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Ethos Issue 6, Jul 2009
Thinking Beyond the Crisis
Conversation with Bradford DeLong
In contrast, the US is much more
optimistic about its long-run productivity
growth rate. We believe we invent a lot
of new technologies and spread them
all around the population, as opposed
to Japan where new technologies
appear to be confined to the exportoriented
manufacturing sector and to
consumption in the Ginza. So we think
our economy’s going to grow faster than
the Japanese think their economy will
grow for the long run.
Plus, the US government is relatively
small for an advanced industrial country.
Our debt is relatively low. The projections
(once you assume something will be done
about government healthcare spending)
are quite good that we will have an
economy whose productivity is growing
at 2% per year, with a population that is
growing from immigration by 0.5% to
1.5% per year.
How might the crisis change the global
balance of power?
Had a steep fall in the dollar
accompanied a crisis of this magnitude,
as it could have, import substitution
from manufacturing within the US
would have left Singapore and the rest
of Asia stranded. But the dollar has not
declined much against Asian currencies.
This is in spite of global imbalances,
long-term merchandise trade deficits,
and the fact that international accounts
have to balance in the long run. The
US is the importer of last resort, which
means that Asia is going to be one of
the boats lifted fastest by the rising tide.
China and Asia are going to be coupled
to the North Atlantic core for a long time
to come, unless they can magically find
some way other than export-oriented
development to grow.
The US is going to emerge from the
crisis as the world’s only hyper–power
still. The smart thing that a hyperpower
does is, it uses its time at the peak
to create a world that is peaceful and
congenial, for it to exist in after it is no
longer the global hyper-power.
This is one way to view the history
of the second half of the nineteenth
century, where around 1840, the British
government realised that there was a rising superpower across the ocean, and
that its best policy in the long run was
to ally with and shape the development
of the US in such a way, that when
not Britain but the US became the
global superpower, it would still be a
comfortable world for Britain to be in.
Thus, British policy towards the US was
very different from say its aggressive
behaviour in Guangzhou and China. So
when the 20th century rolled around,
the US sent armies to Britain’s aid in
Europe twice.
Once you understand that that
is the most important fact about
the global diplomatic history of the
late nineteenth and early twentieth
centuries, the implications for the US
today are, I think, obvious. The odds
are overwhelming that India or China
will become the most important power
to come; the capital where everyone
sends their senior Ambassadors to in
2100s isn’t going to be Washington. It’s
going to be either Beijing or New Delhi.
So the question is how the US should be
acting now to shape this world 100 years
from now.
In Singapore at the invitation of the Centre
for Public Economics, Civil Service College
to deliver a lecture on "The Financial Crisis
of 2007–2009: Understanding its Causes,
Consequences—and its Possible Cures",
Professor Bradford DeLong was interviewed
by ETHOS Editor, Alvin Pang. He is a
professor in the Department of Economics
at the University of California, Berkeley;
chair of the Berkeley International and Area
Studies Political Economy major; a research
associate at the National Bureau of Economic
Research; and a visiting scholar at the Federal
Reserve Bank of San Francisco. From 1993
to 1995, he worked for the US Treasury as
a deputy assistant secretary for economic
policy. While in the Clinton administration,
Professor DeLong worked on the Uruguay
Round of the General Agreement on Tariffs
and Trade, the North American Free Trade
Agreement, and on many other issues. He
has written on, among other topics, the
evolution and functioning of the US and
other nations’ stock markets, the course and
determinants of long-run economic growth,
the making of economic policy, the changing
nature of the American business cycle, and
the history of economic thought.
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