While Britain stagnates, America is roaring back

Five years after the start of the Great Recession, America is fast recovering its might

29 June 2013

Predicting the decline of the United States has been in vogue since the birth of American hegemony. Sputnik, Vietnam, stagflation, budget deficits, trade deficits and even the end of the Cold War all triggered predictions of the end of America. With the 2008 financial crisis, however, there seemed to be a sense that this time was different. Tomes with titles like The Post-American World and The End of Influence began to appear on bookshelves. Germany’s finance minister confidently predicted that the United States was entering its last days as a financial superpower. Serious commentators spoke about how a ‘Beijing consensus’ would supplant the ‘Washington consensus’. America looked as if it would disappear in a vortex of debt.

Fast forward to this year, and a funny thing has happened to American influence — it’s unbowed. The very suggestion that America may be strong enough not to need quantitative easing sent global financial markets into spasm last week. If America was coming off life support, then the subsidies for all kinds of financial packages would end. As one financial strategist told the New York Times, ‘The Fed isn’t just the US’s central bank. It’s the world’s central bank.’ This point was not lost in Britain, where government borrowing costs surged. It’s said that when America sneezes, Britain catches a cold. But even as America gets better, Britain can remain ill.

For those in Britain who are constantly told that the crisis ‘started in America’, this must all look rather strange. If the crash was an American disease, then shouldn’t Uncle Sam be worst affected? How come the US is now free of bailed-out banks, having sold them at a tidy $25 billion profit, when Britain looks like it will be saddled with zombie banks for another decade? And given that the Obama administration has spent the last few years deadlocked with a bickering Congress, how have the obstacles to growth been removed so quickly?

Well, for one thing, there are some constants to American power. Its healthy demographics fuelled by immigration, geographic security, a syncretic, dynamic popular culture, and excellence in higher education and innovation are unchanged. As in previous slumps, private sector and public sector adjustments have triggered a revival in American capabilities. And this can be traced to the fact that it responded to the shock of the 2008 financial crisis more adroitly than its rivals.

Contrary to conventional wisdom, the United States has actually been deleveraging from the bubble years of the past decade. Yes, millions of households were in foreclosure in America three years ago — but taking the pain then has allowed recovery now. While commentators have focused on rising government debt, US households and companies have been tackling their own. According to the OECD, the debt-to-income ratio for American households has fallen from a pre-crisis 137 per cent to 116 per cent by the end of last year. That figure is now lower than European household indebtedness. Britain is at 160 per cent.

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It is true that government debt has soared under Barack Obama — but that is consistent with the successful path that Scandinavian countries pursued in the early 1990s in response to their own credit bubbles. State spending propped up these economies while voters paid off their debt, and then the resurgence in private-sector demand allowed governments to balance the books. This appears to be happening now in the United States. The US federal budget deficit has declined more dramatically in the past three years than at any time in postwar history. The Congressional Budget Office projects the federal budget deficit to fall to 2.1 per cent of economic output by 2015 — an astonishing turnaround from the 10.1 per cent figure four years ago. By the same year, Britain’s deficit will still be at 6 per cent of GDP — the highest in the western world.

American manufacturing is also on a roll. Contrary to perceptions, US factory output has been robust and productive — the problem was that it had been haemorrhaging jobs over the past few decades. No longer. Manufacturing might never be the jobs engine that it was a century ago — but it will not be a drag on job creation either. Durable goods manufacturing has added more than half a million jobs over the past three years. The intriguing question is whether this trend can continue. A 2011 Boston Consulting Group study argues it can, given that China is not quite the cheap workshop it once was (with rising wages and an appreciating yuan). The ‘rebalancing’ that Brits hear about is happening in the US, with up to three million jobs expected to be created in the next few years.

