[I am taking a break for the holidays but I want to share with you a past issue of the Global Guru I wrote in 2013 on the ‚??Myth of America‚??s Decline.‚?Ě With the predictions of hyperinflation and the imminent collapse of the U.S. economy now increasingly discredited, this piece offers a historically based and optimistic perspective on America‚??s future.]
Few ideas challenge conventional wisdom more than one that questions the pervasive notion that America has seen its best days. Whether you voted for Obama or Romney, it‚??s all but gospel that the U.S. empire is on the skids. And as the high-profile careers of countless doom-and-gloomers confirm, you can have a lucrative career giving the same speech, year after year, about the decline of America.
But as German journalist Josef Joffe points out in his book, ‚??The Myth of America‚??s Decline: Politics, Economics, and a Half Century of False Prophecies,‚?Ě that‚??s nothing new.
Whether it was the launch of the Sputnik satellite in the 1950s; Vietnam in the 1970s; Jimmy Carter‚??s ‚??malaise‚?Ě years in the 1970s; Japan as the ‚??Rising Sun‚?Ě in the 1980s; or terrorism and the Chinese economic juggernaut in the 2000s, the ‚??U.S. in decline‚?Ě is a never-ending theme for both liberal and conservative thinkers, egged on from the peanut gallery by the largely anti-American foreign media.
China: ‚??This Time It‚??s Different‚??
We constantly have a new story about the ‘next global superpower.’¬†In 1960, Soviet Premier Nikita Krushchev threatened to ‚??bury‚?Ě the United States —¬†and talked about doing so right in the middle of Manhattan. Novelist Michael Crichton, author of ‚??Rising Sun,‚?Ě warned that the United States must simply accept the truth that a country the size of Montana (Japan) would become its economic overlord.
Were it not for the presence of China, surely Americans would find another country to worry about taking the reins.
However, China’s development truly is not out of the ordinary.¬†Whether it was Japan in the 1950s and 1960s, or the ‚??Asian Tigers‚?Ě in the 1970s and 1980s, economic growth rates tend to peak at about 10% per year before they peter out. With growth rates pulling back from that level, China already has started down that road.
Other countries’ growth can lead to ridiculous projections based on growth rates before their economies become fully developed. Caught up in the fever of projecting growth rates out decades, Nobel Prize-winning economist Paul Samuelson predicted the Soviet Union would overtake the U.S. economy by 1984. With the entire country wiped off the map in 1991, it didn‚??t quite work out that way.
I‚??m betting University of Chicago economist Robert Fogel‚??s prediction that in 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000, will turn out to be even more absurd.
The United States: A Remarkably Self-Critical Culture
The one remarkable aspect of the United States is its penchant for self-criticism and its ability to adapt to change. In 1741, the preacher Jonathan Edwards penned a famous sermon which railed that we are all ‚??sinners in the hands of an angry God.‚?Ě Other cultures moan and groan, but they ultimately blame everyone but themselves. The United States is unique in that it sees every crisis as its own fault.
There is a perception that we’ve seen our best days and have grown complacent and lost our edge. Yet, if the citizens of the United States thought like those in Europe, Americans would blame all their woes on the Greeks (too lazy), the Germans (too industrious) or history (too unfair). Even in as blatant a case as China‚??s currency manipulation, which essentially financed China‚??s skyscrapers and put U.S. manufacturing on its back, the U.S. Treasury was unwilling to call the Chinese spade a spade.
At the same time, the United States has become ashamed of celebrating its own successes.
When Brett Stephens pointed out in a recent issue of the Wall Street Journal that almost all of this year‚??s Nobel Prizes went to scholars at U.S. universities, he attracted angry criticism from all sides of the political spectrum.
Critics pointed out that these prizes were doled out for achievements of the past. (You know, the glorious 1970s —¬†Carter‚??s ‚??malaise‚?Ě years —¬†and the roaring 1980s, when ‚??Japan was #1‚?Ě). And besides, some of the winners weren‚??t even originally from the United States.
Ironically, the fact that a German won the Nobel Prize at Stanford University and a Frenchman won it at Harvard University merely confirms the strength of the United States. Stephens cites the example of Hungary, which has produced a dozen winners of the Nobel Prize. Every single one of Hungary‚??s laureates ultimately left or fled the country. Stephens’ advice: ‚??If you are brilliant, ambitious and Hungarian, better get out while you can.‚?Ě
And I don‚??t think he meant flee to Moscow State University.
What about the oft-cited statistic that a big chunk of Silicon Valley companies are started by those born outside of the United States? I‚??m not sure why that‚??s an issue in a country of immigrants. U.S. Steel —¬†the iconic American success story —¬†was also started by an immigrant, Andrew Carnegie. And as one hedge fund manager said, ‚??The next Google is not coming out of Brazil.‚?Ě
For all of the talk of the United States‚?? decline, the world‚??s best and brightest vote with their feet, and more foreign students are flocking to study in the land of the ‚??fat and dumb‚?Ě than ever before. Most revealingly, well over 90% of Chinese PhD students stay on in the United States —¬†Shanghai‚??s shiny new skyscrapers notwithstanding. And as proud as China Bull Jim Rogers is of his Chinese-speaking daughters in Singapore, I bet they‚??re a lot more likely to end up at his alma mater, Yale University, than at Peking University.
Enough about brains. How about some stats on brawn?
U.S. and foreign athletes associated with U.S. colleges and universities won 281 medals at the 2012 London Olympics, 135 of them gold. That means U.S. colleges produced more gold, silver and bronze medals than the top three countries —¬†the United States, China and Great Britain —¬†did combined. Put another way, the Olympics were a big NCAA reunion for a bunch of college kids from around the world.
Why U.S. Decline is a Myth
It’s certainly true that not everything is perfect in the United States these days, because some issues do plague us¬†—¬†out-of-control government debt, poor infrastructure and staggering health-care costs.
My point here is that the ‚??good old‚?Ě days when the United States was not gripped by some sort of crisis —¬†think of Vietnam, the arms race, the energy crisis, double-digit percentage inflation rates —¬†were few and far between. The United States is a noisy, contentious democracy. Ironically, all of that churning and change is what gives the country its unique resilience. It is static societies that are resistant to change that implode. That‚??s ultimately what doomed the Soviet Union and kept Japan from being #1.
The United States still dominates, as Josef Joffe puts it, much like a decathlete does. A decathlete may not be the best in each individual sport. But he dominates when you take the 10 sports together.
And as the late, great Jim Rohn observed, ‚??People aren‚??t building rafts to escape to Cuba.‚?Ě
In case you missed it, I encourage you to read my e-letter column from last week about why U.S. small caps are the best bet for long-term investors. I also invite you to comment in the space provided below my¬†Eagle Daily Investor¬†commentary.