Notes, etc., to "The End of Influence"

Global Trendlines: The End of Influence? A Review of Cohen and DeLong's "The End of Influence: What Happens When Other Countries Have the Money"

Global Trendlines: The End of Influence? A Review of Cohen and DeLong's "The End of Influence: What Happens When Other Countries Have the Money": THE U.S. ECONOMY remains mired in stagnation, government deficits continue to grow unabated, U.S. foreign policy initiatives are stillborn, and rising competitors pose enervating challenges: Yes, American declinism is in full form once again. Of course the argument that a country’s influence rises and falls with the size of its pocketbook is nothing new. The correlation between national wealth and international primacy has been well-documented, and shifts in relative wealth have long been scrutinized for their implications on the global balance of power. Capitalizing on burgeoning demand for literature on America’s decline (and China’s rise), Stephen Cohen and J. Bradford DeLong - two well-respected UC Berkeley economists - have contributed a volume as thin as it is timely describing the latest manifestation of this historic trend.

In The End of Influence: What Happens When Other Countries Have the Money, Cohen and DeLong provide a cursory overview of the economic trends that led both to global macroeconomic imbalances and to the financial crisis of 2007. The authors describe the evolution of the U.S. economy since World War II, and in doing so, they sound the alarm for the end of the neoliberal era: gone are the days of deregulation and adoration of free markets; enter the era of “lemon socialism” and state-led development.

While these trends have been highlighted and debated in the pages of the Financial Times and Economist in recent years, Cohen and DeLong add two additional layers of anxiety. First, they assert that the American standard of living “will decline relative to the rest of the industrialized and industrializing world” - which essentially means everyone else on Earth.1 Second, America’s spendthrift ways will accelerate the erosion of American power, making it more difficult for the United States to shape the global environment in a manner conducive to its diplomatic and economic interests. At a time of growing concerns over the U.S. national debt, the options available to policymakers appear to be narrowing - a phenomenon that could be fraught with dangers.

AS FAR BACK as the Peloponnesian War, the linkage between national wealth and global influence is manifest. In addition to being a study of military history and of the passions and hubris of man, Thucydides’ History of the Peloponnesian War is an exploration of political economy. Chronicling the speeches of Sparta’s prudent King Archidamus, Thucydides quotes him as saying, “And war is not so much a matter of armaments as of the money which makes armaments effective.”2 Later on, an Athenian notes that the privileged international position of the polis affords it the bountiful pleasure of importing the world’s goods. The book is replete with Spartan, Athenian, and colonial leaders speaking about the primary role of finance in championing martial supremacy - and therefore international hegemony.

Much later, writing in 1900, American historian Brooks Adams spoke of a “financial revolution” that was propelling the United States to great power status. He noted cautiously that the “displacement of the economic center of the world...engender[ed] an unstable equilibrium which threaten[ed] war.”3 While Adams wrote of the imminent rise of the United States as a world power, he very well could have written about Germany, whose rapid economic and technological development in the late 19th and early 20th centuries upset the balance of power in Europe, and plunged the continent into the horrors of the First World War.

More recently, Paul Kennedy’s masterful book The Rise and Fall of the Great Powers sought to remind a profligate U.S. administration that a failure to tend to one’s finances historically has led to the end of primacy. At the time of its publication (1987), the U.S. economy was in the doldrums; Ronald Reagan’s concomitant implementation of neoliberal economic policies with a massive program to increase military capabilities vis-à-vis those of the Soviet Union had resulted in the United States becoming a net debtor for the first time since the First World War. Facing volatile equity markets (epitomized by Black Monday), and Japan’s economic awakening, the U.S. pursuit of military supremacy threatened to weaken further the country’s economy. Such an outcome, noted Kennedy, undermined the country’s power position - the very result Reagan’s policies purported to prevent.

Kennedy poignantly warned of the phenomenon of relative economic gains and losses: “Other, rival Powers are now economically expanding at a faster rate, and wish in their turn to extend their influence abroad. The world has become a more competitive place, and market shares are being eroded.”4 While Kennedy’s diagnoses proved to be premature, his assessment of five centuries of great power conflict confirmed that shifts in relative wealth were harbingers for shifts in political power and influence, and they often portended war.

