For most of the 20th Century, the U.S. was the world leader in science, technology, and innovation, with the best scientists, the best universities and the most advanced research and development programs. But all of that has begun to change as other countries and regions have become more advanced and more competitive and increasingly challenge U.S. dominance “
A recent article in the New York Times addressed the U.S. technological decline, and the ways Senators Obama and McCain have approached the issue. This story includes some eye-opening statistics about the loss of U.S. primacy in technology, innovation and R&D. At the top of the story, the Times points out the importance of this sector for America’s economy and role in the world:
For decades the United States dominated the technological revolution sweeping the globe. The nation’s science and engineering skills produced vast gains in productivity and wealth, powered its military and made it the de facto world leader. Today, the dominance is eroding.
One sees this in multiple indicators, but perhaps the most important is the country’s high-technology balance of trade. Until 2002, the U.S. always exported more high-tech products than it imported. In that year, the trend reversed, and the technology trade balance has steadily declined, with the annual gap exceeding $50 billion in 2007.
The U.S. has also fallen behind in spending on research and development, which drives high-tech innovation and development.
Reuters reports that most leaders in the mobile phone industry see sales plummeting in response to the global economic crisis. "On average, the poll of 36 analysts shows global market volumes shrinking 6.6 percent next year and 5.7 percent in the fourth quarter -- traditionally the strongest period for the industry due to holiday sales." The interesting note is that a similar poll in early November saw predictions that the market would grow by 2.6% next year.
We all know the economy is going to crap, so it's not surprising that people are going to stop buying things they don't really need. For many, that's a brand-spanking new cellphone. Our culture has become (or always has been) a sort of throw-away culture where if your technology isn't the latest then you're way behind the curve.
iPhone after iPhone is thrown away, replaced by a new one ten times better and sexier, only to get replaced less than a year later. This economic jolt might be what it takes to get people to start sticking to their stuff, quell the need for the latest and greatest, and stop shopping smartly. Imagine a phone where you could switch out some of the components instead of buy a whole new product. Like a computer tower, just upgrade the parts instead of buying a whole computer. Honestly though, I see this as unlikely.
To effectively solve the present global economic crisis we must first put it in the proper context and learn from the past. This is not being done, and so we may well exacerbate this situation in the months and years ahead.
I’m increasingly worried about our economic crisis and future not not because it’s so unexpected, but because of how complex and deeply systemic it appears to be. The tandem forces of financial erosion and social sector rot have created a situation where it appears our valuation of the whole is seriously out of whack with actual value contained in the U.S. dominated global economy.
The latter is especially frightening in light of the fact that annual worldwide GDP last year was just $54 trillion, with the U.S. accounting for $14 trillion of that. In other words, the derivatives market (including futures, options and unregulated credit derivatives) is just under 5x the size of the annual global GDP. Back in 2002, this market was approximately $100 trillion, or 2x the annual global GDP. That’s 500% growth in just 6 years, largely attributed to credit, mortgages, hedge funds and other financial vehicles that I don’t fully understand.
Even conservative folks like investment mogul Warren Buffet have labelled derivatives a potential financial weapon of mass destruction because they do not seem to be tied tightly to any base value. Still, derivatives are factored into the valuations of major financial institutions (which are now toppling like dominoes) and, directly or indirectly, most publicly traded companies. So if the derivative market collapses, it’s going to take a huge number of companies with it – many, many more than have already bit the dust.
Now, this is the point in this editorial where I make clear that I am no economist (a line that I’ve now seen written many times by writers and bloggers similarly trying to assess this situation), but... I am still capable of putting 2 and 2 together, which in this case means taking a look at the social structures and markets that appear to be so overvalued by the global and U.S. economic systems.
Socially, we are facing a big infrastructural crumble here in the U.S. that will cost us billions or trillions, our education system is expensive and will costs us billions or trillions in productivity as the economy demands new skills, a similarly rotten private health care system has left millions uninsured and could seriously strain national reserves, an escalating unemployment rate is never a good sign, the federal health standard crisis in nursing homes coupled with a longevity-driven boom in senior citizens indicates additional expenses down the road, stagnation in our national web connectedness may not seem like a big deal but could be the most critical development failure of them all, and so forth – the list goes on and on, and I’m sure you can add multiple items to it.
