November 12th, 2010

Paul Krugman, discussing commodity prices, posts a nice chart of recent trends in the world economy. Developing countries are recovering much better than rich ones.

Krugman modestly forgets to point out that he had something to do with this. He and Joseph Stiglitz may be treated as weird bearded hippies in Washington; but beards, Nobel Prizes, and sound analysis seem to go down better in Asia. They are listened to with respect, ever since Krugman defended Malaysia’s capital controls during the Asian financial crisis of 1997. Stiglitz subsequently blamed the whole thing on the misguided sectarian pressure on developing countries from the IMF and the World Bank to open up their financial markets and allow the miracles of Wall Street financial innovation to work their magic. Somehow this always happened to work out better for the bankers than Third Worlders in the street.

The trenchant criticisms of Krugman, Stiglitz and Sachs have provided vital intellectual cover to burnt-fingered Third World finance ministers in pushing back successfully against this pillar of the Washington consensus. So successfully that the policy plank has been quietly dropped by the World Bank and IMF – which has even been pushing the Russian government to reintroduce capital controls.

Capital controls may well have prevented the banking crisis in the very financially interdependent rich countries from propagating to the rest of the world. Typical developing countries only faced a trade slump: nasty while it lasted, but no permanent damage, unlike a banking crisis, which leaves the victims enfeebled by debt overhangs and broken credit channels for years.

Krugman’s chart also bears thinking about in geopolitical terms.
If your concern is human welfare – and this must be the main paradigm – faster growth by poorer countries is good news. Prosperity is not zero-sum, though the carrying capacity of the environment is. Power has a different calculus. Hard power, the ability to coerce other countries into doing what you want, or (more often) to prevent them from doing what you don’t want, is roughtly zero-sum in the world as a whole (footnote). Soft power allows some positive-sum games through trade in the broad sense, and collaboration to solve problems, such as putting down pirates, preventing wars, or saving the climate, but much of it follows the same logic.

Palmerston’s heirs in the chanceries foreign-policy shops of rich countries, unlike JS Mill’s in their central banks and finance ministries, are therefore congenitally worried by the trends illustrated by this graph.

Source : IMF. Spreadsheet with downloaded data and link here. I picked 1995 as a reasonable start date for the GDP series for Russia and the Eastern European new members of the EU, though enlargement didn’t reach all the 27 countries of the data series till 2007. Brazil, India and Russia are lumped together purely for legibility; actual cooperation between the BRICs is token.

The secular trend is a declining share of rich countries in world output. In numbers, respectively a 0.37% annual loss of GDP share for the EU-27, 0.11% for Japan, and 0.15% for the US. The EU figure is distorted by the transition in Eastern Europe, and the Japanese decline only started around 1990. Recently both their rates have been converging around the US one. World GDP is $74 trn, so 0.1% represents $74bn a year today.

The EU and Japan have more or less opted out of the hard power game, so facing up to relative decline is a much bigger issue in Washington. Fair enough, as neither China, India nor reviving Russia have opted out either, not to mention lesser troublemakers like Iran and North Korea – and, in a unique position, Israel. But there’s very little policymakers can do to halt long-term relative decline. The poor are catching up, period, and there are more of them.

I’ll be agnostic here on whether the decline of American power is a good thing, and anyway it’s inevitable. However, it is important to everybody that the decline be gracefully managed and institutions for global governance adapted or built. Many of my readers, as American patriots, will think the decline is bad in tself and should be as slow as possible. So they should be alarmed by what’s been happening recently.

Policymakers in Washington may not be able to halt or even slow the decline in American power, but what they can surely do is speed it up. And this they did. Look what happened to relative shares during the last four years.

The recession roughly doubled the decline. The USA lost an additional 0.6% of share between 2007 and 2010; so it cashed eight years’ decline in four. And it won’t come back. As Krugman’s graph illustrates, the legacy of a banking crisis is prolonged slow growth.

