At the dawn of the 20th century, Britain started developing the notion that their empire might be in decline. About a century later, the financial crisis wreaking havoc in the U.S. might be ringing the same alarm bell.
On the other hand, American capitalism has proven to be remarkably resilient.
"One thing seems probable to me,” Peer Steinbrück, the German finance minister, said recently. “The U.S. will lose its status as the superpower of the global financial system.” At another time, that remark might have sounded like mere nationalist bluster. Right now, it doesn’t seem so ridiculous to ask whether 2008 will come to be seen as the first year of a distinctly non-American century.
At the heart of the troubles, both short term and long term, is debt. Debt helped create the housing bubble and has now left almost one of every six homeowners with a mortgage larger than the value of their home. Debt built up, and then laid low, modern Wall Street, where firms borrowed $30 for every $1 they owned. And in the coming years, debt will constrain the United States government, as it copes with the combined deficits created by the Bush administration’s policies, the ever-more expensive financial rescue and the biggest item of all, Medicare for the baby boomers.
In essence, households, banks and the government have already spent some of their future earnings. The current crisis marks the point at which the bills begin to get paid. Whereas Britain lumbered under the weight of imperial overreach, as the historian Niall Ferguson has written, the United States will be shackled primarily by its financial overreach.
“Given the burden of debt that has accumulated, it’s hard to see the U.S. economy growing as fast as it did over the past few decades,” Mr. Ferguson said. “There is a profound mood shift occurring.”
But he added two caveats. The political language of both presidential campaigns makes clear that many voters, for all the current pessimism, still believe in the idea of American pre-eminence. So, apparently, do many of the world’s investors.
In recent weeks, the dollar has held its own. Stocks in every other major country are down about as much over the last year as they are in the United States, if not much more. America may not be a safe haven anymore, but it does seem to be safer haven.
Robert Zoellick, the president of the World Bank, said that he was recently speaking to a senior Chinese economist, who said that people in his home country — today’s rising economic power — don’t see the sky falling on the American economy. “They know its ability to turn around problems is really unmatched, historically,” Mr. Zoellick said, quoting the economist about the United States. “At the same time, they ask themselves, Will the United States get at some of the root causes that could determine its real strength over the next 10 or 20 or 30 years?”
This is not the first time in recent history that the economic position of the United States has appeared precarious. At various points between the mid-1970s and early 1990s, Europe and Japan each looked like the next great power. Neither turned out to be.
Japan suffered through its own burst bubble and spent years denying the depth of its problems. Europe proved unable to create engines of growth that could match the software, biotechnology or entertainment industries in the United States.
Taken to its extreme, the American preference for a faster, riskier capitalism led directly to the current crisis. But that preference also helps explain why America is weathering the crisis at least as well as other countries.