President Barack Obama’s 2008 electoral landslide victory averted a global financial meltdown. Had John McCain won that election, the present G.D.P. in the United States would have been even lower than it is now by more than 15 percent. Similar losses in global productivity would also have taken place.
Hail then the flexibility of Chairman Ben Bernanke’s U.S. Federal Reserve and of the European Central Bank for embracing activist fiscal policy for the first time since the Franklin D. Roosevelt New Deal.
Former Federal Reserve Chairman Alan Greenspan and the governors of the European central banks avoided the preventive policies that could have averted most of the present meltdown. They had falsely believed that unregulated capitalism could dodge the bullet of depression. That’s proved to be a wrong belief everywhere.
The 2008 election brought an end to Bush administration blunders, and to other post-Reagan “make the poor and middle classes subsidize the ultra rich” enactments. These are bad morals and not justified by higher growth efficiency.
We begin now a new era in which China will increasingly make obsolete America’s 1950-2009 world leadership. Your children and my grandchildren will live in this new and challenging era.
We’ll see China catch up and pass Japan as the economy second in total G.D.P. to the United States. Then, unless China’s one-party leadership explodes, the day will come when China’s total real G.D.P. will exceed America’s. Boohoo. But that’s the realistic expectation.
However, don’t expect smooth and quiet rotation of the globe pace-setters. More likely, within the coming decade, there will be a massive run against the U.S. dollar. Why? Because ever since the year 1000 A.D., export-led growth has been the rule whenever an educatable low-wage population has begun to imitate the technology of a more advanced nation, and thus out-compete the industries of the affluent regions.
So it was and so it will always be. Whenever a low-wage, educatable population can imitate the technology of a more advanced nation, it will do so. That’s why protectionism is like a persistent herpes virus, and must be guarded against.
Recently I’ve come to fear that the inevitable disorderly run against the dollar looms earlier than I used to think. I hope I turn out to be wrong. Many times during seven decades of economics teaching and textbook creation I have been wrong. Still, remember where you read all this first.
I do have a positive recommendation that might reduce the risks outlined above and even delay them into the further future. I counsel those many who invest in dollar assets at near-zero interest yield to switch soon into a diversified portfolio that earns the higher average worldwide yields. That will help better stabilize those volatile foreign holdings of low-yield bonds.
Thanks to the advance of science and engineering, today’s centrist mixed economies can all look forward to longer good-quality-of-life longevity. Before 1700 A.D., that was never the case. The new reality is that white Caucasians are a minority in the world. People of color are the majority, and will continue to become ever more dominant.
Readjust to these new permanent truths. Don’t expect to reverse basic trends. Adjust to reality sooner rather than later. Gone forever, one hopes, are the idiocies of Friedman-Hayek libertarian selfishness.
When I started my economic studies at 16, Carlyle was right to call economics the Dismal Science. Thanks to modern science and better economic knowledge, this Malthusian curse has been vanquished. Good modern economics make economics the Hopeful Science. At last!
Paul A. Samuelson is an Institute Professor at the Massachusetts Institute of Technology and recipient of the 1970 Nobel Prize in economics.