Worst of all, we’re faced with a government fundamentally incapable of collectively processing and acting on this reality. Due to a combination of institutional inertia and a hugely complex and seemingly mystical problem many systems based solutions are simply not even on the table.
Let’s say, for the sake of argument, that a successful nanobot design goes into production. These little guys can build just about anything you want, including more of themselves. But, barring an end-of-the-world scenario where the world gets covered with self-replicating nanobots (Grey Goo), what can we expect in the world around us?
The one thing that popped into my head last night was the idea that if nanobots could remove elements from their surroundings to build themselves, than means they could potentially mine areas for precious metals too tiny for us to mine ourselves. Nanobots could scour the dust, deserts, forests and hills for single-atom particles, a million of them being able to amass enough for a fifty-pound ball of plutonium.
So what about other precious metals?
The worlds oceans contain an estimated 20 million tons of gold. Washed down from land over billions of years and sitting in a suspended solution (salt water), it could be ripe for the taking. In fact, if people were able to mine all the gold out of the Oceans and it were equally dispersed to the global population, we’d all be stinking rich. “If all the gold suspended in the world’s seawater were mined, each person on Earth could have about 9 pounds of gold.” It would change the face of the world.
There are a few different things that could happen from this. Firstly, the worlds banks could finally base all of their currency on a gold standard. The US Dollar, for instance, only has value because we believe it to have value. Gold backing is an incredibly small part of America’s economy. Would this mean an economic boom? Pumping nine pounds of gold per person into an economy would be very good.
I argue in The End of the American Century that the U.S. has already lost its global supremacy. But can it recover it? In
a globalized and interdependent world, both the country and the world are better off without a superpower.
There is, first of all, both a descriptive (factual) and prescriptive (value judgment) aspect to this question. Will the U.S. regain its superpower status? And should it do so? I believe the answer is negative to both questions, but the reasoning behind them are similar.
Some scholars have argued that the world needs a powerful and stabilizing force, and that the United States is the only country in a position to play this role. The British historian Niall Ferguson has made this case in his book Colossus, as has the U.S. political scientist Michael Mandelbaum in The Case for Goliath. And through much of history, there has been a big single power that has played this role in great swaths of the planet—Rome, Britain, Spain, the Ottomans, etc. All of those are now gone.
The 21st century world is different in several important respects. First, power and influence are more diffuse. There are numerous “rising powers”—China, India, Brazil, Iran, Russia, South Africa—and they are spread all over the globe. None of them want or need a super powerful country encroaching on their turf, or telling them how to behave.
Second, the world is more interdependent, particularly in economic terms—“flat” in Thomas Friedman’s evocative phrase. Prosperity and security are being built on trade, cooperation and compromise. Some countries are bigger and wealthier than others and will naturally play a more substantial role in this globalized community. A “superpower”—economic or military—distorts and destabilizes such a system.
Fareed Zakaria is everywhere these days, articulating a message similar to those in my own book The End of the American Century. But I think he underestimates the seriousness of the situation facing the United States.
His was the lead article last summer (May/June) in Foreign Affairs issue on “Is America in Decline?” His book The Post-American World appeared shortly thereafter, and soon became a best seller. As an editor of Newsweek, his columns appear there regularly, and the October 20th issue of the magazine featured him on the front cover, with the title “The Bright Side” against a cheery yellow background. He even has his own television show, “Fareed Zakaria’s GPS,” where last week he endorsed Barack Obama as the best hope for America’s future.
Zakaria argues that it is not so much that the U.S. is in decline, but that other powers have risen, requiring the U.S. to deal with them with more consultation and compromise. He believes that the U.S. “has the strength and dynamism to continue shaping the world” (Foreign Affairs) and that “the world is moving our way” (The Post-American World). He sees a “silver lining” in the current economic crisis, in that the country will be forced “to confront the bad habits it has developed over the last few decades” (Newsweek).
These bad habits include spending and consuming more than we produce, leading to record levels of household debt, which has grown from $680 billion in 1974 to $14 trillion today. Spiraling consumer debt has been matched by the government. “The whole country has been complicit in a great fraud,” he writes in Newsweek. He quotes the economist Jeffrey Sachs: “We’ve wanted lots of government, but we haven’t wanted to pay for it.”
