PRELUDE TO A HARD LESSON

PRELUDE TO A HARD LESSON

The Hard Lesson is that the United States, running out of domestic oil, leaking scientists and R&D spending, and bleeding industrial production, is in decline as an economic superpower. The decline can be slowed, new industries will take the place of older ones, and America will retain some competitive advantages and develop new ones. But the mid-20th century America of abundant natural resources, unsurpassed research and development capacity, and then-developing economies as untapped markets has company on the international superhighways. The ever-efficient forces of supply and demand and the mean-reverting nature of capitalism are bringing other nations up at rates of increase that the US cannot continuously outrun. This is the Hard Lesson. We can learn it, adjust and continue to prosper. Or not.

HERE IS A LITTLE PRELUDE

Last summer, when gas prices topped $3 per gallon, media outlets across the nation featured the obligatory indignant “man/woman on the street” interviews. The Kendallville News-Sun (the daily newspaper in the rural Indiana county where the Author was born) paper quoted an interview with a union heavy equipment operator. The man bemoaned the effect of the increased prices and stated that he drives 75 to 100 miles per day to higher-paying union construction sites. He also drove a fuel-swilling pickup. He stated that he could save money driving a “cracker box”, but did not wish to. He went on to say that fuel prices should be lower because “we (US) spend all this money keeping the ‘world free”.

The interview did not describe what the man meant by his statement “keeping the world free”. It would be interesting if the man had articulated what he meant by “keeping the world free.” If he thought that America’s miserly foreign aid budget (one-half of one percent of government spending) was keeping the world “free”, he is wrong. And if he thought that the war spending in Iraq was directed at “freedom” that should provide lower oil prices, well, wrong again. The US war on Iraq has sharply reduced oil shipments below pre-invasion levels.

But if the man is rather inarticulately expressing his sense of “American Exceptionalism”[i], that everything Americans want from the rest of the world should be cheap and plentiful, and that other nations should genuflect before this North American superpower and swaddle their children in Harley-Davidson bandanas, then he is on to something. He is setting out an American cultural myth that traces its origins back to the 17th Century Puritans and which still pervades the body politic. John Winthrop, a Puritan leader talked about the new American colonies as a “city on the hill”, an exalted and exceptional place for an anointed people. The Founding Fathers, with the Declaration of Independence and the Constitution designed a government of “men”, free from the monarchial and corrupt “old world” of Europe.

In the 19th Century, the “frontier” offered anyone, that is anyone of a white Anglo-Saxon European background, a fresh start in the newly-opened (with the genocide of the indigenous First Nations) west. Later, the county welcomed Europe’s “huddled masses” to provide labor for its coal and steel industries. The 20th century saw America throwing off its traditional isolationism and taking the Spanish Colonies of Cuba, Puerto Rico and the Phillip Islands by force of arms. It emerged from World War I unscathed and with massive industrial capacity and natural resource capacity that enabled it to finally overwhelm Nazi Europe, with the help of many millions of Russians and a few hundred-thousand Englishmen.

Post-war “Exceptionalism” waxed and waned in the Cold War, found pause in Vietnam, rode the wave of Reaganism, and was “born again” on 9/11. And it is the last flailing excuse to rationalize the Iraq invasion, the lies of WMDs and Al Qaeda links having been demonstrated.

AN EARLY CHAPTER IN THE HARD LESSON

Americans might see themselves as “exceptional”, but markets do not. Markets are no respecters of mythologies or those who self-identify as more morally deserving. American labor is being displaced by foreign, lower-cost labor. Indian and South African professional service workers are displacing American service workers. Scientific research and development are slowly emigrating off-shore as foreign-born PhDs, educated in America, now find their home countries more accommodating.

Wired Magazine, in an article entitled “Slacking Off in Science”[ii], has several graphs that reveal the declining international position of US in science and technology. The US spends a little over 2.5% of its GDP on research and development (R&D), compared to China, Russia and South Korea that spend 4%. Sweden and Finland lead the US with a little over 3%. Japan, Singapore and some other European nations are close to the US in R&D spending.

The US is in the middle of the pack of the number of researchers per 1,000 population, with 4.2 per thousand. This is behind Finland with 8 per thousand, Iceland, Japan, Sweden, Denmark, Norway and Singapore. Of course the US has a larger GDP and population than these countries in these two surveys so it still has a larger numeric lead in both categories. But if the trends continue, the US will fall eventually behind.

The Wired magazine survey also demonstrates that the US lags Europe in the number of scientific papers published since 1995, and in the year 2000, trailed both Europe and Asia in the number of science and engineering PhDs conferred. So both in some relative and absolute measures the US is losing its edge in science and engineering. It will be hard to be “exceptional” when your student rankings slip to just the middle of the pack.

The Wired study is of course not the last word on American economic competitiveness. It only helps to put some truth to the myth of American Exceptionalism. Free trade and free markets will do the rest of the debunking.

And in case you are wondering if this post is just more from the “Librul media, hate Amurica crowd”, you wonderment is irrelevant. The Author is a free-trade, free-market capitalist. (Whether the results of market activity are “free” or “fair” in any certain case is another topic.) He is an internationalist who believes in the individual worth of all human beings, wherever they live and whoever they are.

Readers can believe in “American Exceptionalism” if they choose, and at their own peril. But people who choose to entertain the conceit of “American Exceptionalism” must understand that international markets and internal markets in other nations are not respecters of “American Exceptionalism”. Just ask the American textile industry, the steel industry and the ship-building industry.

MORE HARD LESSONS IN THE UPCOMING DAYS

There are two main positions on international trade. Protectionists, on the one side, and cheap goods and services proponents on the other. The cheap side likes foreign trade, but doesn’t like foreigners. They both march to the songs of the hymnal of “American Exceptionalism”. And unless they repent and see the light of internationalism, they will succumb to myth.

These are complex subjects but some posts in the next few days will take them on.

THE DESERT OF THE REAL IS A FREE-TRADE ZONE!

[i] http://en.wikipedia.org/wiki/American_Exceptionalism This Wikopedia entry on the topic of “American Exceptionalism” provides a basic introduction of this cultural myth and an overview of the arguments, pro and con. The phrase was first used by Alexis de Tocqueville, an historian and early observer of America.
[ii] Wired Magazine, 12/2005, p. 069. Cited in Wired Magazine format.