Niall Ferguson’s discussion of the Future of America’s Economy was recently given at the 2010 Aspen Ideas Festival. It is brilliant and I would embed it here but am unable to do so, thus I link it and strongly commend it. As a financial historian teaching at Harvard, he asks whether the Western Ascendency is finished. He reviews the empirical evidence supporting that proposition. And, it is strong.
“My working assumption is that the financial crisis that began in the summer of 2007…has accelerated a fundamental shift in the economic balance of power. Even before the crisis, Jim O’Neill and his team at Goldman Sachs were forecasting that China’s gross domestic product would exceed that of the United States in 2027 at half past four on October the 15th, which is just a little pinch of salt to remind you that all such projections need to be taken with a pinch of salt. Still, whether it’s 2027, ’28, ’29 or ’30, the interesting thing is the first time they made that projection, they thought it would be 2040. Every time I see Jim, I say, “Have you moved the date forward yet?” because he made that 2027 call before the financial crisis.
“The financial crisis unquestionably has hit the United States much harder than China. Their stimulus worked much better than ours…The first point I just want to put out there is: it’s hard to believe, under these circumstances, that the acceleration, the shift, if you’d like, from West to East hasn’t been speeded up by this crisis.
“The second point is: Of course, power is not just about GDP. It’s not just about the economy. Power is also about the ability to project hard power through military means. And some people in Washington like to comfort themselves by saying, “We can still do that way more than they can. Count their aircraft carriers, count ours.”
“But one point that follows from the financial crisis which is terribly, terribly important is that by combating our crisis of private debt with an extraordinary expansion of public debt, we inevitably are going to reduce the resources available for national security in the years ahead. Because as the debt grows, so the interest payments you have to make on it grow, even if interest rates stay low. And on current projections, the federal debt is going to be absorbing around 20 percent, a fifth of all the taxes you pay, within just a few years. The item of discretionary federal expenditure most likely to be squeezed is, of course, defense. And there are lots of historic precedents for that. So, I fear that the financial crisis doesn’t just impact on the economy. It actually impacts on American power in the hardest sense.”
This is just a taste, and he does offer some hope, so I won’t spoil his offering but suggest you link to the talk.