The truly worrying part is that this hiccup is not related to high oil prices, which have fallen off considerably in the past month, but instead the ongoing home mortgage collapse which some predict will cost us in the $1,000,000,000,000 (IMF estimate) to $2,000,000,000,000 (Goldman Sachs) range. This confirms that we are deeply vulnerable in at least two separate yet critical areas, making any subsequent surprises all the more worrisome for fear of a chain reaction or even a fourth turning.
The Trillion Dollar Question: Just how bad is this going to get?
According to the big-wigs, the situation is ugly but not entirely hopeless:
Presidential candidate Barack Obama says, “I don’t think that we’re … necessarily going in the direction of the Depression. ... There are some similarities, though, to what happened back in the late 20s and early 30s and what’s been happening now, and the biggest similarity is how we’ve been dealing with Wall Street and what’s happening in the financial markets.” – Reuters
U.S. Treasury Secretary Henry Paulson acknowledges that we’re going through a difficult time and that housing is “at the root” of the troubles but that we’ll get past those “in months as opposed to years.” – Bloomberg
Former Fed Chairman Alan Greenspan, seems to concur with the notion of a period of deep shift:
“This is a once in a half century, probably once in a century type of event. We shouldn’t try to protect every single institution. The ordinary cost of financial change has winners and losers.” – Bloomberg
In my book The End of the American Century, I point to China as one of America’s new rivals, but also as a major factor in U.S. profligacy and in U.S. economic decline. To a large extent, the false U.S. affluence of the last decade has been underwritten by China, in two ways: the country has supplied American consumers with cheap toys, gadgets and clothes; and has been bailing out the federal government by purchasing U.S. debt.
The rapid growth of foreign ownership of U.S. debt is yet another dimension of the unraveling of the U.S. economy. In 1970, only 4 percent of U.S. debt was held by foreigners; now almost half is. In recent years, foreigners have financed about 80 percent of the increase in public debt. The two biggest holders of U.S. debt are Japan and China, with China alone owning about $1 trillion in U.S. debt. Senator Hilary Clinton raised concerns about foreign ownership of U.S. debt in early 2007, when she sent a letter to Secretary of the Treasury Henry Paulson and Fed Chairman Ben Bernanke. “In essence,” she observed,
"16% of our entire economy is being loaned to us by the Central Banks of other nations."
Over the past few months Americans have been trying to grasp what each presidential nominee will bring to the table once inaugurated as our Commander-in-Chief this coming January.
With looming issues that include the economy, the war in Iraq, and gas prices, there has been little emphasis placed on how either John McCain or Barack Obama feel about the government’s role in science and technology despite a growing group of citizens who want the issue debated.. These individuals believe that the future of America’s science and technology sectors are crucial to the success of our economy, world image, and ultimately our well-being.
“As GM goes, so goes America.” – Let’s all hope that famous maxim doesn’t apply now.
Yesterday General Motors stock closed below $6 for the first time since the 1950s. Then last night, the financial woes worsened as most foreign stock markets plunged between 4% and 9%. Now this morning we’re all left wondering, “Just how bad will this get? Are we nearing the worst of this crisis?”
Here’s a CNN summary of the action:
Some economists are optimistic that we’re nearing the bottom, but many others are bracing for another Great Depression.
With the Obama administration gearing up for action, the Fall stock market crash fading from memory, and a new year underway many economists (especially most of the folks I regularly watch on CNBC and Bloomberg) are predicting recovery to commence in the second half of 2009. Having noted the slow spread of the mortgage crisis, which some predicted several years before it ever began to look serious, I am more than a bit skeptical about their underlying assumptions and the likelihood of a near-term turn-around.
Fortunately there are some economists like Condé Nast Portfolio contributing editor John Cassidy who agree that economists may not be the best predictors of things economic. Pointing out their poor track record in 2008 (live by the Greenspan, die by the Greenspan), Cassidy now contrasts their 2009 forecasts against those of the general public and of finance professionals, revealing that the economists are far more optimistic than the rest.
He then asks the obvious question:
So who are we to believe: the experts who failed to predict the current crisis or the great American public? With due respect to my fellow dabblers in the dismal science [economics], I share Joe the Plumber’s queasy feeling. Unless something miraculous happens in the next few weeks, the new inhabitant of the Oval Office will inherit an economy flailing under the weight of record debts and rising unemployment. If a depression is defined as a deep, extended recession of a severity that nobody under the age of 75 can recall, then it is quite likely that we are already in one.