COHEN AND DELONG aim to follow in the footsteps of these works. Yet for all the promise of the title, readers expecting to learn what, exactly, happens when other countries have the money will be disappointed. Cohen and DeLong spend the bulk of the book discussing the U.S. economy, and they fail to explore the forms of power and influence that “other countries” will employ.

To be fair, the authors provide a compelling narrative on the evolution of the U.S. economy since World War II, with some fascinating points about the socio-economic landscape in America. Among the more interesting is that amid an unprecedented increase in income inequality over the last two decades, American families “in the middle fifth of the income distribution were working 500 hours, or 12 weeks, longer per year than in 1979.”5 Unfortunately the authors did not include notes or source data; inquisitive readers are pointed instead to a cumbersome website where they may troll for sources.

To Cohen and DeLong, the current weaknesses of the U.S. economy can be traced directly to the neoliberal policies of President Reagan: deregulation, privatization, and free markets. According to the authors, one can draw a line from the rise of finance - which overtook manufacturing’s weight of U.S. GDP - to the financial crisis of 2007. While the financial sector certainly was present at the creation of the toxic assets that metastasized throughout the global financial system, the authors’ explanations for the crisis are decidedly unconvincing. Too often, the authors fall back on lazy correlations of events, leading to post hoc ergo propter hoc cases rather than new analysis.

Nevertheless, Cohen and Delong make a convincing case that the world will soon witness an accelerating resurgence in industrial policy. From the ashes of neoliberalism will emerge an era of state-led development, which could very well result in a series of beggar-thy-neighbor policies as governments move to support their national champions and key industries. As this so-called “lemon socialism” becomes more prominent, U.S. producers will be put at a stark disadvantage, contributing further to U.S. economic decline and contentious international politics.

BUT WHAT DOES THIS MEAN for U.S. influence in the world? Heavy on diagnoses, light on prescription, The End of Influence addresses neither the impacts that less financial and economic power will have on U.S. influence over the international order, nor the values the new players will propound or how they will spread their influence. Moreover, the current trends - like history itself - aren’t linear.

China is already shifting its global patterns of trade to increase South-South commerce, a phenomenon that should alleviate China’s reliance upon the United States as a consumer of last resort, reducing U.S. trade deficits in the process. Yet despite reports of Chinese investments in infrastructure and goodwill projects, this trend will not always be welcomed in the developing world. As SAIS scholar David Lampton has noted, China’s continued rise will be met with suspicion in capitals throughout the southern hemisphere - particularly those throughout Asia.6

A recent analysis in the Financial Times includes data revealing that during the five-year period ending in 2008, ASEAN’s trade deficit with China grew at a compound annual growth rate of 35.5%.7 Attendant with these outflows of wealth to China are growing fears of Chinese hegemony. Prudent U.S. strategists might use these opportunities to enhance mutually favorable trade and economic relations with emerging market countries. Not only would greater commercial relations bolster U.S. influence, but also they would have the ancillary benefit of greater U.S. economic growth through increased exports.

Cohen and DeLong missed a tremendous opportunity to sketch out what the end of U.S. influence on global affairs would mean in practice. Yet this is not their greatest failing. By treating these developments as linear, and by not accounting for the overriding role of government spending decisions, the authors offer no path forward for extricating the United States from this situation.

Their failure is not just a disappointment to readers, but a dereliction of what the country needs to hear: a focus on individual responsibility through reductions in entitlements, and support for politicians who are courageous enough not to pander to voters’ demands for taxpayer-subsidized consumption today at the expense of future generations’ prosperity is the best path for reversing America’s profligacy and restoring American influence.

