologies and other forms of plant and equipment -- the forces that ultimately drive (or constrain) productivity growth.  There can be no mistaking the warning from this metric: America’s net national saving rate -- the combined saving of households, businesses, and the government sector (adjusted for depreciation) -- has averaged a record low of just 1.5% of GDP since early 2002.  That’s far short of the post-World War II (1947 to 2003) average of 7.8% and well below the 5% level prevailing in 1987 when the Kennedy thesis was first in vogue.


With US economic leadership on an increasingly shaky foundation, don’t be surprised at yet another swing of the ever-fickle pendulum of global leadership.  History teaches us that’s long been the rule -- not the exception.

In short, for all our huffing and puffing and credit cards with $25,000 limits, it appears we're on the downhill slide.

The problem is, everybody --- okay, a lot of people --- are denying this and claiming we are in an entirely new scenario. But is it?

No, I don't think so. Whether we like it or not, we are all still governed by the most simple, most basics realities of the world. There is such a thing as gravity, despite airplanes and rocket ships. There is night and there is day, at least in this part of the world. No amount of plastic surgery or expensive supplements can stop the procession of time. And if more money goes out than comes in, you will go broke.

The signs aren't particularly optimistic, despite glossing over or peppy analysis. And sure, it may take some time. But if you haven't already, you really need to be tightening your belts and preparing to fend off the wolves. It may take a week --- it may take a year. But we have grossly irresponsible leaders at the helm, so at this point, you're going to have to look out for your own ass. Which is the way it's always been, really --- but it's especially the case these days.


Post a Comment

Links to this post:

Create a Link

<< Home