Tom Friedman says "[1] We are not as powerful as we used to be because [2] over the past three decades, the Asian values of our parent's generation—work hard, study, save, invest, live within your means—have given way to subprime values: 'You can have the American dream—a house—with no money down and no payments for two years'," and [3] Americans want to do nation-building—in America. Is he right? Yes, no, and maybe.
Less Powerful for Sure
There is growing consensus that America has a less dominant place in the world today. In the past, we were unrivaled economically and supported growth elsewhere with American capital. Now we are losing ground to several rising economic powers and borrowing money from them to progress and even for current consumption. We have demonstrated, to others if not to ourselves, that our vast and unrivaled military power is nevertheless insufficient to impose our will on Iraq, a nation having 20% more people than Texas in 37% less land area, and that Gulliver is surprisingly vulnerable to a multitude of Lilliputians.
When we try to lead the world, other nations are much less likely to follow than they were. The loss of influence stems in part from making huge geopolitical blunders, squandering international respect and affection, adopting policies that weakened our economy, and exposing our military weaknesses. But there are other reasons also. What followed the bi-polar world of the Soviet era will not be an enduring uni-polar world that many expected and thought was our due. It is becoming a non-polar world, well described by Richard Haass, president of the Council on Foreign Relations in the current issue of Foreign Affairs, The Age of Nonpolarity—What Will Follow U.S. Dominance.
To blame this on ordinary Americans for abandoning the "Asian" values of hard work, studying, etc. is a slander that must be refuted.
Americans today work harder than their parents. For example, families with 2 parents age 25-54 with children worked 18.1% more hours in 2004 than they did in 1979. The State of Working America 2006/2007, Table 1-24. (About 89% of the additional hours were worked by wives, confirming what we know intuitively—many more families have 2 earners than was the case in 1979.) And Americans today spend more time commuting to work because they have to live farther away and endure transportation facilities that are not keeping up with rising population. For this additional reason, Americans have less time than their parents to enjoy the American Dream, assuming it were still accessible to them at all, which it isn't.
Where's the evidence that American students today study less hard than their parents? Haven't we been reading about how pathologically competitive high schools became after we graduated, and then middle school and primary school, and now pre-school? What is clear is that increasingly foreign students are crowding American students out of elite American universities and, as Mr. Friedman reports, the foreign students are less likely now than in the past to stay and apply their training in America "because they have significant options elsewhere."
To blame Middle Class Americans also for not saving more and "living within their means" adds further insults to the injuries inflicted on them by flawed policies urged on government by Mr. Friedman and other pundits. Americans would like nothing better than to be able to live within their means, but the real incomes of the bottom two-thirds of families have been declining for 8 years. These are not reckless young sailors blowing their entire paychecks in a single shore leave—they're families just trying to hang on until better times--which they've been assured are here or just around the corner. Their borrowings offset the actual savings of those at the top of the income pyramid so that in the aggregate the US savings rate has dropped to zero. Now that the possibilities for more borrowing are drying up, Mr. Friedman is about to get his higher savings rate and he won't like it. Since consumer spending makes up 70 percent of GDP, the increased savings has knocked us into a recession that may be severe and prolonged.
It's not even clear that America's zero savings rate has any adverse effect. There have been times in our past, including perhaps the period when our policy makers and pundits were studying economics, that growth was restrained, and inflation fueled, by a shortage of investment. That may be true again someday, but it hasn't been true in recent years. In fact, the world has been awash in cash. Unfortunately a lot more of it now is controlled by oil exporters, sovereign wealth funds, and hedge fund managers willing to take crazy risks with other people's money.
It's doubtful that rebuilding the nation is imminent
The powerful (which includes billionaire-by-marriage Tom Friedman) would be personally disadvantaged by change, and those who would most directly benefit from a rebuilding can't comprehend what happened or what is possible.
Update on Tuesday, May 6, 2008 at 04:14PM by
Skeptic
This long excerpt from Fareed Zakaria's new book, The Post-American World, supports several of my points. What Richard Haass dubs the nonpolar world, Zakaria calls simply the post-American world. They emphasize different things but the themes of declining economic and political influence are common.
To the point that foreign students are crowding Americans out of elite American universities, Zakaria asserts that "by 2010, 75 percent of all science PhDs in this country will be awarded to foreign students." Zakaria says they will stay and apply their training in the United States if we let them, but it seems to me that Friedman is correct that increasingly they will have other options that many of them will prefer.
And Zakaria also notes the huge amounts of available investment capital worldwide, which is why I say a zero savings rate in the US is not the reason we are not investing more in the US and is not the reason growth is not faster than it is. I'm inclined to think there was a supply-side problem 30 years ago, but that was then and this is now. Now the US problem is that the demand side is stagnating because incomes are stagnating.
