Is Our Decline Inevitable?

Professor’s Dire Predictions Coming True

In 2001–while a business student in college–I took a global economics class. We had a brilliant professor, but his predictions about the future of the global economy frightened me. My fears were realized when his predictions began to come true. The most we can do is prepare ourselves for the inevitable. What he taught us was this:

The global economy, created decades ago, is so large and strong it cannot simply be reversed. Countries are not villages, trading only with villages nearest them. Global trade has become a force of nature—a vast tree with limbs and roots entwined in virtually every country on Earth. When the Internet came along global trade, already robust, expanded greatly. The basic principles of global economics are:

  1. Economies are based on goods and services. Societies cannot survive without them.
  2. If a society cannot produce goods and services, it must buy or trade for them.

Using what he taught us, and based on my own observances, here is how I see it:

American manufacturing (goods) has practically disappeared because we could not compete with cheap labor from other parts of the world. That’s an economic fact that cannot be disputed. All other things being equal, people will buy the cheaper of two available products. You can blame China all you want, but if it had not been China supplying the cheap labor, it would have been India or some other country. (Taxes on imports, called tariffs, simply don’t work and are a bad idea all around. Once you tax an import other countries follow suit and trade simply falls apart. “Buy American” is not a long-term solution either. In a declining economy, people will chase a standard of living that necessitates purchasing the most affordable goods for the least amount of money. As it stands now, the most affordable goods come from countries where there is a lower standard of living.)

America is rapidly depleting its supply of cheap fuel (energy goods). Our oil reserves have dwindled exponentially since the 1960’s. Apart from that, oil is traded globally like everything else. Even if we discovered vast amounts of new oil here, American oil does not stay in America, but goes to the highest bidder world-wide. (You try telling the oil companies they must sell their oil only to us, and only at affordable prices). Natural gas and coal do not appear to hold much promise for automobile or air travel, though we may be able to burn coal to fuel electric vehicles. Solar and wind energy is expensive to produce, though we have made a promising start.  And nuclear power plants are too frightening (especially after the recent catastrophe in Japan.) It is therefore a given that we will continue to face geopolitical wars over ever-diminishing oil supplies.

So, money is flowing towards goods manufactured outside America, and oil energy–most of which is in countries hostile to us. In short, great American wealth is flowing into China and the Middle East. Don’t believe it? Take a look at some of the skyscrapers going up in Beijing and Dubai. That used to be us, folks. We used to be the ones building Empire State Buildings and Sears Towers. Once upon a time money flowed into America. Now the largest portion flows outward (trade deficit).

That leaves services. For practical reasons, some services will have to remain inside the country. Doctors and nurses provide a service, as do the restaurant waiters who bring you food. Others service your car, mow your lawn, or sell you furniture. Those types of services will remain. Other support services, such as cell phone, computer, and even marketing, have already been outsourced to India and other countries. They won’t be coming back.

So, there you have it. American money flows toward goods (China, etc.), fuel (predominantly the Middle East), and services (India).  We are left with roughly 1/3 of the pie when we once had all the pie. We once had a manufacturing base that was the envy of the world, all the cheap oil we could use, and were leaders in the service industry.

It’s too late to wring our hands and cry, “How could this happen? What do we do?” The cat is out of the bag, so to speak. But what next?

Well, according to my professor, whose predictions have been 100% accurate so far, standards of living will rise in countries where money is flowing in. We’re already seeing that in China and India, where car sales and building are both booming. Their middle classes are exploding in size. The standard of living in countries where money is leaving will fall. We are seeing that as well. Our great American middle class is rapidly dwindling. The wealthiest 1% of this country will be fine—the rest of us, not so much. Regardless of your politics, you must agree that concentrating the vast majority of a country’s wealth in a very small portion of the population is not healthy for its economy. One percent of a population simply cannot spend enough on goods and services to keep an economy going.

