The raw power of the United States

[El_Machinae]

I'd like to just take a moment to point out the raw (unexpected) power of the United States in the 21st Century, from the perspective of people who let their expectations shift over time.

2001 opens with a recession and closes with a nation shocked by 9/11. It's a trauma, for sure.

There's then a boom during a time when an incredible amount of wealth is being used to conduct and maintain two invasions and forced occupations overseas. This incredible wastage is viewed a major concern by an incredible number of people.

The 2008 financial crisis hits, the largest financial crisis since the Great Depression. The American government then sees its debt rise by huge amounts. This financial crisis concerns many people, and the debt creation also concerns a great number of people.

What then results is a very slow recovery, but much less painful than it could have been. But the wealth created very much skyrocketed to the top of the income distribution, where the capital becomes very disloyal to a nation and very hard to tap (politically)

Just as the nation is starting to recover, the leadership of a nation actually feels like it is in a position where it can take on multiple trade wars at once. And there are strong odds that they will 'get their way' in these trade wars, by forcing the concessions they say that they want.

At each of these events, there was significant worry that the US had been 'weakened', and most people would not have predicted that the US could handle its next test of power so handily.

 

[Cutlass]

Well, I think the US is weakened. But weakened from what starting point? There's over 200 nations in the world. The US still has over 20% of world economic output. This is down from a high of 50% from the end of WWII. Now that WWII high was artificial, as it takes advantage of the fact that so much of the rest of the world was crippled by the war.

But the US's 20% share now is still a bit artificial, as it takes advantage of the fact that there are still not far off 200 nations in the world who choose to be poor. So we don't really have to try very hard to maintain our relative position. So even though the US has chosen to be poorer than it otherwise would have, and choose a turn to political, economic, and social, conservatism at the expense of wealth creation, nearly everyone else has done the same.

 

[Peuri]

You can buy lots of shiny things with 21 trillion dollars of debt.

 

[Narz]

I watch a video like this :

and I really don't understand why people are so gaga to come to the US. If I was a corporate overlord I was outsource the **** out of every aspect of my business overseas.

 

[luiz]

Well the US is certainly weaker vis-à-vis the developing world, but not compared to the rich world. The US has vastly outperformed Japan and the Eurozone since 2001. But it has not, and indeed cannot, outperform China and India. So its share of total wealth, (and power) has been falling and will continue to fall. And that's for the most part a good thing.

 

[cardgame]

Ah, but a good thing for who? Nasty as the American government may be it doesn't hold much of a candle to the corruption and inequality of India, or the authoritarianism of China.

 

[Akka]

I have this feeling that the USA is like these banks in the 2008 crisis : it holds such a huge amount of bad debt, that it basically holds the system hostage. If it goes down, the entire world goes down, so everyone pretends very hard that it's still solvable.

 

[TheMeInTeam]

I have this feeling that the USA is like these banks in the 2008 crisis : it holds such a huge amount of bad debt, that it basically holds the system hostage. If it goes down, the entire world goes down, so everyone pretends very hard that it's still solvable.

I suspect what happens when it becomes obvious it's not will go a little differently though.

 

[El_Machinae]

I have this feeling that the USA is like these banks in the 2008 crisis : it holds such a huge amount of bad debt, that it basically holds the system hostage. If it goes down, the entire world goes down, so everyone pretends very hard that it's still solvable.

But all of those individual debt units are held in specific portfolios. No one is 'pretending' to want that debt. Their Central Bank can always buy the debt, but it's always an unpopular option. But even that is them exercising an internal option. If other Central Banks start buying the American debt, you really can suspect something's up.

The combination of luiz's post and Peuri's post made me look it up: The EU has very similar GDP to the US [*handwaves the estimate*], but their sovereign debt is obviously lower when counting Federal governments. Is the EU weaker than the US? Did one of them over-borrow? Did the other under-borrow?

