The Last Economic Superpower: The Retreat of Globalization, the End of American Dominance, and What We Can Do About It (Business Books)
A marked shift has occurred in the tone and assumptions surrounding our national fortune. Nowhere is this better seen than in the second generation of books dealing with America’s financial crisis, particularly Joseph P. Quinlan’s The Last Economic Superpower: The Retreat of Globalization, the End of American Dominance, and What We Can Do About It.
The books of Generation 1.0—Too Big to Fail, The End of Wall Street, The Big Short—dealt with the heat of the crisis and some of its backstory. On their heels, works like Chasing Goldman Sachs and All the Devils Are Here delved deeper into the players and causes, completing the cycle and leaving it to economic historians to more deeply research and draw lessons.
Even as this first wave was published, however, the thought among many in the know was that the crisis would soon pass—that the nation rested on an ever-powerful economic mattress; even if the bed frame’s slats collapsed, the damage would be nothing more than a drop of an inch or two, the latest cyclical bust.
But the second wave of writers believes no such thing. For them, the recession is not just a correctible monetary or fiscal aberration. Instead, it signals a tipping point in America’s dominance—something irreversible, historic and ominous for the nation and the world.
Quinlan, a managing director and chief market strategist for U.S. Trust, points to Hapsburg Spain and its inflow of silver to give us a taste of our new role as the world’s chief debtor:
“[Silver] let Spain have something (mostly the services of troops) for apparently nothing. The inflow did not immediately lead to Spanish decline, but it did eventually produce a hollowing out of the Spanish economy and in the end also a loss of strategic preeminence.”
Much like Spain, Quinlan notes, the longer the United States relies on money it does not earn, the more vulnerable it becomes to global financial patterns rapidly evolving beyond its control.
These include the rise of China, Brazil and India but, even more stupendous, a set of emerging markets that have resulted, ironically, from America’s championing of global finance and trade. Countries like Turkey, Indonesia, Vietnam, Egypt and South Africa are set to grow three times faster than developed ones in 2011, and they are producing the a new middle class that could rise from 1.8 billion people today to five billion—nearly two thirds of the global population—by 2030.
To paraphrase Nobel Laureate Robert Lucas, the consequences of this, not just for economic growth but also for human welfare, are simply staggering. Once you begin considering this, it is hard to think about anything else.
This, and other forces, leads Quinlan to pose alternative scenarios. Now, there’s nothing wrong with the prediction business, and certainly no risk to writers who engage in it. But let’s acknowledge that it is always based on a snapshot in time and dependent on unchanging conditions. No hints of chaos, no glimmers of “black swans” get inserted into the equation, which make such exercises compelling but fishy.
Nevertheless, Quinlan’s scenarios are worth digesting. In the first, the U.S. and the developed nations, rather than face the geopolitical global landscape and accept diminished roles in the world economy, deny reality and cling to the status quo. The result? An economic cold war between developed and developing nations—a more than plausible prediction given the denial-mentality presently built into our national psyche and politicians.
The flip side of this is something more hopeful: Our nation and others create a climate of cooperation and agreement. Globalization, Quinlan believes, may be in retreat but need not die if the main economic players can put aside national interests for the global good. But this will require a set of leaders almost equal to our founding fathers—men and women who have the confidence of the voters yet put ambition and self-interest aside. Like the faithful, we await their coming.
Speaking of founding fathers, it was a certain president who once said “You won’t have Nixon to kick around anymore.” Yet Quinlan reveals that even Tricky Dick had a surer feel for the global economy than our present policy mavens. It was Nixon who took the U.S. off the gold standard, essentially opening the door to the free flow of capital around the world. Capital fuels greater trade, and funds found their way to the very countries in whose hands our fate may be held. Think of it: Old Milhous created greater equality among nations—which, depending on your point of view, may be a good or bad thing.
Unfortunately, his decision also unleashed the financial engineers of Wall Street, who created the first derivatives and eventually turned securitization into Frankenstein’s monster.