Heather Stewart: The credit crunch has shattered America's 'neoliberal dream'

The credit crunch has shattered America's 'neoliberal dream': The global financial crisis marked the end of the dominance of free-market capitalism, and even the IMF is now questioning the ideology behind it:

US-led free-market ideology was dominant in the 20th century. But today, China owns $800bn of US treasury bonds. Photograph: Charles Rex Arbogast/AP

With money comes great influence: political, ideological, even sartorial. The doublet and hose of Henry VIII were copied from the lavish dress of rich Florentine and Venetian merchants at the height of the Renaissance; sombre suits spread throughout the world in homage to the Victorian gents who commanded the British empire, and the jeans and T-shirts of today's teenagers were born in the United States, the 20th-century hegemon.

In their new book, The End of Influence (subtitled What Happens When Other Countries Have the Money), the economists Stephen Cohen and Brad DeLong argue that the supplanting of the US by other rising economic powers will have seismic consequences for a world that has spent the best part of the past century buying up the American dream and all its accessories – from Coca-Cola to schmaltzy Hollywood movies, hamburgers to irritating conversational tics ("like, whatever!").

"Because America had the money – had it solidly, rightfully, self-assuredly, and durably – for about 100 years, people all over the world wanted to be like Americans: successful, modern, loose-jointed, efficient, democratic, socially mobile, leggy, clean, powerful, and, of course, rich," they say.

Today, the US is in hock to China to the tune of $800bn (£520bn) in treasury bonds, and potentially a much larger sum in shares and other ­investments, after a decade-long borrowing binge by governments, families and corporations. Even before the crunch, that shift made it inevitable that the US model would lose its allure. But the crisis, which had its roots in the home of the unbridled free-market capitalism, has supercharged the transfer of power from the west to the emerging economies of China, India and Latin America.

Cohen and DeLong argue that we are about to see an end to the cultural dominance of American fashions and mores – and also a major ideological shift: what they call the collapse of "the neoliberal dream".

The past couple of weeks alone have brought new evidence that a rethink is already under way, even in that crucible of the Washington consensus, the International Monetary Fund. A paper published on 12 February by its chief economist, Olivier Blanchard, and his colleagues acknowledges that policymakers became much too complacent during the "Great Stability" of the early 2000s, attributing years of low inflation and stable growth to their own genius, instead of a lucky conjunction of circumstances.

Blanchard et al then ask whether it wouldn't have been better to allow inflation to rise a bit more, so central bankers would have had a bit more room to manoeuvre when everything went wrong. Perhaps, they muse, an inflation target of 4% might be better than the 2% or so that many central banks aim at.

As Blanchard told the IMF's house magazine: "The crisis has shown that interest rates can actually hit the zero level, and when this happens it is a severe constraint on monetary policy that ties your hands during times of trouble. As a matter of logic, higher average inflation, and thus higher average nominal interest rates before the crisis, would have given more room for monetary policy to be eased during the crisis and would have resulted in less deterioration of fiscal positions."

He called for policymakers to look at other factors such as leverage and asset prices, as well as inflation, and to use a range of other tools, as well as interest rates, to control the economy – limiting loan-to-value ratios when a credit boom is getting out of hand, for example. It wasn't quite as radical as Alan Greenspan's admission after Lehman Brothers collapsed that he had discovered "a flaw" in his free-market philosophy but as Damascene conversions go, the concession that inflation might not be so bad, after all, showed how severely shaken the world's economic policymakers have been by the credit crisis.

For decades, the IMF has promulgated a mix of anti-inflation policies, financial deregulation and free markets that became not just the accepted norm for the rich world but the recipe imposed on scores of developing countries. With this came the powerful threat, politely known as "conditionality", that if they didn't follow the rules, their financial lifeline – IMF funds – could be cut.

Blanchard's paper is not official policy, just the IMF chief economist's musings about the lessons of the crisis. But for developing countries that have endured eye-wateringly high interest rates, or pegged their currencies at artificially high levels, in the battle against the great demon of inflation, his words will have seemed like an extraordinary volte-face. Even the "Washington consensus" seems to be losing its grip.

'Socially useless'

Lord Turner, chairman of the Financial Services Authority, tore into another tenet of the "neoliberal dream" in a characteristically thoughtful speech in Mumbai last week. He had already made himself a hate figure in the City by describing as "socially useless" many of the innovations its finest minds have come up with over the past few years. This time, he turned to the international equivalent of the same argument, questioning whether the "financialisation" of the world economy has had the benefits often claimed for it.

