Financial Times columnist Edward Luce has written a new book called Time to Start Thinking: America in the Age of Descent that has received well-deserved acclaim and recognition not only for its superb reporting of the on-ground reality of America's current economic crisis but also because it is an unflinchlingly brave book. Luce does not shy away from conclusions that are hard for many Americans to hear, nor does he cop out and offer up the happy ending many in his audience may want to read. Rather, he offers what is most needed now: an objective, profoundly thoughtful look at the underpinnings of America's economic troubles, what makes the current crisis different from those of the past, and where we are likely headed from here. Luce recently sat down with Foreign Policy CEO and Editor-at-Large David Rothkopf. Here are some of the highlights of their conversation.
Foreign Policy: The debate about whether the U.S. is declining is raging. In fact, it is likely to be central to the upcoming election. Your book takes a strong stance on the subject. Can you summarize your view?
More...
Edward Luce: Well, there are two types of decline. The first is relative economic decline, and I think this should be uncontroversial. Funnily enough, it isn't yet fully uncontroversial, but it should be: namely, that America's share of the global economy is diluting. In 2000, America had about 31 percent of the global economy, so just under a third. And by 2010 it was down to 23.5 percent, just under a quarter. That is a remarkable shift. So relative economic decline shouldn't be something we debate too much because it's happening and it's going to continue to happen. And I think the U.S. share would be likely to fall to a little more than a sixth in the next decade or so, unless there are dramatic changes in the pattern and distribution of global growth.
One of the reasons why I emphasize this is because there's one very accomplished author whom I generally admire, Bob Kagan. His book, The Myth of American Decline, makes the point that America's share has been unchanged for 40 years and unchanged between the turn of the century and now. The facts are wrong. And I picked that up because the president picked it up and essentially cited the core pieces of Kagan's argument in the State of the Union [address]. While it's understandable President Obama wants to refute the idea that he's America's declinist-in-chief -- and it is a line of attack from Mitt Romney -- I do think it means that we're going to have a 2012 election where on both sides, both candidates will start on a false premise: that relative economic decline is simply to be ignored or dismissed. And I'd describe that as a kind of intellectual ostrich position.
FP: But relative economic decline, while a great subject for political conversation, actually shouldn't matter to the American people. Because if the pie is getting bigger, your slice of the pie can get bigger and it can still be relatively smaller than everybody else. In other words, everybody can be doing better in a world in which everybody else is also doing better, right?
EL: Absolutely. And, in many ways this should be a cause for celebration. To take the historical context of which you're very aware, the Industrial Revolution around 1750 onward lifted 15 percent or so of the world's population -- generally the Europeans and the Americans more latterly -- into a different stratosphere of economic growth and of human development and of life expectancy, and left the remaining 85 percent behind, many of whom were under colonial rule as the bit-part raw-materials suppliers to this Industrial Revolution.
The fact that that the 85 percent is now catching up in this Great Convergence is something to be expected -- it's going to happen and it should be celebrated. It reduces poverty and expands markets. The question is at what speed it is happening and how we are responding to it.
FP: OK, so relative decline is not necessarily a problem for people. What is the other type of decline?
EL: The other type is the more important one. It is about how America is responding to these challenges, which includes actions and inactions that have exacerbated some of the trends that we associate with this relative decline. These include the impact of globalization on the American economy and the impact of really exponential changes in technology on how Middle America lives and works. Washington's reaction to date has only deepened America's problems by turning this into a more pronounced relative decline than it needs to be.
FP: There would seem to be several different kinds of flaws with the reaction. One is the one that you referred to in the debate between Obama and Romney, which is denial. Another one is the lack of creativity in the response, not recognizing what has changed and what has not changed. In the last crisis, it seemed like the reaction was to try to make things go back to the way they were. In the context of the book, have you come up with ways to articulate what has changed? Has something fundamentally changed about the way the U.S. economy works and that needs to be understood in order to be able to respond?
EL: Yes, there's been much less revisiting of the assumptions in the preceding two or three decades before the Lehman Brothers collapse than you would have expected in 2008. I do see some stirrings now of questioning whether, in a world where there is a lot of mercantilism -- or at least where there are a lot of often very effective governments integrated with their private sectors to compete with the United States and others -- whether it is sensible for America to continue to ignore those lessons and those examples not just from Asia, but from places like Germany, Brazil, and Canada. The governments in these countries can often play a constructive role in helping their private sectors compete. But by and large, the preponderance of economists and the intellectual elite in America still hews toward the model that led up to the financial crisis. You could say America has lost a paradigm and not yet found a new one.
FP: How is this decline different from all other declines? What are the warning signs that this is not your father's recession?
EL: Let's pick up the current unemployment numbers and start with those, because we have a few months of welcome decline in unemployment -- 200,000 people or so per month. This has been accompanied by declining incomes for the median wage earner. So incomes are lower each year into the recovery than they were in the previous year, the reverse of what you would expect in your grandfather's or your father's recovery, but very much what you would expect if you look at the previous recovery in 2002, just a more pronounced version of it.
So if you look at 2002 to 2007 and you observe the structural forces at play in that business expansion -- mainly that the middle class income dropped, that very, very few jobs were created and that the higher value-added jobs tended for the most part to be replaced by lower paying ones -- those trends became pronounced in the 2009 recovery onwards. That suggests that this is a deep structural problem with the way globalization and technology is impacting the majority of the American workforce. I'm agnostic as to whether this reduces America's overall growth rate. The gains of growth are so deeply skewed to the very highest earners. But there is a lot of evidence in studies of other economies that when you have gross, Latin American-style inequality, growth and competitiveness tend to get advertsely hit.
SUBJECTS:
