'Angst' Shouldn't Even Begin to Describe the US' Current Economic Sentiment (Part 1 of 2)

This past week, an article written for The Economist, entitled Angst in the United States: What’s wrong with America’s economy?, suggested that Americans are being far too pessimistic, and that there’s reason to believe in a “rosier outlook for America’s economy.” On many points the article addresses, there is plenty of reason to differ. The following is part one of two-part explanation as to why (part two is here).

A Short-Lived Age of America

The writer recommends not being pessimistic about the US because it “rarely pays off in the long run.” This suggestion begs the question as to what the writer considers the long run. The US is not the first economic capital of the world, nor will it be last. The “Age of America” is a more or less 200-year blip in the history of humankind. Before the US there was the British Empire, and before that the Dutch cornered finance, and so on further back to the Greek and Roman Empires and beyond.

To say that the US “record is worth bearing in mind today” is to take a short view of history, and may be failing to acknowledge that the Chinese empire, for example, has been around for thousands of years and presides over more than a billion inhabitants.

Long before there was a US economic power, the Opium Wars between China and Britain – which won the UK the island of Hong Kong and the Kowloon peninsula – was the main force that dampened down the huge global trade surpluses China had relative to the rest of the world at that time. Prior to those wars, its trade surplus put it in an economic situation not unlike the one it is in today. However, it’s far less likely China would gracefully undergo a similar drubbing in the 21st century. For these reasons, the Chinese record is also worth bearing in mind today.

Decline of the American Dream: Brain Drain from the Land of Opportunity

The writer goes on to argue that, “it is hard to think of any large country with as many inherent long-term advantages as America: what would China give to have a Silicon Valley? Or Germany an Ivy League?” The fact is that neither Silicon Valley nor the Ivy League are assets jotted down somewhere on the US balance sheet… they are fluid groupings of people, often intelligent and hard-working immigrants.

These institutions thrive on constant renewal, and on the frequent injection of new, brilliant people with an extra dose of drive that have historically left their home countries for the US in search of better education and more robust markets. That “American Dream” is faltering, and faith in the resilience of its future is also waning.

Inspired Chinese and Indian students decreasingly see the US as the “Land of Opportunity,” and instead see their homes as beacons of entrepreneurship and wealth creation. We live in a time of the first American brain drain… building a business in a billion-person and still-growing market has become more attractive than in a heavily-indebted and declining US economy.

The Chinese Silicon Valley and a European Ivy League

From personal experience, China does have its own small but thriving version of Silicon Valley, and to see it with your own two eyes is to easily recognize it. It’s an active cluster located around the PC Mall region in Beijing in an area that’s roughly 1.24 miles in diameter, but is home to about 20 large technology companies that are publicly-traded… in the US, no less.

The same cluster includes many times that number of new and quickly-growing companies seeking to become listed as well. It won’t necessarily become an actual Silicon Valley equivalent in the near term, but forces of technology, especially with the right minds at work – ones that perhaps would have been in the US in another era – have a way of bringing about unpredictably rapid and industry-reconfiguring change.

In a similar way, Germany has its own version of the Ivy League, and for management education it’s called CEMS. It’s a global network of 16-plus universities stretching from Canada to Brazil to France, Switzerland, Russia, China, and all the way to Australia… but, notably excludes the US.

US hype, inadvertently, but capably, reinforces the Ivy League’s advantaged status through myriad avenues including TV, music, and movies, but the rest of the academic world has yet to sit idly by. Instead it continues to forge ahead and modernize by adapting readily to a changing world. European universities offer a different daily experience than their US counterparts as they are, by force of reality, informative collisions of language and culture that provide global educational environments.

Competitiveness Canard, Or…

The writer points out there are “underlying problems” “to tackle” in the US, and in particular, “three failings stand out.” The first of these being the competitiveness of the US economy. However, the article then abruptly cites the concept of competitiveness as a “canard,” meaning that it’s a sort of fabricated concern not in line with the real issues facing the US.

On this point, it’s difficult not to vehemently disagree. First, the writer cites a few of the President’s comments, “America’s prosperity, he [President Obama] argues, depends on ‘out-innovating, out-educating and out-building’ China. This is mostly nonsense.”

This disdain is inconsistent with the writer’s previous point that two big US advantages are its Silicon Valley, which evidences the nation’s ability to innovate, and its Ivy League, which refers directly to its ability to educate.

Perhaps the writer is indicating that in the US these bases are already covered, but, even in choosing that generous interpretation, it’s challenging to rationalize how the two concepts of innovation and education, which are directly tied to any economy’s performance, are by any measure “mostly nonsense.”

Continued in part two


Rocky Vega,
The Daily Reckoning