After The Cheering, A Weaker America
This morning New York Mayor Michael Bloomberg told Today Show host Matt Lauer what he thought the main lesson of Osama bin Laden's death was: We have endured the biggest attack in our history and emerged "stronger than ever." If only it were so. The numbers tell a different story. On the morning of September 11, 2001, New York was, in the words of a PBS documentary, "the center of the world" -- the financial capital of a nation generating 32 percent of global economic output. Today, only ten years later, America's share of global production has fallen to 23 percent, and the steady erosion seen since the 9-11 attacks continues unabated.
According to the International Monetary Fund, the U.S. share of global output shrunk from 24.4 percent in 2009 to 23.3 percent in 2010. If the federal government stopped borrowing money tomorrow, our economy would quickly contract to 20 percent of world production, since federal borrowing currently represents over a tenth of GDP. In other words, borrowing is the main reason that America's share of global output has not fallen to the lowest level in living memory. So the National Intelligence Council was right when it told President-elect Obama in 2008 that, "In terms of size, speed, and directional flow, the global shift in relative wealth and economic power now under way -- roughly from West to East -- is without precedent in modern history."
I've quoted that passage many times since we began the Lexington blog, but I still have the sense that most people in Washington don't grasp how rapid America's decline has been since 9-11. The IMF issued the latest of many warnings last month, when it predicted that in actual purchasing power, the Chinese economy would surpass America's in just four years. Reasoning that current exchange rates understate the true size of China's economy, IMF analysts compared patterns in "purchasing power parity," and found that if current trends persist then in 2015 China will represent 18 percent of global output and the United States will represent 17.7 percent. Of course current trends may not continue for the next four years, but they have for the last ten -- which is why the IMF thought such an analysis was needed in the first place.
As I remarked in a piece for Forbes earlier this week, we can't blame Osama bin Laden for America's decline after 9-11, since our wounds are largely self-inflicted. But we can speculate that the constant distraction of overseas wars aimed at defeating terrorism had something to do with why policymakers neglected the nation's economic health until it became a crisis reflected in record federal budget deficits. And we can reasonably assume that if America's economic decline continues, many historians will see 9-11 as the symbolic turning point in America's fortunes -- the day on which the golden age of American affluence and influence began to ebb away. The question is what Washington should do about it now that the best known author of our recent difficulties is dead.
For me, the answer is simple. The United States needs to relinquish its pretentious crusade to save the world and set about saving itself. Having ceased to be a model for other countries' development, America must rediscover the basic principles that enabled it to rise to economic greatness after the Civil War. That means first of all paying our bills rather than deferring pain and enforcing our trade rights against mercantilist nations that seek to compete unfairly. In other words, we need to write the requirement for a balanced budget into the Constitution, and we need to start imposing tangible sanctions on nations like China who have repeatedly flouted their obligations under trade treaties. As far as Afghanistan and all the other basket cases we have tried to bail out in recent years are concerned, it's time for us to move on. We need all the resources at our disposal to fix and defend America, and no longer have the luxury of pursuing missionary work in the world's most backward places.