The optimism felt by American factories is easy to explain. Energy costs have plunged. The development of hydraulic fracturing, or ‘hydro-fracking’, has sent gas prices to less than a third the level charged in Europe — quite some factor if you’re an energy-hungry manufacturer wondering where in the world to locate. Time after time, the answer to this question is: America. There has long been talk in the US about ‘reshoring’, where US companies decide to create jobs in the rustbelt states that need them most. But all sorts of companies are coming to America. Voestalpine, an Austrian steel company, declared in March that it would build a €550 million plant in Texas, having rejected 16 other sites in seven other countries.

With an economic recovery comes geopolitical clout. Late last year the International Energy Agency projected that by 2020 the United States would supplant Saudi Arabia as the world’s largest oil producer. By 2030, the United States would realise its longstanding dream of energy self-sufficiency. And while the US government can hardly be credited with the fracking revolution, the Obama administration did not bar its progress — more than can be said for many European governments, some of which are so wedded to the renewables agenda that they don’t want to accept the good news.

In fact, the drama on Capitol Hill has diverted attention from the recovery underway in an America which is not connected to political wrangling. As Larry Summers once put it, ‘The great mistake of the gridlock theorists is to suppose that all progress comes from legislation and that more legislation consistently represents more progress.’

Even so, the US system of government has been surprisingly nimble despite its perceived political paralysis. In the five years since the financial crisis, Congress has passed legislation that saved the US financial system, rescued the car-making sector, enacted the largest fiscal stimulus programme in the world (which contained substantial tax cuts), overhauled its financial regulation, passed ambitious health-care legislation, and then took steps to control spending. This week, the House and Senate are moving forward on comprehensive immigration reform. Compared with Britain — or anywhere in Europe — the US has been a hive of productive political activity.

By contrast, the emerging Brics, who were supposed to take over the world, have seen better days. Brazil is confronting massive protests from citizens angry that so much money is being spent to prepare for the World Cup. Russia’s energy boom is tapering off; Moscow finds itself starved of foreign capital due to the caprice of President Putin. China’s economic growth during the Great Recession has far outstripped the United States; and yet its new leadership is rejecting the ‘Beijing consensus’ as quickly as it can. Indeed China may be heading for its own credit crunch: in recent weeks, its bank lending rates have surged and one bank briefly defaulted. The country’s attempts to clamp down on the misallocation of cheap credit may well have triggered its latest bout of financial turmoil.

There is no denying that the relative power of the United States is less now than it was a decade ago. And yet, five years after the start of the Great Recession, US power does not appear to be on the wane. If anything, the trendlines suggest the opposite. Even Arvind Subramanian, the author of Eclipse: Living in the Shadow of China’s Economic Dominance, has changed his tune a bit. In a recent paper he paraphrased Mark Twain, concluding: ‘Reports of the decline in American economic power appeared to have been exaggerated.’

Plenty of dangers lie ahead. The United States could get trapped into another draining war in the Middle East. Partisan bickering in Washington could block any structural budget reforms and cripple America’s long-term finances. A premature end to quantitative easing, or another eurozone crisis, could induce another setback. But the United States has a remarkable ability to right its own ship. That ability, in and of itself, is one of the sources of its enduring power.

Daniel W. Drezner is professor of international politics at Tufts University’s Fletcher School, and blogs for Foreign Policy magazine.

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Show comments
  • http://www.facebook.com/christopher.hobson1 Chris Hobson

    USA has lower tax burden 😉

    • doobybro

      then why all the angry messages

  • NotYouNotSure

    Actually predicting the never ending rise of America is even more in vogue, I come across those kind of arguments far more than the opposing ones, like this article does.

    • Wardawg02

      Actually predicting the never ending rise of America is not in vogue at all. I rarely see a piece like this. You must limit your reading.

    • 013090

      I must agree with wardawg. I see articles about the decline of America quite literally almost everyday, which simply repeats the same points. But an article like this is uncommon, though recently they have been popping up.

  • sarahsmith232

    if i’d have known ahead of time tht the writer was from the Foreign Affairs/Policy mag’ stable I wouldn’t have bothered reading.
    they write the same old ‘Reason’s why China will never make our American, far bigger than their ones, ****’s go limp’ articles week in, week out. if you’ve read one ‘We are just so, like totally, like, banging hot, like really, man, I mean, like, I dunno, like, we’ve got more money than them and like, man, have you checked their chicks? I mean, man we’re like so much hotter dude, so like that’s why they’re like ****, and like, we’re not dude’ articles there really is not point in reading any more.

