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Think America is guaranteed to lose
out to China? Think again...
A quick survey question: Who do you
think is more likely to be better off -- on top of the pile, if you will --
in the year 2025? America or China?
The conventional wisdom (what
everybody knows) is that China is on a relentless march upward, and America
has entered an era of permanent decline.
And yet, as management guru Peter Drucker once observed, "What everybody knows is
frequently wrong."
Does that mean the China transcendence
prediction, and America's guaranteed demise, could be looked on as
foolishness from a future vantage point? Stranger things could happen. You
never know...
To stretch your mind a little, today
we will make the base case for "America triumphant" in the year
2025. Fourteen years from now, about the time so many expect Uncle Sam to be
on a respirator, America could actually be doing great, even as the dragon
slips on some unexpected banana peels.
To start out, let's address a contradiction
that doesn't make a lot of sense.
On the Western side, faith in
America's leadership has hit all-time lows. (Speaking collectively here:
Democrats, Republicans, the Federal Reserve, all of them.)
And yet America itself still has a core so vibrant, a set of cultural ideals
and can-do capabilities so strong, that the country can't be counted out. Under
the right circumstances, America can shake off weak leaders like a bad case
of fleas.
On the Eastern side, faith in China's
leadership has hit all-time highs. How else do you explain investors' belief
that a fraud-wracked totalitarian state, still "command and
control" oriented in so many ways, will just keep going from strength to
strength?
It is a truly wacky paradox.
Everything we have learned about economics, about how markets work and
political systems work, points in the direction of "free markets for
free men" -- the culture that America used to uphold better than anyone
else, and a culture the USA can re-embrace.
And yet today, countless Western world
investors (who made their wealth in free-market, free-speech environments)
are now putting their faith in (drum roll please) a quasi-capitalist,
quasi-fascist politburo, where decisions as to what to build and where, and
which articles can be run in the newspaper and which can't, are made by
connected government officials!
The assumption is that China's
top-down, authoritarian political structure will necessarily evolve toward
free-market democracy as capitalism further takes hold. But that's one heck
of a big assumption, no? Perhaps in line with W.'s assumption that democracy
would flourish in Iraq?
The alternative view (regarding
political change) is that, even if China does not embrace "free markets
for free men," it can still succeed anyway. To this your humble editor
asks: Have we learned nothing from the communists, or even the Japanese for
that matter, when it comes to state-driven "command and control?"
But getting back to the "America
wins by 2025" argument...
The crux of the scenario focuses on
three things: food, energy and manufacturing.
First up, food: America, as you know,
is an agrarian superpower. The USA is one of the largest grain exporters in the world. We grow so
much food, in fact, that we can afford to burn up food in our gas tanks (in
the form of cockamamie ethanol subsidies).
China, in contrast, does not have
enough food, and their troubles are only going to grow worse. China as a
country is wracked by devastating droughts. Their water reservoirs are both
polluted and depleted, with the problem bordering on catastrophe.
So what is going to happen, then, over
the next decade as China's hunger grows (and weather patterns worsen)? If the
long-run agriculture forecasts are correct, a lack of self-sufficiency in
future years could be a very big problem. America will have that
self-sufficiency. China won't.
Next up, energy. Once again, a big
problem for China, especially with "peak oil" kicking in (as it
inevitably will over the next few years) and with the Middle East threatening
to blow up (a virtually guaranteed occurrence also).
But did you know America is a major
power when it comes to energy too? The USA is addicted to oil, to be sure,
but there are huge quantities of another valuable, clean-burning fuel under
Americans' feet -- natural gas.
Is it so hard to imagine an American
energy culture switched over from oil to natural gas? A world with natgas hybrid electric cars, and natgas
power plants fueling electric generator stations
all across the country?
Remember, we are talking about the
year 2025 here. Somewhere between now and then, the price of oil will surpass
$200 a barrel, perhaps even $300, at which point the heavy infrastructure
costs for switching from crude to natty will seem cheap.
But the point is, America will get
through the crude oil crisis and have natural gas waiting for it on the other
side, with enough abundance to support the U.S. economy (perhaps with further
help from our Canadian friends). That is long-term energy security. What kind
of energy security does China have?