The financial crisis had many fathers, all trying to walk away from the ugly baby, starting with the reckless bankers. But under George W. Bush, regulatory capture wasn’t a temptation but a principle. Even a major-league disaster has not shaken the devotion of Republicans in Congress to the interests of speculators. The disconnect from the reality everybody else inhabits – including the financial policymakers of the ever larger rest of the world – is striking. David Cameron’s Tory-Lib government in Britain, slashing the welfare state to an extent the Tea Party can only dream of, is imposing a banking tax.

The Bush Administration was a coalition between two groups. First, the neocon foreign-policy hawks, proclaiming an “American century” of swaggering hegemony, and the free use of US military supremacy. They re-discovered in the sands of lraq that unvarnished imperialism is impracticable today, and a failed attempt merely alienates allies, makes whole populations sympathetic to the imperialised, raises fresh groups of diehard enemeies, and emboldens adversaries. The undoubted ability of the Pentagon to destroy Burma’s armed forces in 48 hours in practice gives the US no usable leverage whatever over the regime’s day-to-day misbehaviour. In six years the hawks threw away a priceless capital of goodwill and influence accumulated by the USA since the Marshall Plan. Compare the spontaneous worldwide outpouring of sympathy immediately following 9/11 with the current sullen acquiescence of a small band of NATO allies in the quagmire war in Afghanistan.

The second component was the Republicanism of money. (I read it that the social conservatives were just played for suckers.) Was this less traditional than it seemed? Just as the neocons took over from the realists in foreign policy, so the financiers sidelined the captains of industry in economic policy. (Look at the current Republican indifference to the G-20 summit and the failed trade deal with South Korea.) The hubris here was under-reach not over-reach; simply making quite sure that no steps were taken, or even seriously considered, to head off the disaster the unsupervised financial market was hatching.

The damage done by the second group to America’s place in the world was slower to reveal itself. But now you can see the double whammy.

Footnote on power
Strictly speaking the proposition holds if we define positive coercive power – the ability to force others to do what you want and they don’t – as the converse of the ability not to be be coerced into doing what you don’t want and others do. This sums to zero among any closed group of states. Similarly for the power to prevent others from doing what they want and you don’t. Call these two together hard power, and it sums to zero as well. QED.

Soft power is partly non-coercive ways of achieving the same ends, so it can reasonably be seen as zero-sum too. But it also covers negotiation, trade, and collaboration, which can easily be positive-sum. It also includes the ability to do things by yourself, which is closely linked to wealth. In 2510, either Switzerland won’t exist as an independent actor, or it will be able to send a spaceship to the moon if it chooses. These sorts of soft power are in principle positive-sum in a closed group of states.

If we add hard and soft power together in some unspecified and possibly illegitimate way, we have a hybrid concept of power that is a little positive-sum, but less than just looking at wealth would indicate.

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13 Responses to “The double whammy”

  1. Dan Staley says:

    Thank you James. When I say ‘I can see the speeding up of our decline’, this sort of thing is what I mean when speaking of economics and political economy (my rants on ecology need different indicators). I’ve bookmarked and will refer.

  2. larry birnbaum says:

    I agree it’s a wonderful thing that poor people are becoming rich (or at least not poor).

    However, this bit — “I’ll be agnostic here on whether the decline of American power is a good thing…” — is the kind of Western liberal hand-wringing that may make you feel better about colonialism but doesn’t do anything good for the world. Notwithstanding the West’s sins the promulgation of its values and its ways of thinking, personal, political, and technical, are what make the wealth you praise possible in the first place. I voted for Obama and I’ll no doubt vote for him again given the likely alternatives. But seeing him walk around Seoul with a “kick me” sign attached to his back — a sign he attached there himself — is disheartening to say the least. Asked to list his good pals among world leaders, he lists four, and Erdogan is on the list along with real allies like Merkel and Lee and leaders of countries with which we actually share interests and values. Turkey is barely an ally of ours at this point. What the fuck is he talking about? What is it that you’re trying to say with this ambivalence — that if it weren’t for us, there’d be no great powers running things? That they’d be better at it and nicer about it? Do you actually imagine that that would or will be the case?

