America as Less Than No. 1
By Daniel Henninger
WSJ.com
So this is a taste of what it will be like when
the American superpower starts shrinking. Enjoying
it yet?
After the humiliation of the United States losing
its AAA credit rating; after watching the American
stock market descend into chaos; after living for
two years in a $15 trillion economy unable to grow
beyond 2%, with unemployment rates rarely
experienced in the U.S., Americans have their first
whiff of inhabiting an empire in decline.
You could divide the country between those who
think that it wouldn't be the worst thing for the
U.S. to enter the long, falling autumn of its life,
as has Western Europe; and those who refuse to go
down, who'd do whatever they must to hold the
world's No. 1 ranking.
The U.S. is far from finished. The private
economy—from the biggest corporations to innumerable
dreamers launching start-ups—is fit and eager. But
make no mistake: The U.S. has taken a hard hit to
its 65-year status as the world's pre-eminent
nation.
Uncle Sam at the moment is seated in his corner
of the global ring, gasping for breath, and no doubt
he'll come off the stool. But the cynical men in
other capitals—Beijing, Tehran, Moscow, Paris,
elsewhere—will be watching now to see just how much
fight the old boy has left in him.
The Standard and Poor's downgrade is nothing more
than bloodless analysts looking at the grim
mathematical reality of this country's long-term
social commitments and its ability to pay for them.
Something has to give, and what they see bending is
the long-term growth rate that since about 1876
raised the U.S. to its current pre-eminence. If
growth goes, your status goes. It's not complicated.
Ask Britain, once glorious but now burning.
In his magisterial study of world growth since
the year 1000, the late economist Angus Maddison
noted that the "golden age" for growth lasted from
1950 to 1973, with world per-capita GDP growing at
3%. Then in 1973 growth slowed in the U.S.'s
"follower" countries of Western Europe and Japan:
"Some slowdown in these countries was warranted, but
policy failings [my
emphasis] made it bigger than it need have been."
The gauntlet thrown down by the S&P downgrade is whether the U.S. will now commit "policy failings" that change it into a follower country. We'll get a first answer shortly from the 12 solons on Congress's debt-deal super committee.
It's good that S&P made so much of the political
stand-off in Washington. This implicitly recognizes
there is probably no middle way between the
Democratic and GOP answers to the social and
economic questions raised by the downgrade.
Going back at least to the Clinton presidency, Democratic policy analysts have promoted, as a middle way, various Western European "mixed-economy" models for the U.S.—generous national systems for health and welfare, with the economy kept going by tax-supported "investments" (spending) in infrastructure, education, research and the like. This of course is what Barack Obama has sought from day one.
The Democratic argument has been that the country
could maintain its remarkable economic success while
performing all these social goals, though with
cutbacks in defense spending. But there has never
been any sort of coherent
economic argument for how we could spend all
this money and maintain the U.S.'s long-term growth
trend. The S&P downgrade is at bottom a repudiation
of 50 years of Democratic economic theory, or its
absence.
What they've offered is essentially a dream,
often described by them as such. But if the dream
requires that Washington must somehow manage
spending on the scale now, then clearly the
middle-way dream isn't working.
The U.S. is not Germany or Denmark. Follower
nations can afford to do no more than maintain
contented populations. The U.S. bears inescapable
global responsibilities. President Obama's explicit
intention—Libya is Exhibit A— has been to back off
America's No. 1 footprint in the world to free
resources for the domestic dream.
What we're going to learn from this crisis is
that American exceptionalism means something more
than a vague claim to special status. More
substantively, it means the necessity to find
peculiarly American solutions to American problems.
A central attribute of our exceptionalism has
been flexibility. U.S. economic success is a story
of adaptive, efficient responses to history's
headwinds and speed-bumps—until now. A national
infrastructure bank would be the opposite of that
tradition. It'd be too big and too slow. The Obama
health-care plan, run through the 46-year-old
turbines of Medicare, is wholly at odds with the
needs now of a huge, complex country.
Washington is not America, and so optimism is
possible. Out in the country, some states are
showing with their public-pension reforms that
government flexibility in the face of economic
crisis is possible. A Washington able to recognize
the immediate needs of the downgraded superpower
would lift every identifiable burden from the states
and the private economy.
Here are two headlines from one day this dreadful week: "U.S. Productivity Falls" and "Truck Makers Face Fuel-Efficiency Rules." That is the path to being less than No. 1. It doesn't taste right.