Ex-Goldmanite Moyo Sees U.S. Default, Chimerica Suicide: Books
Dambisa Moyo, a former Goldman Sachs Group Inc. analyst with a doctorate from Oxford, has a history of taking provocative stands.
In “Dead Aid,” the Zambian-born economist argued that foreign aid had made millions of Africans poorer, deepening their misery instead of alleviating it.
Her new book, “How the West Was Lost,” offers up a well-reasoned look at how the world’s most-advanced nations are squandering their economic lead -- and how they might survive by fighting Chinese fire with fire.
Some of Moyo’s proposals are, by her own admission, drastic. The U.S. could, she says, opt for “nuclear options,” protectionist measures including a debt default.
“Default sounds like a cataclysmic option” yet shouldn’t be casually dismissed, she says. “The attraction would be for America to wipe its slate clean and for the government to reset its financial statement.”
A U.S. default would amount to a “murder-suicide in Chimerica,” a lethal blow to Sino-American co-dependency that would damage Chinese interests. China not only counts on Yankees to buy its goods; it also has up to 82 percent of its foreign reserves in dollars according to calculations by Standard Chartered Plc.
If the Chinese have tilted the playing field, the argument goes, why shouldn’t the U.S. resort to brinkmanship? Economics is, as Moyo says, a form of warfare, “one country seeking dominance over another.”
The tide in this conflict is, by some measures, turning. In 1950, the U.S. and Europe together accounted for 60 percent of the world’s gross domestic product, Moyo says, citing data compiled by economist Angus Maddison. The U.S. alone had almost 30 percent, compared with 5.2 percent for China. By 2000, China’s share of the (now much bigger) pie had more than doubled to 12 percent, while the U.S. slice had shrunk to 22 percent.
Moyo doesn’t lay all the blame on China. Far from it. The backbone of this book, and the best reason for reading it, is her examination of how the U.S. has lost economic ground by grossly misallocating capital, labor and technology. Each misallocation flowed from flawed public policies, she argues.
Start with capital. Government incentives from the days of Herbert Hoover to those of George W. Bush have spurred Americans to overinvest, Moyo says, in housing -- an asset that, when you live in it, doesn’t generate income (unless you take in a boarder, of course). The homeownership obsession also encouraged people to live beyond their means. A chicken in every pot became a McMansion on every plot and a Hummer in every driveway.
As for labor, postwar governments hid pension costs by postponing them into the future, making workers look cheaper than they were. The U.S. also has taken to denying work visas to foreigners who have earned doctorates in computer sciences, engineering and mathematics at American universities. Heaven forbid they should stay and create companies that would, as in the past, employ thousands of Americans.
Then there’s all that Western technology, from software to pharmaceuticals, that has been stolen, misappropriated or just handed to emerging markets on a silicon platter. Inventions are what drove the Industrial Revolution -- what gave the West an upper hand, from James Watt’s steam engine to Tim Berners-Lee’s World Wide Web. So the West is, in effect, swapping its comparative advantage for cheap toys and shoes.
Moyo walks the reader through the troubling evidence of America’s slide and China’s ascent, from the collapse of Minnesota’s busiest bridge to Shanghai’s speedy Maglev train. She pauses to teach the reader some basic formulas for calculating enterprise value and GDP. She even throws in a visit to the U.S. debt clock, now ticking above $14 trillion.
The book offers Western politicians a prescription for stopping the rot. Yet something tells me that they’ll just keep temporizing until the next financial crisis boils up. Perhaps we needed a second Great Depression after all.
“How the West Was Lost: Fifty Years of Economic Folly -- and the Stark Choices Ahead” is from Allen Lane in the U.K. and from Farrar, Straus & Giroux in the U.S. (226 pages, 14.99 pounds, $25). To buy this book in North America, click here.
(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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