  3. J. Michael Neal says:

    Larry, he’s trying to say that the discussion of whether or not such decline is a good thing is a separate issue from whether or not it is inevitable and the pace at which it’s been happening. In the interest of trying to discuss the latter, he wants to have the former discussion some other time. It’s a perfectly justifiable desire, no matter what his view is. You have done precisely what he wanted not to do, which is to muddy the analysis of what is happening with a shrill discussion of what we may or may not want to have happen.

  4. Jamie says:

    …Which is why we can’t have nice things, Er, discussions, because every time you try, some Larry shows up to castigate you for insufficient worship of symbols.

    Anyway, wonderful article! Krugthulu gets so little recognition, at least in this country, for the good he’s done.

    I think the big question of the next 30 years is going to be whether the U.S. mellows gracefully, like England, or… no so, like Russia. I suspect to the extent that we can and do truly internationalize more (in the “talking to and thinking about people in other places regarding things more complicated that cheap plastic doodads and useless customer service”) will be a big part. Another will be learning to transition from hard to soft power here at home. We’re terribly wed to zero sum games.

    Go team!

  5. larry birnbaum says:

    Michael, you say he brings it up in order to dispose of it as the topic at hand. Why is that necessary? Why bring it up at all?

    As far as “mellowing gracefully” — what a bizarre metaphor. Nations are not people. Do you imagine we’ll be going off to a well-earned retirement in Florida with our kids watching out for our interests?

  6. [...] This post was mentioned on Twitter by mbfromhb, Reggie Gardner. Reggie Gardner said: The double whammy « The Reality-Based Community [...]

  7. James Wimberley says:

    Just for the record, I’m not American but a Brit whos spent most of his working life trying to strengthen the European identity, so I am necessarily more detached from the issue than my American readers. (We Brits have been through the imperial decline thing, and it wasn’t easy.) I wouldn’t be blogging here if I wasn’t sympathetic to American values an dlives in many ways, as well as involved whether I like it or not in the activities of the (temporary) global hegemon.

    There’s certainly a good side to this hegemony, as there was to the Victorian Pax Britannica. The best part was the Great Generation’s use of the postwar Americam dominance, which they recognized as short-lived, to embed American values and interests in a set of imperfect but functioning global institutions: the United Nations, Bretton Woods, GATT, OECD, NATO. They also encouraged European cooperation, a stable peace being more important than the hypothetical danger of a future rival.

    I’m staying in Brazil just now; and understand better why Latin Americans welcome the breaking of Teddy Roosevelt’s big stick. The hegemon rarely sees why the dominated don’t appreciate the benefits of their powerlessness.

  8. Jamie says:


    “As far as “mellowing gracefully” — what a bizarre metaphor. Nations are not people. Do you imagine we’ll be going off to a well-earned retirement in Florida with our kids watching out for our interests?”

    I’m sorry you take issue with my stylistic construction. Perhaps you can teach a class at the Learning Annex or something.

    Putting aside my apparent poor expressive capabilities, do you not see a difference in how various empires have declined, or do you disagree that it matters how the U.S. handles its own?

    Or is it simply that you would rather derail the conversation by criticizing how others have it so that you can ignore that the U.S. hegemony is, in fact, slipping?

  9. larry birnbaum says:

    Jaime, I criticized a metaphor you employed as reflecting a specious analogy that isn’t a sound basis for thinking about this situation. You, on the other hand, have accused me of “worshipping symbols” and of stupidity.