Apart from a shrewd analysis of the causes of the crash, and its most recent predecessor, the Asian crisis of the late 1990s, Turner argues powerfully that the exponential expansion of financial activity in the run-up to the crunch had few of the benefits claimed by proponents, in terms of efficiently allocating capital around the world, or transparently revealing the "true" value of underlying assets.

"The case that short- term capital flow liberalisation is beneficial is based more on ideology and argument by axiom than on any empirical evidence."

In 2006, he points out, the IMF was happily claiming that the  now-notorious credit derivatives "enhance the transparency of the market's collective view of credit risks". Unfortunately, that collective view was often utterly wrong. As Turner says, in 2007, on the brink of the crisis, the credit default swap market was "revealing" that the risk of a major bank defaulting had hit its lowest ever level – a message backed up by the banks' share prices (see graph three).

In the event, financial liberalisation led not to safer but riskier markets, a message not lost on countries such as India, where Turner was speaking. The Indians refused to swallow the neo liberal orthodoxy completely, keeping some control over the growth of credit, for example – a decision that once made Delhi look woefully backward, but has helped India avoid the worst excesses of the financial boom and bust.

After the most catastrophic crash for 80 years led to a shattering world recession, the ideology that transmitted American economic ideas across the globe has been comprehensively trashed, even in its spiritual homes of Washington and London. But the thinking about what will replace it has only just begun. China, India, Brazil and Russia have taken divergent paths to development. Cohen and DeLong suggest a growing role for governments and regulation; Turner talks about controls on capital flows, and a transaction tax to throw "sand in the wheels" of the hyperactive financial markets; the IMF muses about new macroeconomic "tools".

But none of that amounts to a fully thought-through alternative, and that will take time. We have no more idea of what the economic orthodoxy of the next half-century will look like than of what will supplant Coke, denim or hamburgers.

Greg Weeks: Cohen and DeLong's The End of Influence

Two Weeks Notice: A Latin American Politics Blog: Cohen and DeLong's The End of Influence: I read Cohen and DeLong's The End of Influence: What Happens When Other Countries Have the Money (2010), which is a fairly brief but useful primer on how the U.S. became massively indebted and what the effects have been, and likely will be.

The book offers a more optimistic view than its title would suggest.  Other countries have the money, but that is not necessarily disastrous because they cannot afford for the U.S. economy to tank. I agree with Matthew Yglesias, who sums up their conclusion as follows:

As a result, we’re going to have to transition to a very different-looking world economic order—one in which self-conscious government planning is going to play a bigger role, one in which US living standards will decline relative to our major trading partners, and in which American cultural and ideological influence is likely to wane.

In many ways, though, the book feels too much like a rough draft.  It would have benefited from a tighter argument (it sometimes becomes repetitive), inclusion of sources (which they say are online) and the writing seems almost entirely unedited.  For example, I had to reread this mixed metaphor to figure out what they were trying to say:

Defensive industrial policy--lemon socialism--can have a similar growth-shifting effect.  Think of American football.  The helmet was defensive at first, to protect player's brains.  But it then developed into the hard-shell helmet, an offensive battering ram.  Distressed traditional industries do not consist entirely of petrified wood (p. 126).

Nonetheless, the book is worth reading. The U.S. will not necessarily come crashing down, but the sooner we accept the new reality, the better off we'll be. But we won't be as well off as we were.

Video: Conversations with History: "The End of Influence" - Conversations with History - Stephen S. Cohen

Conversations with History: Stephen S. Cohen' The End of Influence":

The End of Influence: Hardcover

Steven S. Cohen and J. Bradford DeLong (2010), The End of Influence: When Other Countries Have the Money (New York: Basic: 0465018769): hardcover.

When Other Countries Have the Money

Center for American Progress writeup:

Reviving the American Empire: America will still be a leader, perhaps the leader, but no longer the boss,” said Stephen S. Cohen, a Senior Fellow at the Center for American Progress, professor at University of California, Berkeley, and co-author of The End of Influence: When Other Countries Have the Money at a CAP event last Friday on America’s global position. Cohen was joined by co-author J. Bradford DeLong, fellow professor at U.C. Berkeley and Nina Hachigian, Senior Fellow at CAP and co-author of The Next American Century: How the U.S. Can Thrive as Other Powers Rise.

