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US in Decline – and Australia?

June 1, 2011

Addressing a Saxton's lunch in Melbourne

There is a whole specialist literature on whether America is in a period of decline. Speaking in Melbourne’s Sofitel Hotel to a lunch of 410 guests of the Saxton’s Speaker’s Bureau, I said the rise of China and the decline of America would be debated in this country for the next 20 years.

That’s a picture of slick celebrity historian Niall Ferguson on the screen. I quoted his view that sometimes the decline of an empire can come suddenly, generally as the result of a fiscal crisis, as quick and as fast “as a thief in the night.” It need not be a centuries-long, drawn-out decline that people imagine had been the fate of the Roman empire in late antiquity.

Ferguson said imperial decline is usually related to the fiscal crisis. I described America’s $14 trillion of national debt and the political deadlock in Congress about action to reduce long term entitlements and increase taxes, the only serious way of reining it in. In the US Congress the Republicans can’t accept tax increases, even doing away with the Bush tax cuts, and the Democrats can’t accept reform of Medicare or an increase in the retirement age even if as far off as 2050. But in the next presidential term they will have to move, or America will be tipped into a period of high inflation and high interest rates.

In this context it will have no alternative to cut back on bases and the military. Indeed it is already doing so. The Chairman of the Joint Chiefs, Admiral Mike Mullen has said the fiscal crisis is the biggest threat to American security. Not Al Qaeda, not Iran, not Pakistan, not North Korea, but the spending and borrowing locked in by the American system, and its chronically slow to move, politically-deadlocked and short-termist Congress.

With the rise of China to superpower status Australia is required, in Hugh White’s language, to take foreign affairs and defence seriously for the first time in a long time. That may mean dealing with China on security in the context of an American retreat from Asia. Not on the cards now, but a sudden lurch towards fiscal crisis could make Ferguson’s point ring very true for Australians – a crisis for an empire coming without warning, “like a thief in the night.”

  1. Ray Mason permalink
    June 1, 2011 2:10 pm

    In a lot of way Australia has been in decline for nearly 20 years. Manufacturing is almost completely gone. We work much harder with poorer working conditions. We will be expected to work even harder going forward with no job security. Most of the profits from mining go overseas and we arent investing in the future after mining. We are set to be one of the hardest hit by global warming. Our Politicians are lead by the Murdoch media empire as is the general public. I despair for the once compassionate country. A country that didn’t take itself so seriously. A country where family and relaxation came ahead of work. A countrythat didn’t want to blame the Government for everything that goes wrong. A country that didn’t blame Emergency Services staff for things that go wrong in a natural disaster.

  2. Tony Booth permalink
    June 1, 2011 2:43 pm

    Well reading the GOP race they are convinced spending cuts are the only way to go, you would think business people like our friend Herman Cain would recognise improving revenue would be the way to go. They roll out the old supply side nonsense and quote the Cato Institute as some kind of wonderland, as someone whose last job was to analyse and monitor investment mandates and the credit rating of securities within an investment portfolio the idea that US Treasuries could lose their AAA status is a sign of the swift nature of this turnaround. A debt ceiling applies pressure to be sure but the disparity of wealth is just extraordinary

  3. Doug permalink
    June 1, 2011 5:28 pm

    Whenever someone talks about America’s debt problems, I ask myself: “How much debt would the US Government have if it taxed petrol at the same rate that the British Government taxes petrol?”

  4. Richie Gun permalink
    June 2, 2011 9:55 am

    The political clout of the Pentagon has made curtailment of US defence spending impossible for over half a century. House of War by James Carroll is required reading on this subject.

  5. Neil Aegis permalink
    June 2, 2011 5:05 pm


    There will not be any debate in 20 years. It will be all over – done and dusted. The shortest lived world power in history.

    • Bob Carr permalink
      June 2, 2011 11:13 pm

      A brutal and challenging prediction. Fits in with Niall Ferguson’s thesis that empires need not decline gradually but can go under with a sudden fiscal crisis. The US political system is deeply inflexible and makes it hard for the system to make the adjustment required.

  6. Peter Pando permalink
    June 4, 2011 8:13 am

    Dear Mr Carr,

    If Australians advocate fair-weather friendship as some seem to be doing, do you not think the people of any nation with whom we seek to partner lose respect for Australia? Sure, flattery is a minor part of diplomacy and making friends, but a fickle tongue bespeaks no heart. Australia’s economic leaders need to remember that, and to remember the importance of the heart in sustainable growth.
    In my opinion, the decline hypothesised could only occur if America had no friends, if the USA hadn’t been built on great ideas shared globally, and if America’s people lost their faith in Providence. None of those apply, so the positive attributes remain. Meanwhile those who appreciate Australia won’t be jumping ship simply because a few de-programmed mathematicians fiddled with the algorithms or some accountants misread America’s books. Chinese efforts to re-brand and represent themselves across the Pacific communities might might save them face (we see the resonance of their ‘face’ in generations of successful emigrants to the US), but remember that all those dollars and signals of impending debt coming from the USA are attached to a people brimming with ideas, energy and a practical spirit. Just look at the Space Shuttle program for example.

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