The final point to consider is
manufacturing. Over the past few years we have seen and heard a great deal
about the "China price," with China being the low-cost
manufacturing outlet to the world. That reality is already fading now, as
wages and input costs in China rise.
What happens to the manufacturing
equation, though, if America endures a fiscal crisis of great proportion at
some point in the next few years? At least two things happen. First,
Americans stop buying so much from overseas exporters. Second, jobs start
coming home!
Imagine America, five years from now,
in the midst of true "Great Depression" conditions, with
unemployment at 30%. Were this to be the case, the rest of the global economy
would be in a major slump too, as the USA is worth a quarter of world GDP.
But with all those Americans out of
work, what would happen to manufacturing jobs? They would start coming home!
To the extent that America declines economically, the USA once again becomes
a cheap labor state. Why wouldn't corporations
start aggressively moving factories back home in droves?
And by the way, for those who expect
the dollar's value to fall to zero and stay there -- how does that work in a
world where food and energy are scarce with the U.S. having an abundance of
both? As the technology picks up, we may even be able to export gas (in the
form of LNG) as well as grain at some point.
How well would grain sell to a hungry
world if priced in "worthless" dollars? How quickly would
manufacturing jobs return to the USA if cheap American workers were paid in
dirt-cheap greenbacks?
And by the way, we haven't even
touched on America's capacity to innovate... if someone solves the peak oil problem
in a big way by engineering bacteria that eat carbon dioxide and excrete
gasoline (a real project), which country do you think will pull it off? If
there is a new cleantech and biotech revolution
that sweeps the planet, bringing in trillions of revenue from aging humans on
every continent, which country do you think will have the innovation lead?
Now, imagine fast-forwarding to the
year 2025...
The great dragon, which was supposed
to be dominant by now -- it is 2025 remember -- actually hit a series of
snags beginning in late 2011, when the entire Chinese economy imploded under
the weight of overcapacity and fraud. China then bounced back from this
implosion, as Jim Rogers predicted it would, but quickly ran into further
problems of intractable civil unrest, infrastructure problems born of
"command and control," and chronic shortages of food and energy
that crippled economic output and acted as a huge brake on growth.
America, meanwhile, has once again
become "a shining city on a hill" by 2025. A major fiscal crisis
hit the USA hard in late 2011, as a Middle East oil spike created "rage
riots" and led to inflationary collapse of the bond market. And yet,
while the years 2012-2015 were very dark for the USA, an incredibly cheap
dollar, coupled with the surging value of grain exports and a return of U.S.
manufacturing jobs, enabled Uncle Sam to find his feet.
A vicious wave of inflation swept
through the United States for most of the teens, but a new Paul Volcker
stepped up in 2020 and "broke the back" of inflation once again.
The benefit of all that inflationary pain was that most of America's debt was
monetized out of existence (with China and Japan caught holding the bag). By
today -- the year 2025 -- America is reaping the fruits of new balanced budget
laws, huge agricultural profits, a resurgence in
home-based manufacturing, and the fruits of a cleantech/biotech
new innovation boom.
Could the above not happen? Write in
and tell me why it's impossible. If China can survive near-fatal shocks to
the system, as Jim Rogers predicts, then America still can too. And the
underlying power of America's institutions, coupled with potentially
significant food, energy and innovation advantages, means the pain of a
serious debt and inflation crisis can be endured and then overcome.
China's food and energy shortages, on
the other hand, are only set to become worse -- and China's long-run success
as a quasi-capitalist command-and-control state is a dubious proposition at
best, with the prospects of successful free-market handoff unknown.
Sound crazy? Write in and tell me why
it's crazy.
This isn't
so much a hard prediction, by the way, as a "thinking
outside the box" exercise. So much of the commentary today is just ad nauseum repetition of the obvious party lines that it
becomes dangerous to one's health and wealth to listen to it. We must think
for ourselves, and be ready for counterintuitive surprises of all kinds.
Justice
Litle
Taipan
Publishing Group
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