Tuesday, April 26, 2011

Is the Age of America Coming to An End?

Heritage Foundation

A dire prediction hit the news yesterday: A date has been set for the end of the “Age of America,” — i.e., when China’s economy will overtake the United States. The news comes by way of an International Monetary Fund (IMF) forecast that shows China’s economy surpassing America’s by 2016. Though there are reasons to question the IMF’s conclusions, it is true that if the U.S. does not get its fiscal house in order, the era of American leadership will be over. Columnist Brett Arends writes in MarketWatch that China’s evolution into an economic superpower will spell the end of America’s economic dominance on the global stage:

The actual date when China surpasses the U.S. might come even earlier than the IMF predicts, or somewhat later. If the great Chinese juggernaut blows a tire, as a growing number fear it might, it could even delay things by several years. But the outcome is scarcely in doubt.

This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe told me two weeks ago, “We are witnessing the end of America’s economic hegemony.”

The Heritage Foundation’s Derek Scissors, Ph.D., notes that the IMF’s prediction that China will surpass the U.S. by 2016 might be a bit early, given that it is based on trends, whereas economic performance is all about a nation’s resources and policies. China’s economic growth could stall, or the U.S.’s could speed up. What’s more, like many predictions about the growth of China’s economy, the IMF uses “purchasing power parity” to try to compare the United States and China – resulting in potentially misleading conclusions. However, Scissors says that there is an overarching lesson to be learned from the IMF forecast:

The IMF’s assumption that our economy will be weak indefinitely is all too reasonable. China might run its economy into the ground, but we are running our economy into the ground. Reasonable people can sharply disagree over what to do, but what’s killing U.S. leadership is obvious to the IMF and anyone looking at the global picture: our budget deficit.

The picture of America’s economic house is a dismal one, with its escalating debt and out-of-control entitlement spending. There is a silver lining for America, though. Scissors points out that China has considerable economic weaknesses like low income levels, resource depletion and high unemployment, whereas the U.S. has comparable strengths and is poised to remain a global leader:

If we do get our act together, we will stay far ahead of China where it counts most: in wealth, in employment, in technology, and so on. The United States is richer, has far more productive workers, and far more in the way of natural resources than China. The only way we stop being the global economic leader is if we blow it.

And that’s why the next few months are so vitally important. As Congress begins debate on whether to raise the debt limit and how to curb spending, Members must realize that their actions have serious implications for America on the global stage.

Quick Hits:

* Gas prices are taking their toll. Seven in 10 Americans say gas prices are causing financial hardship, and of those people, only 33 percent say President Obama is doing a good job on the economy.
* Retiree benefits aren’t cheap. States are facing a $1.26 trillion shortfall in funds to pay pension and health-care benefits for public employees.
* Speaker John Boehner (R-OH) in an interview Monday warned, “If the president doesn’t get serious about the need to address our fiscal nightmare, yeah, there’s a chance it [the debt limit vote] could not happen.”
* Ford Motor Co. reported a $2.6 billion first-quarter profit, its largest in 13 years.
* The WikiLeaks release on Guantanamo Bay confirms that the detention facility and detainees alike are there for good reason. Read more on Foundry.org.

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