The inevitable “rebalancing of powers in the global economy” has generated conflicting book titles that steer the American public in one of two ways: The End of Influence or The Next American Century, said CAP Executive Vice President Sarah Rosen Wartell, who introduced the event. This polar view on America’s global standing depicts our future as either dire or promising with little room in between. If we want to influence change, Wartell said, we need to ask, “how do we shape that future ourselves?”

The United States emerged as the dominant economic, cultural, and military power in the world after World War II. As other nations began to develop, moving from agriculture to industry, they needed someone to buy their end products. Peasants in developing countries have little purchasing power, so the United States stepped in and bought “stuff” from all over the world, said Cohen. “We got the government out of the economy” and bought half of China’s GDP. “We imported so much more than we exported that now we cannot pay it off.”

The “United States, which had been a capital surplus high-savings country,” has become the world’s biggest borrower, said DeLong and the U.S. government is the world’s second biggest borrower. Seventy percent of our current debt happened since 2000. Rising income inequality created a negative cultural pattern where people “overleveraged” themselves to financially compete with one another, and all of this constrained the economic power of the United States and its government in a way that we hadn’t felt since 1917. DeLong suggests that this will be the “end of market liberalism,” which could turn the United States into a “normal country” without absolute power.

For the “past 10 years we fumbled our ability to move into the real industries of the future,” said DeLong. Finance became our major economic industry instead of electronic or bio-technological innovation. The best and the brightest chose to work for the financial sector instead of medicine, science, and engineering. We outsourced so much opportunity that we are no longer leaders in high tech or other industries we pioneered. This stunted innovation, and only served to increase the income gap.

DeLong suggested that the Obama administration can begin to fix this dilemma by appointing “competent economists” to the Federal Reserve Board to reduce and eliminate global imbalances that trap the United States and China in financial terror.

“Ninety-eight percent of economists think a weaker dollar will help the economy,” but it is a difficult sentiment to express without being seen as treasonous, Cohen explained. The value of the dollar must drop in order for us to save more. Our goods will become cheaper, we will export more, and bring down the trade deficit. But, at the same time, as we stopped importing from growing industrial economies, we might seen to be abandoning them and isolating ourselves.

Such isolation is impossible as the “world is getting smaller” because of globalization and communication, said DeLong. People all over the world will ask, why are the United States’ upper and middle classes so rich while we are so poor? This question coupled with the planet’s resource scarcities is the key political problem of the next 50 years.

The United States can no longer mobilize the resources we once could for the greater global good. Despite this fact and the macabre title of Cohen and DeLong’s book, the “end of American influence is nowhere on the horizon,” according to Hachigian. United States leadership is still “desperately needed” as no other powers are ready to take charge. We are experiencing a decline relative to rising powers such as China and India, but we’re coming off “such a high base” that doomsday is not near. Moreover, the answers to the most pressing problems for Americans are through collaboration with other powers. The United States should be brokering and facilitating consensus building on important issues such as climate change. That global leadership combined with cultural hegemony that declines at a much slower pace than cash “makes us quite influential.”

Bruce Bartlett: The Real Importance of Steve Cohen and Brad DeLong's New Book | Capital Gains and Games

The Real Importance of Steve Cohen and Brad DeLong's New Book | Capital Gains and Games: This morning, Forbes ran my review of The End of Influence: What Happens When Other Countries Have the Money by University of California, Berkeley economists Stephen S. Cohen and J. Bradford DeLong (Basic Books, 165 pp., $22).   What I left out of the review is something I want to discuss here. Although Cohen and DeLong are first rate academics and their book is essentially written for a scholarly audience, one is struck by the fact that there are no footnotes or references in it. This is very uncommon for a book of this sort.   It turns out that the references do indeed exist, but only online. This brings me to the one really serious error in the book. In its lone footnote on page 2, we are told that the references exist at this web address: http://www.cohen-delong-influence.com. However, there is nothing at this address because the references are actually found here:  

