Empires R Us
A steady stream of recent news and scholarly articles has been predicting the decline and fall of the American Empire.
A steady stream of recent news and scholarly articles has been predicting the decline and fall of the American Empire. The ascendancy of emerging economies in Asia and Latin America; the hobbling effects of the enormous financial and strategic burdens of military misadventures in Iraq and Afghanistan; and the debilitating blows dealt by the global financial crisis are all converging to undermine the unquestioned global hegemony of the United States as the world’s preeminent super power. Already, 39 percent of Americans believe that the current economic downturn reflects a “longer, permanent decline,” according to a New York Times/CBS poll.
If there is a single thread that has held the country back from the abyss it is the dollar’s role as the world’s reserve currency, giving the United States nearly unrestricted access to capital. 85% of world foreign exchange transactions are in U.S. dollars. Most global prices, such as the price of oil, are set in dollars. More than 60% of the foreign reserves of central banks and governments are held in dollars.
Increasingly, there are stirrings to rein in the global dependency on the dollar. China, which holds the most U.S. securities — $1.1 trillion — has begun advocating a shift to a basket of currencies. Russia and the Gulf Cooperation Council are also lobbying for a new global reserve currency. Even in the absence of alternatives, countries are finding work-arounds, so that dollar based foreign exchange transactions have declined from 89.9% in 2001 to 84.9% in 2010, according to the Bank of International Settlements. The dollar’s share of foreign exchange reserves has dwindled from 71.5% in 2001 to 61.3% in 2010, according to the IMF. A World Bank study predicts that the dollar’s reign as the single reserve currency will end in less than 15 years — by 2025.
There is growing recognition that the U.S. Empire is on its last legs; the only dispute is over the time remaining — 15 to 40 years — and whether the landing will be hard or soft. Financial projections show that the U.S. economy will be overtaken by China’s by 2025 and India’s by 2050.
Alfred McCoy, professor of history at the University of Wisconsin and convener of the “Empires in Transition” project, predicts, “A more realistic assessment of domestic and global trends suggests that in 2025, just 15 years from now, it could all be over except for the shouting.”
McCoy cautions that the ecology of power of empires is so delicate “that, when things start to go truly bad, empires regularly unravel with unholy speed: just a year for Portugal, two years for the Soviet Union, eight years for France, 11 years for the Ottomans, 17 years for Great Britain….”
Against this backdrop, the messy political squabbling over raising the debt ceiling, risking default for the first time in the country’s history, is symptomatic of a growing malaise that is hastening the unraveling of the U.S. Empire.
Economists have many trends to track the rise and fall of empires. So do those closer to the ground. The surge in immigration — both legal and illegal — after World War II has tracked America’s global ascendancy. Since the global financial crisis, the new trends are unmistakable too: Legal permanent immigrant inflow declined 10% from 1.1 million in 2009 to about 1 million in 2010. For all the huffing and puffing on the right, nearly a million illegal aliens have left voluntarily in the past four years as America’s economic crisis closed off opportunities. The official illegal alien population has declined from 11.8 million in 2007 to 10.8 million. Demand is petering out even in America’s vaunted high skilled sector. As of July 22, over 50,000 of the 85,000 H1B visas for the 2012 fiscal year remained unclaimed. By contrast, in 2007 and 2008, all these visas were snapped up within a week of the opening registration date of April 1.
Immigrants are as good a bellwether of the rise and decline of empires as the most sophisticated mathematical matrix that economists can construct. And they are speaking with their feet.