Bipolar patriotism

Readers will know that one of ShaMao's favorite topics is the future of America and that I am pretty bipolar on the subject. One day I will be riding high gushing about philanthropic donations , and the next I will be sunk in the suburban blight of the Detroit suburbs .   

I just finished a great essay in Foreign Affairs (no link cuz subscription only) by Fareed Zakaria entitled The Future of American Power that has put me back in the high life.   Mr. Zakaria begins by contrasting the decline of the British Empire to current America, then talks for a time about contemporary America's relative strengths and weaknesses, and finishes up with a rather nonspecific call for political reform.  In the second section, Mr. Zakaria debunks several common myths that we hear about fairly regularly and presents some illuminating facts including these excerpts below (italics are mine):

• The United States has accounted for roughly a quarter of world output for over a century (32 percent in 1913, 26 percent in 1960, 22 percent in 1980, 27 percent in 2000, and 26 percent in 2007). Most estimates suggest that in 2025 the United States' economy will still be twice the size of China's in terms of nominal GDP.

• The United States spends more on defense research and development than the rest of the world put together. And crucially, it does all this without breaking the bank. U.S. defense expenditure as a percent of GDP is now 4.1 percent, lower than it was for most of the Cold War (under Dwight Eisenhower, it rose to ten percent).

• The Iraq war may be a tragedy or a noble endeavor, but either way, it will not bankrupt the United States. The price tag for Iraq and Afghanistan together -- $125 billion a year -- represents less than one percent of GDP. The war in Vietnam, by comparison, cost the equivalent of 1.6 percent of U.S. GDP in 1970, a large difference. (Neither of these percentages includes second- or third-order costs of war, which allows for a fair comparison even if one disputes the exact figures.)

• Biotech revenues in the United States approached $50 billion in 2005, five times as large as the amount in Europe and representing 76 percent of global biotech revenues.

• Or consider that the United States' current account deficit -- which in 2007 reached $800 billion, or seven percent of GDP -- was supposed to be unsustainable at four percent of GDP. The current account deficit is at a dangerous level, but its magnitude can be explained in part by the fact that there is a worldwide surplus of savings and that the United States remains an unusually stable and attractive place to invest. The decrease in personal savings, as the Harvard economist Richard Cooper has noted, has been largely offset by an increase in corporate savings. The U.S. investment picture also looks much rosier if education and research-and-development spending are considered along with spending on physical capital and housing

• The United States actually trains more engineers per capita than either China or India does. (all the figures we see to the contrary include so called "engineers" graduated by 2 or 3 year technical schools)

• The United States invests 2.6 percent of its GDP in higher education, compared with 1.2 percent in Europe and 1.1 percent in Japan. Depending on which study you look at, the United States, with five percent of the world's population, has either seven or eight of the world's top ten universities and either 48 percent or 68 percent of the top 50. The situation in the sciences is particularly striking. In India, universities graduate between 35 and 50 Ph.D.'s in computer science each year; in the United States, the figure is 1,000. A list of where the world's 1,000 best computer scientists were educated shows that the top ten schools are all American.

• "students in affluent suburban U.S. school districts score nearly as well as students in Singapore, the runaway leader on TIMSS math scores." The difference between the average science scores in poor and wealthy school districts within the United States, for instance, is four to five times as high as the difference between the U.S. and the Singaporean national average. In other words, the problem with U.S. education is a problem of inequality.  (I thought this one was interesting and in line with what I see in upper middle class America)

• Tharman Shanmugaratnam, until recently Singapore's minister of education, explains the difference between his country's system and that of the United States: "We both have meritocracies," Shanmugaratnam says. "Yours is a talent meritocracy, ours is an exam meritocracy. We know how to train people to take exams. You know how to use people's talents to the fullest. Both are important, but there are some parts of the intellect that we are not able to test well -- like creativity, curiosity, a sense of adventure, ambition. Most of all, America has a culture of learning that challenges conventional wisdom, even if it means challenging authority."

• The country has found a way to keep itself constantly revitalized by streams of people who are eager to make a new life in a new world. Some Americans have always worried about such immigrants -- whether from Ireland or Italy, China or Mexico. But these immigrants have gone on to become the backbone of the American working class, and their children or grandchildren have entered the American mainstream. The United States has been able to tap this energy, manage diversity, assimilate newcomers, and move ahead economically. Ultimately, this is what sets the country apart from the experience of Britain and all other past great economic powers that have grown fat and lazy and slipped behind as they faced the rise of leaner, hungrier nations.