http://delong.typepad.com/notes_to_the_end_of_influ/   When I first checked the address in the book there was nothing there at all. Now, at least, there is a link taking people to the correct location of the reference material.   For some reason, the references are listed in reverse order, with the book’s final one listed first. Since there is no note in the text, readers are given a page and a bit of text from the book and told that the following book, article or document is the source for that statement. Some published books also use this system to avoid cluttering up books with footnotes, which publishers hate and consider distracting.   One benefit to the Cohen-DeLong approach is that it allows for actually working hyperlinks. I’m sure I speak for all writers who are frustrated by having to leave a long string of letters, numbers and characters as a printed footnote reference in hopes that someone looking for documentation can accurately type them all in to a computer properly and that the link hasn’t been broken in the meantime. Not only do Cohen & Delong avoid this problem, but presumably their links can be fixed as time goes by since their propensity to break and even disappear altogether is a very frustrating fact of life in the Internet age.   Elsewhere on their web site, Cohen and DeLong have places for errata, reviews and comments. The goal seems to be to seamlessly integrate a traditional paper-and-ink book with an interactive web site. While many books have web sites purely for marketing purposes, this is the first one I have seen that contains critical information central to the book such that the book is incomplete without it.   Having taken this important first step in the full integration of traditional and web-based publishing, I’m curious about how much further Cohen and DeLong are willing to go. For example, if there is a Kindle version of their book does it reintegrate their reference material in the text itself via hyperlinks, thus avoiding the necessity of going to the web page? I don’t see why this couldn’t be done, which eventually might make Kindle versions of scholarly books far more valuable than the traditional dead-tree versions.   I wonder how much money the publisher saved by leaving out all the footnotes and references? Since in good scholarly books a third of the text many be occupied by such material, presumably the savings are significant, allowing for a lower price on the print edition.   I also wonder whether Cohen and DeLong have plans to continually update their web site and references to take account of new material that either supports or contradicts their analysis and conclusions? If they do so, then at what point do they stop? When the book is out of print?   Finally, I wonder what Cohen and DeLong plan to do to preserve their supplementary web page for someone who may come across their book 100 years from now.   I bring all this up because I have thought about doing something like what Cohen and DeLong have done. I’m one of those writers who loves to expound at length in footnotes on fine points of interest only to experts. Unfortunately, at least with commercial publishers, these are the first to go when one’s editor gets the manuscript. In fact, footnotes and references of any kind are rapidly disappearing completely from trade books.   Part of this trend is pure cost pressure: shorter books, less cluttered books are cheaper and sell better. It also makes it less conspicuous that many best-selling authors today like Sarah Palin and Glenn Beck have no idea what they are talking about. With no need to document anything they say it’s much easier for them to get away with saying anything they please.   Scholars know better. Proper documentation is the cornerstone of the scientific method. It makes it possible for others to reproduce results, thus leading to the advancement of human knowledge. Without documentation everyone must reinvent the wheel for themselves, thus wasting time and inhibiting development. Yet the pressure to cut costs and edit out boring reference material threatens to either kill serious scholarly publishing or force books to be dumbed-down to worthlessness.   Therefore, I see Cohen’s and DeLong’s approach as a middle approach, a way of cutting costs while maintaining scholarship and perhaps even improving it. What is critically necessary, however, is a central repository for online reference material that authors can depend upon to be maintained indefinitely. Perhaps a consortium of publishers, including trade and university presses, could establish such a central web site on a nonprofit basis. Or perhaps Google could do it so that footnotes can be linked directly to its database of online books.   I also think publishers should understand that Kindle offers the opportunity to eliminate the cost of providing documentation and reference material that they now view as extraneous. Authors should be encouraged to add hyperlinks to Kindle editions that don’t merely cite chapter and page in some book, but links to photos, videos, audio and anything else on the Internet that will illuminate or support some point an author wishes to make.   Of course, there are inevitable copyright and other problems inherent in the full integration of print and the Internet. But I think Cohen and DeLong have taken an important first step in that direction.

