For a while now, I have reading about how the mighty U.S. economy, heavily in debt, with big budget deficits and a large current account black hole, is headed for the rocks. The dollar is on the skids, inflationary pressures are rising, the Fed has been putting up interest rates, the coming Social Security crunch… you know the drill. And some of these worries are to my mind justified, which explains why, with all the plan’s faults, I broadly applaud the efforts of President Bush to overhaul the state pensions system.
Is the situation really as grim as some of the jeremiads claim, however? This suitably wonkish article in the prestigious Foreign Affairs journal argues that things are not nearly as worrying as some might make out and that if anyone has cause for worry, it is Europe with its shrinking birth rates.
The article concudes with this paragraph, and it seems to hit the mark, in my view:
Only one development could upset this optimistic prognosis: an end to the technological dynamism, openness to trade, and flexibility that have powered the U.S. economy. The biggest threat to U.S. hegemony, accordingly, stems not from the sentiments of foreign investors, but from protectionism and isolationism at home