    • FairBobby

      If English is Sarahsmith’s first language is English she has clearly abandoned it!

  • john

    I quit the UK for the USA many years ago as it was quite clear that Britain did not have the economic and political flexibility for long term prosperity. The UK has suffered a largely stagnant economy since the 1960s (at least). No Government or policy programme has been able to overcome the entrenched social rigidities. Without the City of London (largely US bank dominated) the British economy is a shambles and not likely to come back to life any time soon.
    The UK is a backward-looking, class-ridden society and this ensures that the country will fall behind more open societies.

    • Nick Booth

      That hurts.

      What can we do?

      • ahorvath


      • Chris Bordeman

        Sever the safety net.

        • doobybro

          that makes sense lol

        • hyufd

          You do not need to sever the safety net and send people into abject poverty, rather reform it so that in Bill Clinton’s words it offers a ‘hand up and not a hand out’

      • Drakken

        Quit importing the 3rd world and turning you into the 3rd world.

    • philbest

      John, see my new comment about the urban planning difference. This is possibly the worst example of what is wrong with the UK. You are a wise man.

  • http://Firebird.com JunkkMale

    The lead cartoon has obviously been created with care; of course reflecting the rich diversity that exists in the land of the three pound burger & fries.

    However, one can’t help but wonder if a sleeping ‘ist community may also have been awakened, and filled with a terrible resolve to be outraged.

    Once they get off the sofa.

    • HookesLaw

      The Spectator seems to enjoy pejorative cartoons. But then it is run by schoolboys.

      • http://Firebird.com JunkkMale

        Can’t answer either of those on behalf of the publication; maybe they will?

        It might be said that cartoons can err often in certain directions, and deliberately so, from Gilray to Bell.

        Possibly not then a unique to the Spectator?

        I just found it funny the various mix requirements that got applied, and those dropped… or forgotten.

        Seems that even if intentionally giving offence one needs to be careful on who can take it.

        • HookesLaw

          I like your name tag… good idea.
          There is of course a long history of political cartoonists … Politicians have to take the rough with the smooth and that is how we judge them.
          This cartoon is taking a quite nasty swipe at an entire nation (if not a race). Pretty cheap shot I think when it ignores the similar issues in its own back yard.
          It ran a pretty nasty cartoon involving a British soldier a while back so I confess I do have a little agenda here.

          • http://Firebird.com JunkkMale

            At risk of an excess of mutual admiration, the notion of seeking balance over time has a nice element to it too.

            I don’t excuse swipes, but free speech kinda makes them part and parcel of the deal. I agree that there are those who should be expected to take it more on the chin than others. More so as collective bodies than as individuals, for sure.

            I think America may cope from the stereotype.

            What is funnier to me is carefully-PC stereotyper’s heads exploding at falling foul of adverse reactions to their own.

  • Pete1216

    We are extracting (via fracking) our last shot at oil. And yet no one seems to be bringing this up. When these good times end, it is all down hill.

    • Wardawg02

      Actually there is yet another source of carbon based energy being developed that will last after ‘fracking’ which seems to have decades of reserves globally.

      At some point renewables will actually be economically feasible. But that will also be decades away baring a huge breakthrough.

    • axistogrind

      Yes, Pete, and we all age and wither and die, and then 50 years from now, where will we be? Might as well bury our heads in the sand now…If the sky was not falling for a lot of you, then you’d have no reason to look up and finally pull your mouth from your wetnurse’s titty. Who said life was certain? Americans in the 1800’s faced far more difficulties than we do, and yet we cry if the temp rises, or a raindrop hits our iphone. We have good times and bad times, and the glass is half-empty or half-full, and that is the way of it. A lot of people wish their glass had anything in it. Buck up and be a man- better yet, be an American.