 

[Lexicus]

It's almost like the level of public debt matters way less than what you spent the money on

 

[El_Machinae]

It's almost like the level of public debt matters way less than what you spent the money on

On that front, it's very tempting to say that one group spent more efficiently than the other. If my productivity increases as fast or faster than my debt burden, my 'productivity per debt unit' will increase over time, not fall. I can infinitely borrow at 2% for any investment that creates 3% returns.

But despite the skyrocketing debt to gdp of the US compared to the EU, the US leadership still feels like it can basically swing at all comers when it comes to Trade Wars. There's no divide and conquer going on, I'm likening it to engaging in two different lands wars across the globe. That seems to have resulted in a recession, and 8 years after that recession, the USA is ready to start swinging again.

luiz's point about US's relative loss of power being a 'good thing' can be read in two ways. First, people can look at it like a dethroning. But the 2nd is to remember that a lot of that loss is most easily explained by other people rising, and it's merely a function of proportions changing due to other people growing faster (which is entirely expected and desired).

 

[Lexicus]

On that front, it's very tempting to say that one group spent more efficiently than the other. If my productivity increases as fast or faster than my debt burden, my 'productivity per debt unit' will increase over time, not fall. I can infinitely borrow at 2% for any investment that creates 3% returns.

But despite the skyrocketing debt to gdp of the US compared to the EU, the US leadership still feels like it can basically swing at all comers when it comes to Trade Wars. There's no divide and conquer going on, I'm likening it to engaging in two different lands wars across the globe. That seems to have resulted in a recession, and 8 years after that recession, the USA is ready to start swinging again.

I am not entirely sure what you mean by all this, but I will say that I think the impact of the "trade wars" is likely to be less than is commonly supposed by mainstream economists. In any case, the very different politics and institutional structure of the US vs the EU (or more precisely the EMU) accounts for the differences in response. The US has a highly integrated system where the currency union (the "dollarzone") is coterminous with political union (the Union, with the federal government firmly at the top, above any state government).

To draw proper analogy between "spending efficiency" of the EMU and the US, you would need to totally get rid of the federal government, leaving only the federal reserve as the lender of last resort for the dollar- and each state government pretty much has control of its own fiscal affairs, as long as they stay within the bounds defined by their treaty with all the other states.

Under these conditions it's difficult to imagine the US would be doing any better than the EMU is now. The simple explanation is that the US spent money on economic stimulus back in the immediate aftermath of the crash, stimulus both in the eponymous "stimulus package" and in the bank bailout (which, while I disagree with how the money was spent, was still money being spent). The EMU went for austerity instead.

luiz's point about US's relative loss of power being a 'good thing' can be read in two ways. First, people can look at it like a dethroning. But the 2nd is to remember that a lot of that loss is most easily explained by other people rising, and it's merely a function of proportions changing due to other people growing faster (which is entirely expected and desired).

The entirety of the US's decline in position from 50% of world economic activity to the present roughly 20% is due to the economic growth of the rest of the world: the US economy has, obviously, grown and not declined in absolute terms over the same time period.

 

[El_Machinae]

I am not entirely sure what you mean by all this, but I will say that I think the impact of the "trade wars" is likely to be less than is commonly supposed by mainstream economists

I'm skeptical that it won't be impactful, but obviously that depends on the direction it goes. The ability of a country to print money really pales in comparison when it comes to losing actual trade opportunities.

My paragraphs about 'efficiency' was that if the US had spent debt-dollars wisely, the debt-to-GDP would not have risen as much. Now, using just the Federal debt as a metric is entirely insufficient because everyone was frantically deleveraging at the same time. And deleveraging doesn't show up in the Federal debt-to-GDP number without at least breaking it up into its numerator and denominator.

Again, I'm not being overly critical of people worries at each of those snapshots in history. What I am shocked at is just the remaining power left to not only overcome those worries, but to bounce back up fighting as easily as it did.

 

[Lexicus]

The ability of a country to print money really pales in comparison when it comes to losing actual trade opportunities.

