Is America's Day Over?

John Gray at the Globe and Mail argues that if the end of the 20th century saw the fall of the USSR, the first decade of the 21st century has seen the fall of the USA.

Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power is being altered irrevocably. The era of U.S. global leadership, reaching back to the Second World War, is over.

You can see it in the way the United States’ dominion has slipped away in its own backyard, with Venezuelan President Hugo Chavez taunting and ridiculing the superpower with impunity. Yet the setback of U.S. standing at the global level is even more striking. With the nationalization of crucial parts of the financial system, the U.S. free-market creed has self-destructed while countries that retained overall control of markets have been vindicated.

I don’t agree that the American era is over and in particular reject the idea that markets have failed. The real wealth of nations lies in human capital, not its financial markets. Financial markets can be fixed if human capital exists. Without human capital nothing can be fixed. The USA remains the only Western country with a growing, highly skilled population. Every other Western country will soon face a demographic crisis, as will Russia and China. Nor is it correct to argue that the “markets have failed”. One major causes of the current crisis are bungled social engineering efforts by Freddie Mac And Fannie Mae, which are highly policitized government supported enterprises. The information on the true worthlessness of many of the assets that have spread like a poison through the financial system has arrived only belatedly; and the market is rightly reacting to it. The real question is why this information did not come front and center sooner. The ratings, accounting, management consulting and journalistic industries have publicly failed to place the information on the top of the public agenda even though the problems were suspected for some time. A better market for information , not a more tightly controlled information regime will be better for the economy in the long run.

But something is clearly wrong.  Some time ago I argued that it has long been a false article of faith that there exists an essentially unlimited margin of resources from which to indulge the Green Mania, say “sorry” to the world, provide military advantages to America’s enemies, admit untold numbers of illegal immigrants and to pay off scaremongers who require unreasonable levels of accountability. A reader sent me an email saying:

A while back you had a post which said that while decreased economic activity was one way to deal with man-caused global warming, such a reduction in wealth also decreased our ability to respond to crises, including those associated with global warming.

In engineering there is a concept called “design margin” in which extra strength, power, capacity, capability is built into things to account for wear and tear as well as unknowns about the environment.

I think that the reason so many things seem to be “breaking” today is that over the last 20 years we have used up our “margin.”  Not pumping oil from our own known reserves ate into that margin.  Cutting the military back by almost 50% – and then deploying it more than before – cut into that margin.  Insisting on environmental, legal, racial, considerations in everything ate into that margin.  Political correctness ate into that margin.

No one thought that a number of bad loans made to people who could not repay them would sink the economy – indeed it is not clear that it will even now – but eventually that “margin” in the financial system got eaten away.  A single massive award in a lawsuit by a woman who spilled coffee in her lap ate into that margin in its own way, as did innumerable other lawsuits, silly or not.

I once knew a guy who ruined his life because he wanted everything “just so”; dropped out of school because they didn’t offer exactly the courses he wanted;  didn’t apply for a job because the opportunities weren’t to his taste.  He grew to into a middle-aged failure waiting for the perfect moment. By the time he was ready to settle for anything it was too late. America is not yet in terminal decline, but it soon will be, unless it can get the special pleaders, snake oil salesmen and professional screamers to cool their jets.