From its founding in 1776 as a small republic to around the middle of the 20th century, the U.S. gradually became bigger and stronger to become the most powerful and richest country in the world. This article raises great concerns that the U.S. can continue to maintain that position as we move deeper into the 21st century, unless the U.S. government and its citizens are willing to take drastic measures which they have not been willing to take in the past.
What are these great concerns?
National Debt: The first and most obvious is the great debts owed by the U.S. federal government and various state governments. For example, the total debt of the U.S. government  was over $14 trillion at the end of 2010, which is about 95% of the U.S.’s annual gross domestic product (GDP) of $14.7 trillion for the calendar year 2010.  This translates to a debt of about $46,170 per person for the 310.8 million people living in the U.S. The interest on this debt for 2010 was about $414 billion, or 2.8% of the GDP.  Since interest rates are expected to rise from their currently abnormally low levels and the national debt is expected to continue to increase, the projection is that the interest alone on the U.S. federal government’s total debt could rise to about 4% of the GDP in 2020. This means that a significant portion of the U.S. government’s income will be used to pay just the interest owed on the debt, not even counting the debt itself. The situation in many states is at a similar predicament. For example, New Jersey’s net tax-supported debt in 2008 was $31.4 billion, which was higher than its state tax revenue of $26.6 billion. New York’s net tax-supported debt in 2008 was $56.9 billion, which was higher than its state tax revenue of $55.7 billion. 
The above situations obviously cannot be allowed to continue on any extended basis. It is just simple arithmetic that in order to solve the problem, we must consistently spend less than what we earn. Yet, year after year during the last 10 years, the government always spent more than what it took in. The politicians are advocating policies that may gain votes for them or their party in the short term, e.g., tax cuts or maintaining tax cuts, and more spending, but often disastrous in the long term. Instead of working cooperatively on a long-term realistic plan of reducing the debt, they are sticking to their traditional party agenda and unwilling to compromise, or arguing on a partisan basis how to raise the debt ceiling or the value of that debt ceiling. Similarly, corporations and various constituent groups continue to seek profits or benefits for themselves even if it is at the expense of the country as a whole, or various constituent groups fight hard to keep or even expand their benefits even though their benefits may already be better than the large majority of the other constituent groups. There seems to be a total lack of concern that we are in an overloaded, sinking boat together. Instead of working together to reduce any unnecessary load on the boat, to bailout the water in the sinking boat, and to plug up the leaks, each one is interested in only keeping all his/her possessions on the boat or even bringing more possessions on the overloaded boat.
Global Competitiveness: To be able to compete and beat the competition in the global economy, a country can produce the products less expensively, can produce better quality products, or produce newer and more innovative products. Since the standard of living in the U.S. is higher than most countries, and significantly higher than countries like China, Korea, Vietnam, Philippines, and other countries in Asia, Africa, or South America, the U.S. is not going to compete successfully by producing less expensive products. So to compete successfully, the U.S. must move up the production (manufacturing) chain by producing better quality or newer and more innovative products. This means that our students must be more and better educated than our competitors. Unfortunately, that doesn’t seem to be the case.
The Programme for International Student Assessment (PISA) is an international standardized test for 15-year-old students designed to measure not just whether they know basic facts but whether they can use them in practical situations. The test measures “skills necessary for deeper learning that prepare students to graduate from high school and college with the capacity to know and understand core academic content, think critically and solve problems, communicate effectively, work collaboratively and continue learning throughout their lives, i.e., skills necessary to succeed in a global economy.”  In the most recent PISA test of 2009, the U.S. ranked 17, 31, and 23 respectively in reading, math, and science, behind countries like China, South Korea, Singapore, Japan, New Zealand, Australia, Canada, and many other countries. Furthermore, compared with earlier PISA tests, the U.S.’s rankings seem to have slipped somewhat.  Unless the U.S. improves significantly in this area, how can she move up the production chain and compete successfully by producing better quality products and newer and more innovative products relative to the global competitors.
