The United States government has dominated the world’s affairs for most of the 20th century. Halfway through the first decade of the 21st century, it is clear that the US is an overextended colossus whose role in the 21st century will be greatly diminished. The three main forces driving this are the US outsourcing its debt, the declining efficacy of military action, and the systemic use of government power to distort American markets in a way that reduces or eliminates markets for technologies that will dominate the tail end of the 21st century.
It is indisputable that the US is indeed an economic colossus. As of 2002 it accounts for 32.3% of the global GDP despite accounting for less than 5% of its population. This is down since just after World War II, when it was over half the world’s GDP. In “The Overstretch Myth”, Levey and Brown make the case against a similar argument to this essay, but they do agree that the total foreign-held assets are $10.5 trillion.
The two largest foreign holders of US assets are the Japanese and Chinese governments. Between January 2004 and January 2004 they purchased $156.7 billion USD worth of treasury notes – 23% of the $666 billion Uncle Sam borrowed last year. Although there’s some probably dubious estimates that suggest the deficit will be slightly lower this year, it’s still likely to be in the neighborhood of half a trillion dollars. If sustained, by 2010 the majority of tradable US Treasuries will be foreign owned.
This leads into the weakening efficacy of conventional military force. The US spends 45% of the global military budget, yet it has been unable to pacify a third-world nation. Part of this problem can be put down to strategic choices and tactical decisions, but there’s little getting around the hard fact that genuine surrender generally comes only when a large number of the population has been killed, and unless you’re able to do this, the insurgents can operate nearly indefinitely. Ultimately, the US faces its own Suez Crisis, where our military operations are curtailed by the Chinese or Japanese.
The systemic distortion of US markets is a harder one to correct, as the US has always been prone to make policy choices that favoured resource inefficiency. This is unfortunate in a modern context, as we are at the peak of global oil production and our consumption will decline over the next 80 years due to hard limits of capacity. Our economy is poorly engineered to ride out these changes. Many levels of government subsidize roads, gasoline is kept as cheap as possible, and the government has effectively elected not to participate in the global CO2 market established by the Kyoto accord. This all makes developing green technologies unattractive in the US relative to Europe.
This combination of poor budgeting, the limits of force, and delusional beliefs about natural resources embedded in the US’s public policy will conspire to, at a minimum, take the US down a peg. In the worst case scenario, the US will experience a Soviet-style crash from which it will take decades to recover.