The most visible sign of our decline is with infrastructure.  Roads, bridges, electrical grids, sanitation, water supplies—all are crumbling right before our eyes. Even worse are the invisible signs.  Real wages are falling, home ownership is dwindling, unemployment rates are stalling.  Education standards are declining even as education costs are skyrocketing. Without quality education, our “good old American know-how” will become extinct. Taken all together, crumbling infrastructure + lower wages + declines in education and property ownership = economic disaster.

And let’s not forget the size of the national debt. America’s debt in the 20th century was small compared to GDP (all its goods and services combined); so we were never really in any trouble. Apart from sporadic recessions and one major depression, the economy sputtered along with more or less consistent improvements over time. That too will change. It isn’t just the size of our debt—now approaching an unbelievable 20 trillion dollars—it’s our inability to pay it down. A dwindling tax base coupled with inevitable increases in debt interest will cripple our ability to reduce the nation’s debt. If we default, which is looking more and more likely, a global depression will follow that makes the 1930’s look like a mere practice run.

Is there a way out, or are we destined to continue this decline? It’s a question that must be asked, but be very careful who provides your answer.

Unscrupulous political candidates will promise you they can make things better. They will say things like “Our country’s greatest days are ahead of us.” (They won’t tell you how, exactly, just that you should trust them.)  And many Americans—not wanting to appear un-American, or God forbid, unpatriotic, will follow them blindly. Besides, it’s in our nature to be optimistic, to have faith.  No one wants to believe we are in decline.

But wake up and smell the Sanka: No politician, or group of politicians, has the power within them to cause a reversal of such vast global forces. We are only one country, and the balance of power is rapidly shifting away from us. If it were possible to simply decide to raise a country’s standard of living by policy, then every country would have done it already.

Like water seeking its own level, the global economy will eventually “even out.” But as long as enormous inequalities exist between countries, money will continue its inexorable flow toward cheaper labor, services, and fuel. As the standard of living rises in many countries, it will just as quickly decline in others. It’s an equation we cannot seem to get around.

First us, then the world?

What about the rest of the world? When the standard of living is pretty much the same everywhere, what happens then?

The only bit of good news, if there is any, is that we seem to have learned how to feed humanity. The bad news is that most global farming now uses petrochemical fertilizers. As the global supply of cheap oil dwindles, so will our ability to manufacture cheaply, transport goods economically, and grow crops in sufficient quantities. It won’t be a matter of which country has the strongest economy–all countries will suffer when cheap fossil fuels disappear.

In all likelihood, if some unforeseen breakthrough in energy is not discovered soon, the 22nd century will see the first backward jolt in civilization since the Dark Ages.  In fact, it may have already begun. We simply don’t have—at least at this point in time—viable alternatives to cheap combustible fuels. There may actually come a time when people no longer travel in aircraft because the cost will be prohibitive.  Imagine that.  Imagine people looking up at the sky and telling their children, “People used to fly up there in the clouds.”

You may think I’m a pessimist, but nothing could be further from the truth. In spite of the preponderance of evidence to the contrary I do believe mankind capable of figuring a way out of this mess. But I’m also a realist. In my own short lifetime I can see how our utter exploitation of cheap fuel has both exhausted our supply and helped bolster population increases. How will we feed and clothe billions of people with no fossil fuels? Again, call me cynical if you wish, but I don’t see how we do it with switch grass.

And that leads to perhaps the direst situation of all. What happens when Earth’s resources dwindle to the point where huge populations are fighting for them? Doesn’t it seem likely that nations will attempt to acquire them by force of arms?  And what arms might those be? Can you envision a time when resources will be obtained by any means necessary? I shudder to think what may happen when nations become desperate for resources.

The Earth will eventually repair its ozone layer.  It will very likely cool itself again and absorb all the carbon emissions we have loosed upon it. Earth is very old, and humanity’s thoughtless impact on it is no more than a tiny blip on its timeline. But we may or may not be here when it gets around to repairing itself.

In the meantime, we are here now. And if we don’t figure a way out of this mess, the future could be grim for our children. Always in the past, whenever we faced daunting challenges, someone or some group came forward with a solution. It might have called for shared sacrifices or great effort, but we somehow made it through.

Let’s hope that can still happen.

© Wade Kingston