    There’s a lot to say about this issue; I don’t think James’s post was a particularly good start for a bunch of reasons, partly because really what it was about was bashing the Republicans for stupidity. I more or less agree with him about that. I’m also becoming annoyed by Obama’s stupidity. It’s a caricature to say he’s sucked up to our adversaries and ignored or bashed our allies, but like many caricatures there’s some truth in that; and now he’s surprised to discover that this isn’t getting us anywhere?

    As to how empires have declined, my thoughts on your examples are as follows:

    1. England didn’t exactly fade away quietly. The war against communist guerrillas in Malaysia; the Suez debacle; its actions during the “Mau Mau” rebellion.

    2. England actually did have the luxury of being followed as a leading world power by a nation with close ties, shared values, and many mutual interests.

    3. Russia was shitty when it had an empire and it’s shitty now. There are plenty of things to admire about Russia, its achievements, and its culture; its politics isn’t one of them.

  10. Jamie says:


    Thanks for actually engaging. (I realize that’s maybe insulting, and if so, I apologize. Trolls are hard to tell from folks that start from very different assumptions in fora like this.)

    Yes, I accused you of worshipping symbols. That’s how I saw your criticism, and frankly, I still stand by that, but perhaps a little less so. I haven’t called you stupid, or more directly, “accused you of stpudidity”. I made a crack about teaching a class at the Learning Annex. That was a poke, when you seemed unengaged and trollish to me. If I judged you incorrectly, my apologies.

    I absolutely agree that there’s a lot to say on this topic, and I’m glad you and I can do so. I don’t get what you say:

    ” I don’t think James’s post was a particularly good start for a bunch of reasons, partly because really what it was about was bashing the Republicans for stupidity. I more or less agree with him about that.”

    You don’t like Jame’s post because he smacks Republicans as dumb, but you agree with him. Does that mean that you think it is simply not useful to note when they’re being dumb? I don’t get what you’re saying, and would like more explication.

    “I’m also becoming annoyed by Obama’s stupidity. It’s a caricature to say he’s sucked up to our adversaries and ignored or bashed our allies, but like many caricatures there’s some truth in that; and now he’s surprised to discover that this isn’t getting us anywhere?”

    This opens up a very, very wide set of conversations, the sort that could fill the rosters of many poly-sci and history students for years to come. I have enough faith, just like George W. Bush, to let history deal with that sort of thing. The present discussion, unless I’m missing something, is more about the needle and the damage done, as an insightful bard said – where we are, how we stop damage, what now.

    I’m happy that you’re engaging on decline issues, although I’m not sure that we’re aligned. (Which is fine, of course.) There’s really a lot to say about how a singular nation-state like the US can power down, so to speak, or in the alternative, lash out until exhausted. I like looking at history for both the good (for instance, that England, despite pain, is a reasonable place to live, has a meaningful role in the world, and for complicated reasons likes being annoying to the Continent to keep them, well, not honest, but something. I wish they’d play that role with the US) and Russia (far lower standard of living, despite starting at close to the same baseline as Eastern Germany, Czech, or similar, but failing due to domination by plutocrats, naive international investors promoting client state’s interests, and some weird economic philosphy that appears to fail as much as it reappears).

    But to confront your responses (and thank you), you’re right. the English were nasty fucks. They did nasty things, and they did them to perpetuate empire. And they had the great good luck to be really, really tired of it all just when the US stepped in with the Marshall Plan. You’re very right, there, at least from my view (As an American, I expect I’m both wrong on some specifics and also inflated on a history of a time when I wasn’t born yet.) (And I’m sorry if my personally US-centric viewpoint is grating – if it is, please help, clue me in on how you see it)

    As for your point (3), though, I think you haven’t talked to many Russians, at least across classes, or perhaps across areas. If you form your opinion of the US based on people fleeing it, you might have a strange viewpoint. (And yes, there are many, if not a big percentage.) Make no mistake, Russia, and the former USSR, was and is a basket case. What is intererstng is how similar we’ve become. The US is captured by vital industry. Vital industry is extracting rent, not looking forward. Our rent, at this moment, is cheap, so it goes on. It helps to talk to actual Russians, and learn how they feel about escalating nationalism at a time of decling state service, rampant corporatism, and just plain state-enabled theft. I hate to say this because it sounds like a conversational-trump, but, really, go there, and listen. This is the 80′s Great Satan, today. We’ll be different, and I desparately hope, do it better. What I’m saying is that I see disturbing similarities, and I find that depressing.

