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11/11/13

USA Economy: Internal Stagnation is Biggest Threat to America - Daniel Wiser

If America one day collapses like the great powers that came before it, it will not be because of a foreign invasion, one economist said Thursday at a Charles Koch Institute event.

Tim Kane, chief economist for the Hudson Institute, said the cause will be much closer to home. “The existential crisis facing America is not terrorism or barbarians at the gates,” he said. “It’s our own internal stagnation.”

Kane spoke about his new book, co-authored with former Council of Economic Advisers chairman Glenn Hubbard and titled Balance: The Economics of Great Powers from Ancient Rome to Modern America.

The book contains eight case studies of great powers, ranging from Ottoman Turkey to post-World War II Japan, that all floundered due to economic and political stagnation, according to the authors.

Kane and Hubbard develop a new measure of “economic power” in their book, factoring in the GDP per capita, economic growth, and GDP of countries relative to the United States. Europe has 73 percent of the economic power of the United States, while China has 40 percent and Japan 15 percent, according to their calculations.

However, Kane noted that U.S. economic growth is trending downward. The Congressional Budget Office projected last year under one scenario that America’s debt-to-GDP ratio would surpass its World War II-era peak of 109 percent around 2025, he added.

Kane attributed the troubling U.S. economic trends to dysfunctional institutions that he said have always imparted perverse incentives throughout history.

Campaign finance laws, beginning in the 1970s, barred candidates from coordinated campaigns with independent spending by individuals and penalized corporations and unions for political activity, Kane said.

Those changes cemented financial advantages and clout for the two main parties and actually increased polarization, he said. Politicians no longer had the incentive to work together on issues such as entitlement reform as a result, preferring to focus on short-term battles rather than long-term compromises.

Read more: Economists: Internal Stagnation is Biggest Threat to America | Washington Free 

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