July 23, 2013

Horse 1515 - The Inevitable Decline Of America

The question posed to me is what do I think are the causes for the decline of America. Actually in broad terms I think that the answer is ludicrously simple but to understand the decline of America, requires one to understand the rise of America in the first place.

On of the key factors which defines which empires will rise and fall the most relative to each other is that annoying idea of Gross Domestic Product - what is the general overall level of goods and services that a country/empire can produce? In essence, all that Gross Domestic Product is, is a fancy way of saying "all the stuff we made and all the work we did" in any year.
Now whether you can force other people to work for you through direct slavery, or perhaps through the means of empire, or even get your own people to produce greater amounts of stuff through better methods and technological means, is largely irrelevant - empire building is mainly determined on how much stuff you can produce. If you look at all of the biggest world powers in history and compare them with their contemporaries, that principle works for the Egyptians, the Romans, the British, really any great empire in history you choose, including the Americans (even though they don't like to admit that they even have an empire). The American empire differs from most of the ones before it in that it isn't built on land and territory and the number of people it controls but the size and scope of the markets it can sell to.

America became top dog in the first place, because it uniquely had the ability to expand westward across a continent which the native peoples were unable to defend or control. The North American continent is tremendously rich in natural resources and more than easily could handle an economic shift from a largely agrarian society to one mainly deriving its income from manufactures.
America was doubly helped with a change in thinking of how best to finance the initial investment of ventures, through the rise of the limited liability corporation. This meant that America especially was able to continue to make new and better products (and finance the investment in capital equipment required to make them), more efficiently and cheaply. However, up until about 1940, Britain still led America when it came to the value of manufactures that it exported. Indian cotton may have traveled across the seas but it was British fabric and clothing produced in places like Lancashire which went back the other way. There is a tremendous irony that it is now Bangladesh which was formerly part of the Union of India who now makes more clothes than Britain. Britain always looked outwards to find new markets, whereas America was largely isolationist until two world wars jolted it into waking up.
America came to properly rule the roost after 1945 when places like Britain, Germany, France, Japan etc. faced a bigger task in rebuilding themselves than producing goods for export. With other countries in a period of rebuilding and the United States still retaining the extra capacity to produce many many manufactured goods, suddenly it found loads of export markets and many many willing buyers.

The thing is though that limits are eventually found. The Roman Empire merrily expanded outwards as it went along but the funds to push its borders outwards came largely from newly conquered lands. Older provinces still sent tribute and taxation back to Rome but again, empire building (of which capitalism is a form) relies on that principle. The Roman Empire basically stopped growing when it reached a point where it couldn't support so many military troops being spread over such a large area.
The British Empire became ever more successful but only up to the point where there were no new lands and markets to conquer. The British Empire was one on which the sun never set and also one in which virtually every bit of land in the world worth having, was occupied. The British Empire basically stopped growing when it reached a point where there were physically no more new lands to find.
America is no different. The empire isn't as overtly based on land but it still relies on conquering new markets; there must be a point where there are no new markets left to find.

The problem with the United States in particular is that the relentless pursuit of profit led to a more prosperous and productive workforce. Higher wages equal lower profitability and it was the oil crisis of the early 1970s that basically set the ball rolling for the end of manufacturing in the United States.
American companies now "hire" more people than ever before. Whilst GDP growth of the United States has stagnated, the profitably of US companies continues to grow. They've voluntarily chosen to move production where wages and ground rents are vastly lower.
Countries like China, Vietnam, Laos, Bangladesh and India, are now the manufacturing centres of the world and the rules of empire building - that is, that empire building is mainly determined on how much stuff you can produce - are still quietly lurking away in the background.
I would argue that because companies have voluntarily chosen to move production overseas, the wages which would have been paid domestically are not being paid to Americans, simultaneously lowering domestic aggregate demand; thus shrinking the economy at home but conversely stimulating aggregate demand via increased wages in those places where stuff is being made.

The 21st Century has been nicknamed the "Asian Century" by some commentators and that's largely predicated on the same principle - how much stuff can and will be produced. It has been estimated that more than a quarter of a billion people have been dragged out of poverty in China and India; likewise the closure of factories and the death of low skilled jobs in the United States is leading to the third-worldification of America. China and India are in part gouging their new empires out of the old.
And the process will happen again. China in particular is building infrastructure in Africa in the hope of opening up even cheaper manufacturing centres. As the nations of Africa begin to step out of the shadows of their old colonial masters, they step into the shadows of their new ones.
If and when Africa does finally begin to follow the same the rules of empire building - empire building is mainly determined on how much stuff you can produce - it too will gouge out its markets from existing ones.

The short story is that the American Empire grew for a while, reached its logical limits and then just like the Empires before it including Rome, will decline due to a combination of decadence, political corruption and military expenses. The two biggest cause though is monetary troubles caused by a larger degree of unemployment of the working classes, brought about because American business has chosen to make less stuff and do less work in America.

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