      If you want some solace, here it is: hydrocarbons are a short term fix, regardless. We will need them for a several more decades, and electricity innovation that is already being proven to work will be applied to our largest needs. The good news is we have them available to us in spades for the next two generations. No doubt we are doing much already to lessen our hydrocarbon needs. Thank god we have the reserves, pete. What will europe do? They have it tough.

      We can’t go through life with our di*ks in the dirt because we are worried about what’s next. Where there’s a will theres a way. My great grandfather ploughed a farm out of mosquito-infested slough-pocked prairie with a draft horse and a desire to work his own land, before getting socked in for months at a time by the wind and the winter and the fact they were 15 miles from a town. What if he didn’t stock enough wood or food? Your great grandfather no doubt faced similar adversities.

      Their life was hard; we have it easy. We are sons of Americans, Pete, and just because we have people who don’t want to offend someone else by saying we aren’t special, its a lie. We are, we were blessed, and we don’t admit to losing fights–before they are fought, at least. Head in sand accomplishes nothing but putting your ass in the wind for the buzzards to pick at. We need to be more optimistic than worrying about running out of gasoline in 40 years. We could be driving ion pulse wagens by then! LOL. We don’t know, exactly, but we will do adapt. Great things are accomplished with great optimism, and we need to remember that. Thank you for this article, Mr. Drezner, Americans need to be reminded who they are sometimes.

    • Loader2000

      The number and variety of sources of energy coming online in
      the next 20 years is staggering. You
      have pebble bed and thorium modular nuclear reactors. There is potential for LENR (low energy
      nuclear reactions) based technology and cold fusion could either be 50 years or
      5 years away, who knows.

      there is all kinds of solar energy technology coming online in the next 10
      years that will be significantly more cost efficient than the expensive silicon
      based technology use currently use.
      Right now, it takes about 7 or 8 years to get a return on investment
      from solar panels, assuming you live in an area that gets sun and energy prices
      continue to be high. As soon as that
      number hits 4 years, there is going to be an energy revolution in the sense
      that it will suddenly make economic sense for every school, university, parking
      garage, Walmart and Target to put solar panels on their roof. This is only about 10 years away and will
      creep up on the US the same way the internet did, going from something a few
      people used to ubiquity in just a few years.

      In other words, there is a whole lot to be optimistic about.

  • Colby James

    I think the cartoon shows Britain’s penchant for stereotypes which further symbolizes their social rigidity. The stereotype is apt, however, and the fact that we possess higher obesity rates, greater freedom to own weapons and dress for comfort, not appearance (as illustrated) shows a loyalty to one’s self rather than others or a community as in Europe. And there lies the crux of the difference between British and American economic trends, when people value freedom their government reflects that and an every-day individual’s freedom of movement includes economic spheres where they will be less scared of judgment when taking risk and more likely to find success and contribute to the overall economic welfare of the country. Sure it means some of us are HUGE, most of us own guns, we drive more egregiously impractical cars but we more effectively fight big brother (until the most recent revelations) and possess more control over our lives than Europeans, who seem to beg for state control of everything from bans on homeschooling and the burka to national ID cards and government cameras scaning London. Europeans may laugh at us for being fat, ugly and violent, but we don’t really care what others think, and that may be the cultural key to America’s comparative resiliency and success.

    • HookesLaw

      In terms of fat tubs of lard any UK cartoonist need only look at the Wayne and (mainly) Waynettas on any UK school run.
      Would the Spectator run such a pejorative cartoon depicting the UK (fag smoking) underclass?

  • Curnonsky

    This is a wildly optimistic view of the current state of the American economy that only a professor could maintain. The current “recovery” is the slowest in memory, business creation is lagging, capital investment is on hold, and entire productive sector is nervously awaiting the Scylla and Charybdis of Obamacare and carbon regulation.

    The only way the US economy looks good is by comparison with Europe’s which is in an even worse coma.

    • hyufd

      Germany is actually doing better than the US in terms of unemployment and debt

  • Mark Thomason

    The UK is doing even worse than the US. Still, current levels of unemployment do not qualify as “roaring back.” Growth just staggering over the line of zero is better than collapse, but not “roaring back.”