    Trawr, I’ve been drinking a bit, and I think I’m scattered. I probably sound more Berkeley than I’d like above. Sorry. But I’m glad we could come to starting to address the actual content raised, at least a bit.

    Excuse me, but it is Saturday, and I’ve got a ktten to coddle while watching my iPad Netflix movie while eating Georgian ovlies and goat cheese from, apparently, Chile. I wonder how those import/transport lines will look in, say, 20 years. Hey, I’m lucky – I decided not to spawn, so I don’t worry about my theoretical offspring’s coming challenges.

  11. larry birnbaum says:

    Jamie, I appreciate your response.

    Let me agree first that US economic decline relative to the rest of the world is inevitable and a good thing. And that we do have to think hard about how to maintain our power (or if you prefer influence) under these circumstances. And I’ll agree with James that a big part of that is figuring out how to embed our values and interests in larger institutions — alliances and international organizations — that are sustainable in part because other states see their value (at least to the extent that, while they might prefer replacing them with other arrangements more congenial to themselves, the cost of doing so wouldn’t be justifiable), and because they actively promulgate those values and interests.

    Obviously then I was dismayed by the G W Bush administration’s failure to engage world institutions in such an effort

    Guess what, I’m also dismayed by the Obama administrations’ failures in this regard. Not because they aren’t engaging, but because they aren’t doing what is necessary to shape these institutions to reflect our values and interests.

    In general here I’ll make a point that will probably annoy James: Europe has been singularly unhelpful in this regard. They persist in cynically using the UN as kabuki theater to distract third world ding dongs and despots rather than working to make the institution reflect our shared values and interests. America can’t make this happen alone.

    Here also I blame the Obama administration. Our alliance with Europe is based on a very strong web of shared history, shared values, and shared interests. We should be strengthening this and building on it, not ignoring it.

  12. Jamie says:


    Thanks for chiming in.

    I’m really just hearing that you don’t like the structural posture of the U.S. Well, hi-five, me too.

    So now what?

    I suspect that we’re close to where we started in this dicsussion.

    To talk about the one new thing you mentioned, yes, “Europe”, which I see as distinct from the EU, has, somewhat, decoupled on the military front. Not to put too fine a point on it, that is sort of the idea. Maybe the U.S. sees a need to blow up things for very immediatley apparent, but strategicly (from, say Germany’s perspective) arbitrary reasons. Why should Europe take part? I think we used up the banked good will that we (correctly, I do believe, as these things go) earned from the 1940-5-something, maybe -60 period.

    And I wasn’t asking you for a Washington Post apology moment. I was asking you to engage with particular arguments, what have put made. You still can, or not. Your choice.

  13. larry birnbaum says:

    Well, it’s a little strange to me that you might have thought I might be considering an apology for something… or that you might think or think I would think that I have something to apologize for.

    This gets back to what I was objecting about in James’s original comment. Either you believe American power has generally served our interests and values, which in many (not all) ways are also Europe’s interests and values, or you don’t. I do believe that many Europeans don’t believe this. Not only do I think they’re wrong, I think they’re self-indulgent; they get to feel virtuous while we do the dirty work their defense and prosperity depends on. That’s why I was annoyed.

    I don’t expect them to sign on without a greater say in how this power is exercised. But let’s, you know, talk about that. And about what they can do to help enhance our joint power in order to advance our joint interests and values. I understand that there are things — global warming comes to mind — where they think we are similarly falling down on the job. I don’t see why they shouldn’t offer an explicit deal here. It would be in their interests as well as ours.