In fact, those of us with a sense of irony and a little knowledge of economic history start to get nervous when we hear that the United States is now the economic model for the rest of the world and we can look forward to a glorious American Century, if not an entire American Millennium. Because about the time that the triumph of some economic system or other is proclaimed, that system is almost always getting ready to fall flat on its fanny.
But before we get into that, let’s give the U.S. economy its due. These are glorious times for the United States, both in absolute terms and in comparison with our competitors in Europe and Asia. The booms in the U.S. economy and stock market have gone on far longer than almost anyone expected. Employment is rising rapidly, the economy is going strong for the seventh straight year, inflation is almost nonexistent. The federal budget deficit has largely disappeared. Despite a few hiccups (and that big gulp in October), the U.S. stock market is finishing its best three-year stretch ever; on average, investors have more than doubled their money since the start of 1995.
Meanwhile, financial diseases like “Eurosclerosis” and “Asian flu” are crippling economies in Europe and Asia. Most of Europe is stagnant, and it sure looks like financial crises have brought the boom in much of Asia to a screeching halt.
So why not join the American triumphalists? After all, things are going great here, at least for the people who have decent jobs or enough money to have put big bucks into stocks. Why not gloat? Because when it comes to economics, no one stays on top forever. And arrogance is almost always the precursor of decline.
Remember 1992, when Bill Clinton ran for president by pillorying the poor performance of the U.S. economy? Back then lots of people were invoking Europe as the model the United States should follow. Now we talk about how hard it is to change things in most European countries, and how generous safety nets make it almost as rewarding to be unemployed as to work. In the 1980s Japan was throwing its weight around and pundits foresaw the Pacific Century. Well, maybe it’s the 22d. In the 1970s Arab oil countries and the Shah of Iran-remember him?–regularly lectured the United States about how to manage our economy. Haven’t heard much from them lately, have we?
In this context, the idea that the United States has found a magical formula for growth is just plain silly. One reason the U.S. economy is doing so well is that interest rates are relatively low. That’s in large part because capital from the rest of the world flooded into our country, helping us finance once gigantic federal deficits without running interest rates to the moon. Remember how a passing remark by Japan’s prime minister about how Tokyo might sell Treasury securities started a brief panic in the U.S. stock market? And one of the assumptions underlying current optimism about inflation is that desperate Asian companies will cut prices deeply in order to sell in the United States for dollars to pay their debts. That’s Asian hard luck, not U.S. brilliance.
“The good news [for the U.S. economy] comes down to only one thing: wages have failed to rise despite low unemployment,” argues Paul Krugman, an MIT economics professor. “Everything else is just hype.”
So before you start chest-bumping or trash-talking or taking victory laps in honor of the triumph of the U.S. system, remember what happened to the Europeans, Japanese and Arabs about the time they started lecturing the world on how to behave. And remember the wisdom of Solomon, who should have heeded his own advice. His proudest achievement-building the First Temple in Jerusalem-forced him to tax the Israelites heavily, causing the breakup of his kingdom after he died. But he sure knew how to coin a phrase.