    Also, the US was not “trapped into” any mid east wars, nor does it risk that. Those were wars of choice, promoted by fools.

  • Captain Booger Brains

    I am an American in the hearty Midwest and I love the cartoon. There are a lot of fat people over here! Skinny ones too, but you really notice the lard butts.

    On a related note, I recently lost 13 lbs. USA!

  • Anjaan

    To say that America is roaring back, would be premature. There are still a lot of hard work to be done . Also, there is this talk of America’s relative decline in the 21st century that is gaining ground.

    For America to do better in this century, the very first thing it must do is ……. to stay away from Britain, its foreign policies and scholarship on the ex-colonies, that make significant percentage of the world in terms of population.

    Dump Britain, the baggage of the past …….

    • axistogrind

      Not true. Britain is a true friend and sometimes our wiser and better angel, and while we both need to stop worrying about cleaning up the messes that resulted from her long dead colonialism, UK is as true an ally of the US as she has ever had. Sometimes a better ally than we are to her.

      • Anjaan Aadmi

        British colonialism may be long dead ….. but its effects still linger on a large populace from its erstwhile colonies ……..

        An America, looking at the world through British glasses, will take America down in the 21st century along with a sinking Britain. When I say down, I mean America’s relative decline would be far worse, due to the weight of the British baggage.

        Are the Americans ready to do the sacrifice for the sake of their special alliance with Britain ……. ?

        • hyufd

          Many nations, particularly in the Middle East, actually admire and respect the English legal system and mode of governance rather more than the American one!

        • Philip Carlin

          The question is who exactly wants any effects of long dead colonialism to linger, as it’s certainly not the majority of the U.K. population who are far more concerned with government debt (now over a trillion GBP and being added to I believe by 10 billion every month) impacting their livelihood now and for future generations than anything related to historical colonial dealing with other countries.

          As baggage is mentioned maybe a full disconnection from U.K. is required before other countries can close the problems of the past and look to the future without using history as a crutch supposedly hindering their progress, if that means eventually the end of the commonwealth structure then maybe that’s best for all concerned…

    • TerryD

      And dump our president

  • ahorvath

    The last quarter GDP growth was 1.8%. I would not call that roaring back. Millions are still out of work. The real estate market is showing some sign of life but rising interest rates could put an end to that. The true job killing impact of Obamacare and increased taxes has not hit completely as yet.

    • philbest

      The USA is really three different types of local economy in one, a bit like the EU. The “aggregate” statistics for the USA prevent people from realising that there is a PART of the US economy that IS roaring ahead; the aggregate statistics are dragged down by the part that is stagnating. The rate of progress or stagnation is pretty much determined by the size of government in each State, the taxes and the regulations.

      The big success story for the USA and indeed the whole first world, are the southern and heartland regions with minimal regulatory obstacles to resources extraction and urban sprawl. The former allows for low cost resources locally, and the latter allows for the world’s cheapest urban land, as i say in my new comment above.

    • TerryD

      Dan is like all supposedly “journalists” lowering the bar on the economy so low even our president will trip over it and all the people will run to the streets shouting ALL HAIL THE KING. We would be disappointed if we don’t read another the king is great article.

    • tomdaylight

      1.8 is more than Britain could dream of at this point in time.

  • David Hill

    Dan, while I am sure you are comfortable in your small circle the US economy is simply not roaring back. There is little to no economic growth and we are already a bit overdue for the next recession. You need to get out into the flyover states. Your rosy stats don’t look quite as swell out in the country.

    However, if your goal is just some nose rubbing of haughty Europeans I am right down with you. That is always great fun..

  • Roy

    The US could be doing heaps better if the President would take his finger out and work for the freedom he seems dedicated to supress. Also the public sector unions are slowly killing America, state by state, as they progressively force their retirement claims into a debt to humble all debts for coming generations. A force for despair must be the ignorance of many of the college/university students who surely must be a worry, when they know so little.

