Triumphs and Tragedies

There is every reason to believe that American economic growth is in a period of long-term acceleration. The American workforce is experiencing much faster productivity growth than those of other developed economies. Most Americans are getting some benefits of this advance.

At the same time inequality in America is also accelerating. The two trends of rising productivity and inequality are related perversely. From 1945 until about 1973, productivity and wages rose at the same rate, but since then wages have fallen behind. Some trends at the economic and educational bottom of American society are truly alarming. Wages are barely keeping up with inflation. The worst statistic is that three out of ten American high-school students are not graduating on time. For African Americans and Hispanics, who make up a quarter of Americans, it is close to half. There are many developing countries doing better than America in this respect. Many are passing their classes when they drop out, while others fall behind in reading and miss more classes before they quit. The roots of the American educational deficit lie not only in government policies but also in culture and social structure. Persistent, if more subtle, ethnic discrimination, as well as the breakdown of the two-parent family and the rise of impulsive individualism among youth are the main forces. These trends cannot be reversed by known means.

Another disturbing trend is that America and Americans are increasingly indebted. Many have expressed the fear that Japan and China will suddenly stop lending to America. In reality there is nowhere else they can suddenly transfer the amounts of money they are saving. The real danger is that interest rates will increase and the American government and households will find themselves in a debt trap, borrowing more to pay interest. Of course, rising inequality and indebtedness are also perversely related. Middle-class households are borrowing more to keep up their consumption as their incomes fall behind. And the powerful rich have shielded themselves from taxes, forcing the government to borrow ever more.

The American debt reflects both American weakness and strength. While the debt has disadvantages, it is financially sustainable for a decade or more. This is because of the unique role of the dollar and American financial markets in the world economy. There is no other currency and economy in which the hundreds of billions of dollars of capital that China, Japan, and India are amassing can be kept. Europe and the euro are not serious candidates. The European economy is too closed and deficient in innovation. European economic policy may well serve the people of Europe adequately, but it does not serve the requirements of Asian finance. Under these circumstances, China and India will be banking in America for their long export booms.

Further, despite trade deficits, imports from China and India are probably the main factors driving the boom in American worker productivity. Indian software exports are powering and transforming American corporations. Only about a third of the price paid by consumers for Chinese exports actually goes to China. The rest goes to American workers who design and market the products. The labor of those workers is highly productive.

The net result of this is that America will become increasingly dependent on Asia for manufacturing and technology, but its monetary institutions will remain essential until Asian developing economies grow severalfold. So America and privileged Americans can afford to coast along for another generation.

In foreign policy, we are witnessing a sea change within American society and the enunciated threat of nuclear war. Bush has steadily become less popular since he was reelected due to the debacle in Iraq. The fundamental problem is Bush’s exploitation of American soldiers. This has greatly embittered the communities from which the soldiers are recruited. European American soldiers are recruited primarily from lower-middle-class families in small towns and the South. These communities brought Bush and the Republicans their majorities in recent presidential and congressional elections. Bush has created a situation where few will join the military, and thus the few who are already in are being manipulated ruthlessly into fighting Bush’s pet war. The resulting loss of trust will impact the Republican Party and the U.S. military for a generation.

The most ominous development is President Bush’s statement that “all options are on the table” in response to a question on whether he is planning to attack Iran with nuclear weapons. There has been very little reaction to this statement so far, within the United States or abroad. This is the first public statement by the leader of a nuclear-weapons state since 1945 threatening to use nuclear weapons in the process of starting a war. A major achievement of humanity since 1945 has been to avoid any use of nuclear weapons, despite all the hatreds and horrors of the age. Although the United States has never forsworn first use of nuclear weapons in a conflict, all its previous nuclear threats were predicated on the prior initiation of conventional conflict. The scenario under discussion is of using small nuclear weapons to destroy underground Iranian facilities too deep to destroy with conventional weapons. These nuclear bombs explode under the ground, but not deep enough to stop the explosion from pushing above the surface. Radiation deaths of civilians would certainly occur in such an attack.

Due to global and national trends, America is in a transition from being a domineering superpower to being the first among equals. Its power will be increasingly dependent on persuading states and people who do not share its identity. The transition itself is quite dangerous.

Sanjoy Banerjee teaches international relations at San Francisco State University. He writes about India, America, and the world.



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