Dmitry Medvedev was absolutely gleeful when he said yesterday that the global financial crisis signaled the end of the era of American economic leadership. “The times when one economy and one country dominated are gone for good,” the Russian president said.
Trust the Russians to get things backwards. History will eventually show that the great financial crisis of 2008 marked the end of the period of relative American economic decline and the start of a new era of dominance.
Why is there a perception that the United States is falling? In Thomas Friedman’s “flat world,” relentless globalization–started by Washington, by the way–is spreading wealth from nation to nation. And as this process continues, the world’s economic supremo is losing its primacy at an alarming rate. Last year, Americans comprised 4.6 percent of the world’s population and produced 25.4 percent of its gross domestic product. But if prosperity is eventually spread evenly, the United States will one day become an economic backwater with under five percent of global output.
But the world is not flat, and the last thing we should be doing is extrapolating, especially in the middle of a downturn that could be as severe as the Great Depression. Before recent events, just about all of us assumed we were living in “China’s century.” Beijing has an economy that is still booming, but it is, for various reasons, extraordinarily vulnerable. And in a severe downturn, which virtually every Chinese economist now expects, the shaky political system could falter. The result might be a China in chaos for years-and a United States on the rise.
Will America suffer financial hardship? Most definitely. But we are a country that has a unique ability to recover. Whatever happens in the next few years, our political system will remain the same. We cannot, however, be so sure that the governments of China and Russia will be as resilient. Our economy will contract, but other economies will contract faster and further. And ours will recover earlier and more vigorously.
In periods of turmoil, investors and speculators run for safe havens, and that remains the dollar. Just ask the now-gloating Medvedev. Since the second week of August, Russians have pulled $52 billion out of their country, with much of this ending up in U.S. Treasury obligations. If I were him, I would be more careful about predicting the decline of the only country that will be in a position to bailout his Russia in the years ahead.