I don't agree, because I have far less faith in the capacity of 'comparative advantage' to actually bring about greater prosperity. What brings about prosperity is a diversified economy with lots of highly skilled people, not specializing in producing commodities for export (the actual result of too great a focus on comparative advantage in national economic policy).
One might specialize in producing commodities for export in order to generate the capital to invest in a diverse economy and real prosperity, but with political arrangements as they are in most of the world, the proceeds aren't invested in real prosperity, they are appropriated by kleptocrats and then parked in rent-seeking investments in the countries that already have diverse economies.

 

[Hehehe]

I'd like to just take a moment to point out the raw (unexpected) power of the United States in the 21st Century, from the perspective of people who let their expectations shift over time.

??? US has been, and still is, the world's leading superpower du jour. This has been the case after WW2 and especially since the Soviet Union fell, and I didn't think that this is news to anyone. I thought everybody always knew that the US has a lot of economic and military power

2001 opens with a recession and closes with a nation shocked by 9/11. It's a trauma, for sure.

There's then a boom during a time when an incredible amount of wealth is being used to conduct and maintain two invasions and forced occupations overseas. This incredible wastage is viewed a major concern by an incredible number of people.

I get that 9/11 probably carries a lot of cultural significance for Americans. But it's been what, 17 years? Can we finally say it? It wasn't that big of a deal in the grand scheme of things. It was just a terrorist attack. Yes, people died, and it was horrible, but Americans reacted almost as if it were an existential threat when it clearly wasn't. In fact it seems that the US response did more harm than good. 9/11 is waaaaayyyyy overblown

The 2008 financial crisis hits, the largest financial crisis since the Great Depression. The American government then sees its debt rise by huge amounts. This financial crisis concerns many people, and the debt creation also concerns a great number of people.

Just as the nation is starting to recover, the leadership of a nation actually feels like it is in a position where it can take on multiple trade wars at once. And there are strong odds that they will 'get their way' in these trade wars, by forcing the concessions they say that they want.

As far as the US debt and the trade wars are concerned, I wouldn't relax just yet, the bill for those is still due. US debt is complicated, and I think it's been addressed in other threads. But as far as the trade wars go, I think that overall, the loser of those wars will be humanity. Now this could go a lot of ways. Maybe the US will come out on top, but not necessarily

 

[Commodore]

I have this feeling that the USA is like these banks in the 2008 crisis : it holds such a huge amount of bad debt, that it basically holds the system hostage.

And that was planned as well. The US has intentionally placed itself in a position where even if the whole world hates us, they won't move against us in any significant manner because they know that if we go down, we take the world with us. Essentially assuring our position as the last great empire. Our empire won't last forever (no empire can), but when our empire collapses, we'll make sure it will be a loooooooong time before another one can rise.

 

[Hehehe]

And that was planned as well. The US has intentionally placed itself in a position where even if the whole world hates us, they won't move against us in any significant manner because they know that if we go down, we take the world with us. Essentially assuring our position as the last great empire. Our empire won't last forever (no empire can), but when our empire collapses, we'll make sure it will be a loooooooong time before another one can rise.

You mean the debt thing? Most US debt is held by Americans themselves. If you're worried about the world moving against you, then I think that 2 oceans on each side and the world's biggest navy are a better deterrent than debt payments

 

[El_Machinae]

I don't agree, because I have far less faith in the capacity of 'comparative advantage' to actually bring about greater prosperity. What brings about prosperity is a diversified economy with lots of highly skilled people, not specializing in producing commodities for export (the actual result of too great a focus on comparative advantage in national economic policy).
One might specialize in producing commodities for export in order to generate the capital to invest in a diverse economy and real prosperity, but with political arrangements as they are in most of the world, the proceeds aren't invested in real prosperity, they are appropriated by kleptocrats and then parked in rent-seeking investments in the countries that already have diverse economies.

I agree that the majority of saved dollars aren't spent on actual investment. But this only matters at certain tiers of income. I think you drastically underestimate the amount of liquid wealth required to become truly parasitical. Because of that, you underestimate the portion of the Surplus that is not going to that cohort.