    • HookesLaw

      America made the mistake of electing Obama and then the Republicans could not find a candidate to beat him when he was there for the taking.
      The loony toons on the right have consigned America to 4 more years of Obama.

      • Drakken

        If repubs go anymore left they will be democrats, the repub party needs a good healthy purge and get conservatives back in.

  • philbest

    A hugely important factor in the US resurgence: the world’s lowest land-cost cities, due to an absence of growth-containment urban planning in those cities. This is actually where the resurgence IS occurring – it is not occurring in the high land-price cities. There is quite an overlap, too, between these cities and the extraction of resources – the local politics tends to not be against either resource extraction or “urban sprawl”.

    It is easy to confirm what I am talking about – compare real estate sites in any UK city with Houston, Dallas, Austin, Atlanta, Indianapolis, Charlotte, Raleigh, Salt Lake City, Nashville, Kansas City, Des Moines or dozens of others. The US coastal megalopolises are expensive but the most US cities by number are amazingly cheap. land is literally hundreds of times cheaper per square foot.

    The difference is how much “economic land rent” the property owner class and the finance sector is extracting out of the local economy – nice for them, but not for everyone else.

  • undergroundman14

    When the population of the US resembles the population of El Salvador and Mexico and Pakistan, will the US still be the US? I very much doubt it.

  • bp294

    When will you Brits tire of these UK/USA as Athens/Rome comparisons! The author doesn’t invoke that old saw explicitly, but isn’t it at the heart of the comparison, rather than the matter of where the 2008 economic decline started? The plain fact is, the UK is neither the cultural nor political nor economic behemoth it once was. Let it go … and leave us Yanks out of your persistent crisis of identity!

  • HookesLaw

    This is the latest news (26 June)…

    ‘U.S. economy is a lot weaker than anyone thought’
    ‘Details of the report, which showed downward revisions to almost all growth categories, with the exception of home construction and government, could cast a shadow over the Federal Reserve’s fairly upbeat assessment of the economy last week.’

    As ever the Spectator seems unaverse to publishing rubbish.

    • Loader2000

      Ha ha, part of the reason for this is that our government keeps projecting overly optimistic numbers in part as a product of wishful thinking, and in part to shore up political power. Every financial report that comes out in the US has the word “Expectedly” in it, regardless of how well the economy is actually improving because the Feds, probably under the influence if the Obama administration, continually project overly optimistic numbers.

  • GrahamCombs

    Yes, things may well be going in a better direction but with little thanks to the leadership in this country (the US) whether you are talking about energy or the next industrial revolution involving nanotech and additive manufacturing. 2014 is Year Zero for Obama’s biggest boondoggle, the Affordable Care Act. A mistake on an unprecedented scale. He is also using executive authority to burden American business with even more regulations and restrictions. And our own institutions are sclerotic with a very American style ruling class system — uncurious, thinly and narrowly educated, “expert” and “professional” at everything but what needs to be done: educate children, create new businesses, adhere to Constitutional liberties, promote national defense etc. We have profound structural and institutional headwinds coming, including debt on an unprecedented scale. Sorry, but “roaring back” does not describe the America I live in.

    • Nick

      Im not sure about you but the area I live in has a huge Tech and Insurance sector and everywhere you look something is being built and/or renovated especially in the western suburbs and Downtown. While my state’s economy hasn’t staggered much because of agricultural (everyone needs food) there has only been one major factory closed and housing prices are rising to pre-recession prices and above (much to the dismay of people who are buying houses).

  • Marie Shanahan

    Wish you’d retire the fat and “sloth’ American, stereotype. We don’t really look like that. But in a large country full of races from all over the world and all of those cuisines handy, there are some “puffy” people LOL, just not as many as some are going to suggest. America is actually a land of many “health nuts.” Not sure if this is fully realized. As for coming back from recession, two years after this article was published, it’s still ongoing. We’re doing okay. Thank God, we’re all doing okay, as nations. Faith, hard work and vision is the recipe of good things. :)

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