Comments

[Matthew G. Saroff]

I disagree with you.

There are a number of reasons:
* First is that by a number of measures, standard of living is falling, increasingly less localized life expectancy drops come to mind.

* It's increasingly clear that the changes in claculating inflation over the past 35 years have understated inflation, with the actual cost of living having exceeded the reported one by perhaps more than 2:1.
* The US as a nation and a society supports an unsustainable high level of debt.
* It's clear that the lifestyle here, particularly its car dependent aspects will become increasingly unsustainable.
* It's also clear that the dollar is significantly overvalued, and will fall, and as is the want of such corrections, will overshoot. For a period of 5-10 years, there will be significant period of inflation and shortages, because the industrial infrastructure to replace the then expensive foreign goods does not exist.

I would also argue that we are currently seeing the collapse of "Anglo-Saxon hyper-capitalism", which is very likely to change who the leaders are in the finance industry too.

The US will do better than, for example, Argentina, if just because our debts are denominated in our currency, and so the lenders get hosed.

[Matthew G. Saroff]

I disagree with you.

There are a number of reasons:
* First is that by a number of measures, standard of living is falling, increasingly less localized life expectancy drops come to mind.

* It's increasingly clear that the changes in claculating inflation over the past 35 years have understated inflation, with the actual cost of living having exceeded the reported one by perhaps more than 2:1.
* The US as a nation and a society supports an unsustainable high level of debt.
* It's clear that the lifestyle here, particularly its car dependent aspects will become increasingly unsustainable.
* It's also clear that the dollar is significantly overvalued, and will fall, and as is the want of such corrections, will overshoot. For a period of 5-10 years, there will be significant period of inflation and shortages, because the industrial infrastructure to replace the then expensive foreign goods does not exist.

I would also argue that we are currently seeing the collapse of "Anglo-Saxon hyper-capitalism", which is very likely to change who the leaders are in the finance industry too.

The US will do better than, for example, Argentina, if just because our debts are denominated in our currency, and so the lenders get hosed.

[Matthew G. Saroff]

I disagree with you.

There are a number of reasons:
* First is that by a number of measures, standard of living is falling, increasingly less localized life expectancy drops come to mind.

* It's increasingly clear that the changes in claculating inflation over the past 35 years have understated inflation, with the actual cost of living having exceeded the reported one by perhaps more than 2:1.
* The US as a nation and a society supports an unsustainable high level of debt.
* It's clear that the lifestyle here, particularly its car dependent aspects will become increasingly unsustainable.
* It's also clear that the dollar is significantly overvalued, and will fall, and as is the want of such corrections, will overshoot. For a period of 5-10 years, there will be significant period of inflation and shortages, because the industrial infrastructure to replace the then expensive foreign goods does not exist.

I would also argue that we are currently seeing the collapse of "Anglo-Saxon hyper-capitalism", which is very likely to change who the leaders are in the finance industry too.

The US will do better than, for example, Argentina, if just because our debts are denominated in our currency, and so the lenders get hosed.

[Matthew G. Saroff]

sorry about the multiple posts...some sort of hiccough on my end with the capcha.

[ShaMao]

Thanks again for your comments.

I have to both agree and disagree. I am not sure about the calculation of inflation. Anecdotally, I would tend to agree that prices may have risen faster than wages but a 2:1 error I think is a bit much. I'll do some research, should be fairly easy to get to the bottom of.

I don't believe that Americans will have any fewer cars nor drive them any less 20 years from now than they do today barring some major transportation invention. I do believe that the cars they are driving in 20 years will either not use gasoline or will use it far more efficiently. This will be driven by both huge R&D expenditures and consumer demand, neither of which would ever have happened without the spike in prices.

The US dollar will continue to be the currency of choice and there is a limit to its devaluation based simply on the dollar holdings abroad. It will continue to be the currency of choice because there is and will not be for the foreseeable future an alternative with both the economic dynamism and crucially political stability of the US.

[Matthew G. Saroff]

The 2:1 is the magic of compound interest.

If the baseline rate were 6%, and the actual were 9%, then in 24 years, the CPI would have increased by 4x (2^2) at 6%, but by 8x (2^3).

(rule of thumb, divide 72 by the percent to get doubling time, so 6% doubles every 12 years, and 9% doubles every 8 years)

It's not a doubling of the inflation, but a doubling of the two CPIs relative to each other.

2% gives you that doubling in 36 years, and the CIP readings were change 35 years ago.