- Declinism is a uniquely powerful theme in American culture, and many politicians have adopted it as an election strategy.
- Today, Nicholas Vardy explains why the way to wealth is never betting against America.
A silent assumption permeates much of today’s financial punditry: America’s best days are behind it.
Back in the “good old days,” a dynamically expanding U.S. economy secured prosperity for all its citizens.
Politicians reached across the aisle and got things done.
The world admired America for its economic, political and social achievements.
The contrast with today’s attitude could not be greater.
The fruits of economic growth are going to the top 1%.
Political vitriol has reached unprecedented levels.
America is pitied around the world for its declining infrastructure and poor healthcare and reviled for its aggressive dealmaking approach to foreign policy.
America is an empire in decline.
Here’s a reality check.
Yes, America has its significant challenges and flaws.
But the good old days when the United States was not gripped by some crisis du jour is a fantasy.
Today the United States boasts unprecedented hard power – the world’s largest economy backed by the world’s largest military force. It also has the soft power of Wall Street, Silicon Valley and media-driven popular culture.
For all its faults, the United States remains by far the most powerful country on the planet.
Predictions of its decline say more about America’s relationship to the rest of the world than they do about the underlying reality.
And as an investor… don’t make the mistake of betting against America.
Declinism: As American as Apple Pie
Declinism is a uniquely powerful theme in American culture.
And it is driven by a repeating cycle of “doom and deliverance.”
Politicians of all stripes have embraced this cycle as a time-tested election strategy.
Step one: Create a perception of crisis – “America is falling behind. Rivals, like [insert country], are catching up. The United States is all but doomed.”
Step two: The politician becomes a savior – “All is lost, that is, unless you elect me. I will save America from its horrible fate.”
U.S. politicians, from John F. Kennedy (post-sputnik) to Donald Trump (China), have used this narrative to ascend to the American presidency.
American philosopher Eric Hoffer summarized it best: “The technique of a mass movement aims to infect people with a malady and then offer the movement as a cure.”
Each new decade, it seems, sees a new rival to American power. If it hadn’t been the Soviet Union, Japan or China on the horizon, Americans would have invented one.
Alas, predictions of America’s decline not only failed to live up to the hype… but also were excellent contrary indicators.
Nobel Prize-winning economist Paul Samuelson predicted the Soviet Union would overtake the U.S. economy by 1984. Less than a decade later, on Christmas Day 1991, the Soviet Union was wiped off the map.
Karel van Wolferen’s The Enigma of Japanese Power: People and Politics in a Stateless Nation, published in 1989, marked the peak of the Japanese mania. Almost to the day, Japan entered a 30-year period of stagnation from which it has yet to emerge.
In 2001, Goldman Sachs’ Jim O’Neill anointed “BRIC” – Brazil, Russia, India and China – as the economic superpowers.
China was the only BRIC that mattered. Even O’Neill conceded that Brazil’s and Russia’s share of the global economy fell over the past decade.
Even China’s star shone less brightly than expected.
In 1994, just three years after the collapse of the Soviet Union, the U.K.’s Hamish McRae predicted, “It is very difficult to see China as anything other than the world’s largest economy in 2010.”
But today, a decade later, the U.S. gross domestic product (GDP) of $21.44 trillion remains 50% above China’s (questionable) $14.14 trillion.
And the late Nobel Prize-winning economist Robert Fogel’s prediction in 2010 that the Chinese economy will reach $123 trillion by 2040 is not aging well.
Declinism in Investing
Understanding declinism as a recurring aspect of American culture is essential for one reason.
You put yourself above the daily fray of financial market headlines.
Warren Buffett understands that today’s political and economic noise is just that.
As he points out… despite the U.S. fighting in two world wars, suffering the Great Depression, and facing down the Soviet Union, Japan and China, the Dow Jones Industrial Average rose from 68 in 1900 to more than 10,000 in 2000.
And U.S. per capita GDP rose from about $4,000 in 1900 to $36,500 in 2000 – more than an ninefold increase.
Understand that declinism is as American as the right to life, liberty and the pursuit of happiness.
But grit your teeth… and don’t buy into this bit of Americana.
As Buffett advises, “Never bet against America.”