The Next U.S. President: Set Up for Failure?
How are current U.S. policies creating a more difficult task for future U.S. leaders?
August 2, 2005
Think of the major countries and the EU as players in a game of bridge. If you had your choice of whose hand you’d like to play, you’d almost surely pick the American one. It has all the aces.
The U.S. GDP may be a bit behind that of the EU, but it’s more than twice as large as Japan’s, the next largest single-country economy.
And U.S. overall productivity is the highest. The United States is still the overall leader in technology.
It has the best universities and spends by far the most money on R&D. It is the financial capital of the world and the global economy runs on its money. It has the highest per capita income of the major nations.
It spends more than the rest of the world combined on defense and, not surprisingly, has overwhelming military superiority.
It has 12 aircraft carrier battle groups patrolling the oceans of the world — no other country even has one. It can fly its army anywhere in the world in 24 hours, as no other country could dream of doing.
Finally, until very recently, the United States enjoyed enormous reservoirs of goodwill throughout the world. What more could you want? Go for a slam. These cards should be pretty easy to play.
But the United States is playing them as badly as possible — as though it was the only player that mattered.
Saving is down drastically — the U.S. net savings that was 11% of GDP in the 1960s having declined to near zero in 2005.
And households are in debt up to their eyeballs after borrowing against inflated home equity values to maintain themselves in a style many can’t really afford.
The U.S. government has also gone into record debt, with budget deficits over 4% of GDP, rising — according to General Accounting Office projections — to 8% over the next 10 to 15 years.
This debt is not being used to invest in new infrastructure, plants or equipment to generate future wealth. Federal spending on physical capital, R&D and education and training — which averaged over 6% of GDP in the 1960s and 1970s — is now well under 3% of GDP.
To look at it another way, future-oriented outlays, which accounted for 32% of total U.S. federal spending in 1965, have fallen to 14% in 2005.
Instead, the spending is going into benefits for individuals, which are going to rise dramatically as baby boomers retire and need more medical attention. Nor has private infrastructure been maintained.
The labs and facilities of our world-class universities are beginning to look antiquated compared with those being installed in Asia and Europe.
When you add to the trade deficits the rising dependence on foreign oil and the recent decline in respect and liking for the United States, the result is that the U.S. president — the head of the most powerful country the world has ever seen — is in a very tight box.
In every part of the world and in every arena — strategic, political, economic — the United States will find its capacity for action increasingly restricted and its range of options reduced.
We still possess a strong, though not overwhelming, hand — but we will have to start to play our cards a good deal better.
Consider, for example, that you have just been elected president and are now receiving your first intelligence briefing.
Briefer: “Mr. President, the first situation to be aware of is what’s developing in Taiwan. The Taiwanese have voted for formal independence from mainland China and are requesting that we send the Seventh Fleet to visit Taiwanese waters to warn China against any precipitate action.”
“However, the State Department has just been informed by the Chinese ambassador that any move of the fleet toward Taiwan will be regarded as hostile by Beijing, which will immediately begin dumping its reserves of U.S. treasuries on the open market.”
“The Japanese are apparently aware of the Chinese threat, because there is already evidence of the Japanese selling off some of their treasuries — and the dollar is falling rapidly in Europe, where the markets have been open now for several hours.”
“Iran has announced plans to test a nuclear device. Japan, China and the EU — all of which are heavily dependent on Iranian oil — have urged us privately not to make a big deal out of it.”
“In Moscow, President Putin is mad about NATO’s invitation to Ukraine to join and has sent a personal note to you demanding that you rescind the invitation. If not, he says he’ll start dumping dollars.”
“Russia doesn’t buy much from the United States and doesn’t really need the dollars. So this is a credible threat.”
“The Saudis are really unhappy about our pressure on the royal family to democratize. They have initiated discussion at OPEC headquarters in Vienna on pricing oil in euros or a basket of currencies — rather than dollars.”
“Finally, the drought in the Midwest has been so devastating that it looks like we’re going to have to import soybeans from Brazil. The price is already in the stratosphere.”
“Otherwise, things are pretty quiet. Congratulations on your inauguration, Mr. President.”
Who would want to be president with such perilous issues facing him or her at the start of the term? More to the point, how did we Americans allow things to get so bad?
We need to wake up to these issues, so that the United States learns to play the game with due respect for its own people — as well as the other players at the table.
Adapted from the book, “Three Billion New Capitalists: The Great Shift of Wealth and Power to the East” by Clyde Prestowitz. Copyright © 2005. Reprinted by arrangement with BasicBooks, a member of the Perseus Books Group (www.perseusbooks.com). All rights reserved.
Founder and President of the Economic Strategy Institute Clyde Prestowitz is founder and President of the Economic Strategy Institute, a Washington think-tank on international trade policy. His latest book, Rogue Nation addresses the disconnect between how the United States perceives itself and the international order and how the rest of the world perceives America and […]