But you're absolutely nuts if you think it will benefit people to reduce actual trade. Can you think of a single state in the United States that would benefit from putting security checkpoints on its borders? The sole point of this set of checkpoints would be to increase the friction of trade, making only fixed cost increases.

If your theory was correct, these checkpoints would pay for themselves.

 

[TheMeInTeam]

But despite the skyrocketing debt to gdp of the US compared to the EU, the US leadership still feels like it can basically swing at all comers when it comes to Trade Wars. There's no divide and conquer going on, I'm likening it to engaging in two different lands wars across the globe. That seems to have resulted in a recession, and 8 years after that recession, the USA is ready to start swinging again.

US is also threatening to upend NATO as a chip, likely causing more military investment from EU nations than would be the case in past 20 years otherwise. Looks like tossing a few extra cards into the trade wars deck/reallocating relative spending.

get that 9/11 probably carries a lot of cultural significance for Americans. But it's been what, 17 years? Can we finally say it? It wasn't that big of a deal in the grand scheme of things. It was just a terrorist attack. Yes, people died, and it was horrible, but Americans reacted almost as if it were an existential threat when it clearly wasn't. In fact it seems that the US response did more harm than good.

It was effectively used as an opportunistic CB, so of course it was hyped emotionally. On rate percentage of deaths, even innocent deaths in the USA alone, the casualties are tiny compared to just how many people who received no special attention whatsoever? There's no memorial for people killed by muggers regardless of innocence, no acknowledgement for their families, same for car accidents. To the people dying/families affected, once someone dies as the result of someone slamming a vehicle into you, they're every bit as dead whether the person was motivated by irrational garbage or alcohol...or both.

If you look at it through a lens of loss of life the specific attention and huge amounts of money thrown at it is undue. Through a lens of using the horrific imagery to pin an enemy and pursue something, the focus is less surprising.

That's not to say that these incidents don't matter. The world would be a better place if we stop them.

 

[Lexicus]

I think you drastically underestimate the amount of liquid wealth required to become truly parasitical. Because of that, you underestimate the portion of the Surplus that is not going to that cohort.

I don't understand what this means at all.

But you're absolutely nuts if you think it will benefit people to reduce actual trade. Can you think of a single state in the United States that would benefit from putting security checkpoints on its borders? The sole point of this set of checkpoints would be to increase the friction of trade, making only fixed cost increases.

My actual position is that erecting trade barriers will be much less of a problem than the mainstream commonly assumes, because a healthy economy is capable of adapting to changing circumstances, and so after a period of adjustment you will see domestic production of goods formerly obtained by trade. They may be produced more expensively than by the trading partner, but again I just don't see how that can be anything more than a marginal effect - and if more expensive domestic production means higher incomes for Americans working in that sector, then the benefits arguably outweigh the costs of having to buy the more expensively-produced goods.

The side of things that mainstream analyses of 'free trade' have largely ignored is that people are producers as well as consumers. What is the major driver of the difference in cost of producing something in the US vs producing it in Bangladesh? Answer: labor costs. Why? Because Bangladesh has a way lower standard of living than the US.

Put a trade barrier between the US and Bangladesh, and yes, you deny access to cheap Bangladeshi goods to US consumers. But what if the only reason they needed those cheap goods in the first place is because the good jobs they had were outsourced to Bangladesh by rent-seeking capitalists? Then at the very least the picture becomes more complicated.

Another way to think about this is to just look at the facts of the situation. In what universe does it actually make more economic sense to ship components across the Pacific for assembly in low-wage countries, and then ship them all the way back across the Pacific for final purchase by consumers? How does this add to world prosperity at all? It doesn't, and there's no twisted logic that can make it appear otherwise. In real-resource terms it's a huge waste; it makes absolutely no economic sense, but it makes dollars and cents for the capitalists who are able to profit from the wage differential between the US and those low-wage countries.