Bruce Bartlett: Cracks In America's Armor

Cracks In America's Armor: For years, those concerned about America’s deteriorating global financial position--resulting from decades of trade deficits and a weakening dollar--have warned that this trend cannot continue. Almost all, however, have assumed that the end would come in the form of a bang rather than a whimper; a sudden crisis like those that have accompanied recent financial crises in Mexico, Indonesia and elsewhere.

In their new book, The End of Influence: What Happens When Other Countries Have the Money, University of California, Berkeley economists Stephen Cohen and Brad DeLong make a case for the whimper scenario, which says there is no sudden end to American profligacy, just a steady downward slide such as that in Britain following World War I.

While this will spare us the burden of a precipitous collapse, that cost will still be paid, mostly in the form of decreasing American influence on the world. Although foreigners may think that they will benefit from a decline of American power--world power being a zero-sum game--they, too, will suffer many of the consequences.

Cohen and DeLong explain that in the postwar era America’s pre-eminent economic and military position allowed it to act as the world’s stabilizer--to the benefit of the world as well as ourselves.

American aid helped rebuild Europe and Japan after the war and largely financed the World Bank and International Monetary Fund, which were critical to developing and advancing the neoliberal consensus that free-market policies and export-led growth were the keys to economic development. Where applied properly, these policies have lifted billions of people out of poverty.

The U.S. was willing to act as importer of last resort so that other countries could grow and effectively stimulate their economies during economic downturns by exporting their surplus production to us. Because we were willing to tolerate trade deficits to such a large extent, America was also able to prevail upon other countries to maintain open trading systems--any threat from us to cut off access to the American market in response to foreign protectionism would have far more serious consequences for them than for us.

The dollar’s role as the world’s reserve currency allowed us to finance our trade deficits and borrow extraordinary amounts of money from the rest of the world. Much of what we think of as America’s foreign indebtedness actually consists of Treasury securities held by foreign central banks as backing for their currencies. This is not “hot money” that is in danger of igniting a run on the dollar.

Finally, the U.S. military position allowed us to effectively coerce other countries into following our lead. But it also imposed upon us the responsibility of being the world’s policeman and first responder. Just look at Haiti, where the U.S. military is playing such a critical role in providing emergency aid. No other country or institution has anywhere close to the capability of America’s armed forces in such circumstances.

There are several reasons why the U.S. will not remain the world stabilizer it has been for the last 65 years. Among them: the lingering effects of the Great Recession; the aging of the American population; and the overtaxing of our military in Iraq and Afghanistan. Then there’s the shift of economic dynamism to places like China and India, not to mention growing trade protection and intolerance for immigrants at home.

Much of Cohen and DeLong’s book is about working through the logical consequences of this scenario. The most important one is simply the loss of American power and influence throughout the world. This is not necessarily a bad thing, they say, if we respond by being less unilateral in our foreign policy and more willing to cooperate with other countries.

One potential negative, Cohen and Delong write, is a breakdown of the neoliberal consensus both at home and abroad. They anticipate growing support for industrial policies--more active government intervention in trade and credit policies, less support for free trade and free markets.

These developments won’t necessarily reduce the standard of living for Americans. Cohen and DeLong anticipate real growth of 3% for the next two decades. However, as other countries trump that figure, our share of world output will fall. Americans will also have to tighten their belts a bit, save more and consume less, which will happen once we are forced to get our federal budget and international accounts closer to balance than they’ve been for a long time. The option of continuing to sell bonds to cover both deficits, at least of the magnitude they have been over the last 10 years, will soon no longer be an option.

I anticipate that in coming years we will see a small industry of books about American decline. No doubt many will be grossly partisan--trying to lay the blame at the feet of a particular political party. But the reality is that no nation stays on top forever. Success always sows the seeds of inevitable decay. The U.S. will continue to be among the world’s great nations for many, many years to come; we just won’t be the preeminent force we have been since World War II. The sooner we come to grips with that, the easier the transition will be to a world in which our actions will be far more constrained than they have been in the lifetime of any living American.