Unwillingness to Address the Roots of Problems: When anyone or any country is faced with a problem, that person or country must understand and address the root cause of the problem. Only if the root cause of the problem is removed will the problem be solved. If one just addresses the symptoms (or manifestations) of the problem, then the problem will remain. We illustrate with several examples.
Drug, Alcohol, and Cigarette Use by Youths: People recognize that this is a serious problem. It affects not only the individuals involved, but also affects and is very costly for the society as a whole. It costs the society in terms of increased medical costs, increased road casualty and insurance costs, lost productivity, decreased personal safety and increased crimes, increased costs of police, courts, and prisons, more gangs and smuggling and other crimes across our borders, etc. This problem was discussed in an earlier article in this web site “Some Thoughts on the Youth Substance Abuse Issue”: http://www.dontow.com/2008/06/some-thoughts-on-the-youth-substance-abuse-issue/. As discussed in that article, various methods have been proposed to solve these problems. However, those methods focus only on the youths, and it seems that there is one important factor that is not addressed by those methods. Children and young people observe and copy the behavior of adults, especially their adult family members. It is not what the adults say that is important, but what is most important is what the adults do. As long as there are serious substance abuse problems among the adult population, and there are, it will be essentially impossible to solve the youth substance abuse problems. Therefore, the root cause of the substance abuse problems is that adults have substance abuse problems. and we should find solutions to the adult substance abuse problems, i.e., attack the root cause of the problem.
If we can significantly reduce the demand for illicit drugs among the people living in the U.S., then we can also significantly reduce drug trafficking and various related crimes across our borders, because the root cause of this problem is the demand within the U.S.
Excessive Sexual Activities Among Youths: This is similar to the previous problem. Again, youths copy adults. If we can significantly reduce the amount of extra-marital activities among adults, especially among our politicians, actors and actresses, athletes, and other public figures, then there will be a similar reduction of excessive sexual activities among our youths.
Trade Deficit: We all agree that the U.S. has a large trade deficit, due to imports significantly exceeding exports. But the economic system that the U.S. advocates is supposed to be a free enterprise system. This means that economics is driven by competition, and a corporation is free to seek the cheapest parts and the cheapest labor, anywhere in the world. As a matter of fact, it was precisely this economic system that propelled the U.S. to become the richest and most powerful country in the world, resulting in a standard of living in the U.S. that is significantly higher than almost all of her competitors. A natural consequence of this result is that U.S. corporations will go oversees more and more to seek cheaper parts and labor. As mentioned earlier in the “global competitiveness” section of this article, the U.S. must move up the production chain to become competitive as it can no longer compete based on price. Imposing protectionism measures at this time is like supporting the rules of a game when you are winning and changing the rules of the game when you are losing. As a matter of fact, China which is projected to be the next economic power is expected to experience the same fate 30, 40, or so years down the road. As its standard of living continues to increase, China in the future will no longer be able to compete based on price as some of the countries in Southeast Asia or Africa improve their production infrastructure. Therefore, a generation or two from now, China will also have to move up the production chain in order for China to stay competitive. Instead of complaining that work is moving overseas, the U.S. must look at the root cause of the problem, which is that as the U.S.’s standard of living keeps on increasing, it can no longer be competitive on price. As work migrates overseas, the U.S. must focus and invest in areas, such as education , that can make the U.S. competitive higher in the production chain, i.e., produce better-quality products, and better or more innovative products.
