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September 07, 2010

The future with a frugal and broke Superpower

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Thomas Friedman discusses the effect of the world’s only superpower getting weighed down with a lot of debt

* “The Frugal Superpower: America’s Global Leadership in a Cash-Strapped Era” is the title of a new book by Michael Mandelbaum, the Johns Hopkins University foreign policy expert

* U.S. power has been the key force maintaining global stability, and providing global governance, for the last 70 years. That role will not disappear, but it will almost certainly shrink.

Great powers have retrenched before: Britain for instance. But, as Mandelbaum notes, “When Britain could no longer provide global governance, the United States stepped in to replace it. No country now stands ready to replace the United States, so the loss to international peace and prosperity has the potential to be greater as America pulls back than when Britain did.”

After all, Europe is rich but wimpy. China is rich nationally but still dirt poor on a per capita basis and, therefore, will be compelled to remain focused inwardly and regionally. Russia, drunk on oil, can cause trouble but not project power. “Therefore, the world will be a more disorderly and dangerous place,” Mandelbaum predicts.


How to mitigate this trend? Mandelbaum argues for three things: First, we need to get ourselves back on a sustainable path to economic growth and reindustrialization, with whatever sacrifices, hard work and political consensus that requires. Second, we need to set priorities. We have enjoyed a century in which we could have, in foreign policy terms, both what is vital and what is desirable. For instance, I presume that with infinite men and money we can succeed in Afghanistan. But is it vital? I am sure it is desirable, but vital? Finally, we need to shore up our balance sheet and weaken that of our enemies, and the best way to do that in one move is with a much higher gasoline tax.




All steps that are pro-economic growth, pro-technological improvement and pro-entrepreneurship seems to be needed.

The Fair tax has been projected to have pro-growth benefits:

* within five years real GDP would increase 10.7% over the current system, domestic investment by 86.3%, capital stock by 9.3%, employment by 9.9%, real wages by 10.2%, and consumption by 1.8%.

* Arduin, Laffer & Moore Econometrics projected the economy as measured by GDP would be 2.4% higher in the first year and 11.3% higher by the 10th year than it would otherwise be



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