Currency Revaluations: An issue very much related to the previous issue of trade deficit is currency revaluations. As the U.S.’s trade deficit with China continues to rise, the U.S. government has repeatedly pressured China to reevaluate its currency Renminbi (RMB) upward relative to the U.S. dollar. With such upward revaluation of the RMB relative to the U.S. dollar, China’s exports to the U.S. would become more expensive and therefore Americans would buy less Chinese exports, and at the same time, U.S.’s imports to China would be less expensive and therefore Chinese would buy more imports from the U.S. Not only that the U.S. is urging the Chinese government to do this, but it is accusing the Chinese government of purposely manipulating the Chinese currency. First of all, haven’t the U.S. been manipulating the U.S. dollar by printing more and more money. Since China owns $895 billion in U.S. Treasuries, or 32% of the total U.S. Treasuries outstanding ($2.8 trillion), by printing more and more money means that the debt owed by the U.S. to China has effectively been reduced. Actually, the RMB has been increasing in value relative to the U.S. dollar, about a 15% increase from January 2007 to January 2011. Although it may be a legitimate argument that the RMB should increase in value even more relative to the U.S. dollar, accusing China of purposely manipulating the valuation of its RMB as the main cause of the massive U.S. trade deficit is once again not addressing the root cause of the problem, which is the reduced competitiveness of the U.S.
It is very important to point out that just looking at the trade deficit numbers could be very misleading, because the price of an export product is counted toward China’s export total, but often only a small fraction of the profit from selling that product goes to Chinese companies who were involved in producing that product. For example, the overwhelming majority of the profit from selling within the U.S. an iphone or ipad that is made in China goes to Apple, and not to the companies involved in manufacturing the parts or producing that product. This could greatly distort the interpretation of the trade deficit and mask the root cause of the U.S.’s economic woes.
Other Root Causes of the U.S. Economic Problems: In the last three-four years, we have experienced one of the worst economic disasters in history, the housing loan bubble and various investment and loan derivatives that have no economic foundation but kept getting bigger and bigger until they crashed. This not only caused millions of Americans to lose their homes or their investments, it had adverse ramifications around the world. Yet not only that many of the leading executives and companies who were leading such investment junkets were not punished, they were rewarded with huge bonuses, stock options, or leave packages. Two examples are the companies of Goldman Sachs and Morgan Stanley and their executives. There is no way that these people and companies did not know what they were advocating and selling, the risks involved, and the long-term consequences. This is not a problem associated with just the Republican Party or the Democratic Party, because it started under the Bush administration and “so called” resolved under the Obama administration by essentially the same type of people. There was (and still is) unabashed greed that permeates a large part of the American infrastructure, including (1) financial companies at Wall Street, (2) Washington, D.C.’s government leaders and agencies who purposely reduced the amount of regulations that could have stopped such misadventures, and (3) top academics at leading business schools and universities who were guns for hire. The root cause of the problem is such unabashed greed and yet not much is done about it. An excellent documentary film about this period and the misguided adventures before, during, and after the crisis is the 2010 film “Inside Job” made by Charles Ferguson: http://www.sonyclassics.com/insidejob/.
Another example of a contributor to the economic problem of ordinary citizens is the high cost of gasoline. Even after the recent drop in gasoline prices, their prices are about $1 (or 40%) more than same time last year. At the same time, almost all of the major oil companies are enjoying huge profits. For example, Exxon’s profit in the first quarter of 2011 was $11 billion, about 69% higher than its profit one year earlier. The only company among the big five oil companies  that did not have a large increase in profit from a year earlier was BP because of the expenses they incurred related to the 2010 oil spill in the Gulf of Mexico. Their executives with the exception of the CEO of BP each earned more than $10 million in 2010 with Exxon’s CEO making $21.5 million. Even BP’s CEO made $6.8 million in 2010 while causing a great catastrophe in the Gulf of Mexico. Furthermore, these oil companies actually produced less oil in 2010 than 2009 even though their profits were significantly more. It seems that the rise in gasoline prices is not due purely to oil shortage or the rising prices of crude oil. One of the root causes of rising gasoline prices is again the unabashed greed of the big oil companies, while federal government legislators continue to give tax incentives to oil companies.
Foreign Policies: One of the grave concerns related to the future of the U.S. is its frequent misguided foreign policies. Such misguided foreign policy, especially one that leads to wars, has grave implications for its citizens from both a safety and economic point of view. An obvious example is the U.S. invasion of Iraq in 2003 on the pretense of destroying Iraq’s weapons of mass destruction (WMD). Not only that no WMD was found, but after toppling over the Saddam Hussein regime, the U.S. had no well-thought-out plan on what to do next. Instead of listening to the advice of various professional diplomats and military leaders with experience in Iraq, the people who made the decision (basically Vice President Dick Cheney and Secretary of Defense Donald Rumsfeld, and with President Bush behaving as the de facto absent Commander In Chief) made one of the greatest blunders in military history by not providing enough troops to maintain order after the military victory and deciding to disband the Iraqi army. The latter cut loose 500,000 former Iraqi soldiers with no jobs to support themselves but with all kinds of weapons, and left a security vacuum in Iraq. This led to the collapse of the government bureaucracy and army, and led to total chaos with massive looting and bombing. This allowed the Islamic fundamentalists to move in to fill this void, and their ranks swelled with many disillusioned Iraqi people. Furthermore, it changed the Iraqi citizens’ perceptions of the Americans from friends to fools or foes. The war also affected the Americans in the pocketbook to the tune of about $3 trillion, with the troubling additional question if we had not invaded Iraq, would we be stuck in Afghanistan as we are now.  An excellent documentary film about the U.S.’s invasion of Iraq and its aftermath is the 2007 film “No End in Sight” made also by Charles Ferguson: http://www.noendinsightmovie.com/.
Every country’s first priority should always be to take care of themselves, but that should not be at total neglect of the welfare of other countries, and more importantly not at the expense of other countries. It seems that our foreign policy with respect to Iraq, Vietnam in the 1960s and 1970s, China from 1950s to now, and the Middle East from the end of WWII to now has always had a flavor of imperialism and a condescending attitude that other people’s lives are not worth as much as the lives of Americans. Again this is not just a Republican Party issue, or just a Democratic Party issue; it is an issue of both parties. It is this kind of mind set that is the root cause of many of our foreign policy problems.
Summary: We are concerned that our country can no longer continue to be the richest and most powerful country in the world. We identify several major issues facing the U.S. today: National debt, decreasing global competitiveness, unwillingness to address the root causes of problems, and failing foreign policies. These are huge and fundamental issues. They cannot be solved by twigging our traditional ways of doing things. They can be solved only if our government and our citizens first acknowledge that such problems exist, and that we are in an overloaded, sinking boat together. We must work together to reduce any unnecessary load on the boat, to bailout the water in the sinking boat, and to plug up the leaks. We must always have in mind the best interests of the whole country, and not just what is best for ourselves or our particular group. Unfortunately, this kind of mind set is not something that we have been willing to do in the past. Perhaps as our boat continues to sink, more and more people will realize the seriousness of our problems and that we no longer have the luxury of putting off these problems for our children or grandchildren to solve. Perhaps then we as a whole nation will be willing to make this paradigm shift.
It is also important to point out that even if the U.S. is no longer the richest and most powerful country in the world and China is rapidly gaining grounds financially, we are not necessarily saying that China will become the richest and most powerful country in the world, because in many respects there are still large gaps between the U.S. and China. Furthermore, China also needs to solve its own problems.
 The total debt of the U.S. federal government is the sum of the federal debt securities held by the public (people, business, and foreign governments) and the federal debt securities held by various U.S. government agencies (e.g., Social Security Agency).
 “The U.S. National Debt and How It Got So Big”: http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm.
 “Interactive: Is Your State A Debt Disaster”: http://www.forbes.com/2010/01/20/states-debt-pensions-interactive-map.html.
 “Can Deeper Learning Improve American Competitiveness?”: http:///www.hewlett.org/newsroom/newsletter/can-deeper-learning-improve-american-competitiveness.
 “Programme for International Student Assessment”: http://en.wikipedia.org/wiki/Programme_for_International_Student_Assessment.
 By investing in education, we do not necessarily mean just putting more money in education. We mean that we need to reevaluate our whole education system, including the effectiveness of our teaching and how teachers are evaluated.
 The big five oil companies are Exxon, Chevron, Shell, ConocoPhillips, and BP.
 “The true cost of the Iraq war: $3 trillion and beyond”: http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090302200.html.