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Thursday, Dec. 30, 2010

Obama's seven headaches


Special to The Japan Times

HONG KONG — Supporters of U.S. President Barack Obama are greatly cheered by notable victories in the final days of Congress before Christmas: the repeal of the "Don't ask, don't tell" law concerning homosexuals serving in the military, and the ratification of the New START treaty with Russia to curb nuclear weapons.

The problem is that these "victories" were enabled by the compromise to extend the Bush-era tax cuts to all taxpayers — a clear economic defeat saddling the government with another $900 billion that it cannot afford.

Many economists and probably a majority of American business executives say the United States is so economically and technologically superior that there is no way that China or any other country can push it from the top position in any of our lifetimes.

Economic numbers suggest that this is overconfidence. According to dollar figures, America's gross domestic product is just over $14 trillion, whereas China's is about a third of that, possibly rising to $6 trillion in the next year.

However, according to the CIA's World Factbook, on purchasing power parity figures, China is rapidly catching up. The CIA puts purchasing power parity (PPP) for the U.S. at $14.3 trillion, with China already at $8.8 trillion — way ahead of other contenders like Japan ($4.2 trillion) or India ($3.6 trillion).

The Economist magazine this month invited readers to guess when China will overtake the U.S.: "Our best guess for the next decade is that annual real GDP growth averages 7.75 percent in China and 2.5 percent in America, inflation rates average 4 percent and 1.5 percent, and the yuan appreciates by 3 percent a year. Plug in these numbers and China will overtake America in 2019. But if China's real growth rate slows to an annual average of only 5 percent, then (leaving the other assumptions unchanged) China would become number one in 2022."

If you examine the soaring success of China critically, you can see many flaws, especially in the abiding poverty and the growing gaps between the rich and the poor. According to the CIA numbers, per capita income in the U.S. is $46,000, whereas that in China, using the more generous PPP figures, is only $6,700, languishing in 130th place, below the world average of $10,400. The U.S. is not even at the top of the per capita world; it ranks 11th (below Liechtenstein with $122,100), Qatar ($121,000) and even Singapore (seventh place with $53,900).

There are many reasons why the fragile Chinese polity might explode or implode for political, economic or social reasons. But it would be foolish to underestimate the pride and determination of the Chinese people to achieve economic success.

On the other side of the world, there are at least seven signs of a U.S. economy in decline. Overlaps and links between them provide a powerful catalytic force: * U.S. military spending, on which the country will spend more than $700 billion in 2011 — twice as much as in 2001 and as much as the rest of the world's military spending combined. China spends about 12 percent of what America does, only 2 percent of GDP, against more than 4 percent by the U.S. Beijing considerably understates its military spending and has been increasing spending rapidly as the People's Liberation Army begins to feel its adolescent muscles. * The new U.S. generation's magpie fascination with anything that glitters while it shuns things that require effort, planning or time. A key example is rejection of e-mail as too troublesome and slow for the faster message response of Facebook or Twitter. * Corporate America's lack of faith in America. Big U.S. companies are increasingly outsourcing work to where labor is cheaper. This would be fine if better-paying high-tech jobs were being created to replace lost jobs. * China's determination to squeeze every advantage from foreign investors, demanding that they export the latest technology and knowhow to China and share it with local Chinese companies, which will then use it to their advantage against foreign suppliers of the technology.

Allied to this is the fascination of foreign companies with the billion-person Chinese market and their reluctance to complain about Beijing's onerous conditions even as Washington appeals to the World Trade Organization against China's allegedly illegal practices. * China's new Tianhe-1A (Milky Way) supercomputer, capable of performing more than 2.5 petaflops (a petaflop is 1,000 trillion calculations a second), or almost 50 percent as fast as its closed U.S. rival, is symbolic of the advances that China is making in science and technology, leaving America trailing. * The failing U.S. education system. Economist Robert Reich, professor of public policy at the University of California at Berkeley and secretary of labor under President Bill Clinton, wrote in his blog: "American students rank low on international standards of educational performance. Too many of our schools are failing. Too few young people who are qualified for college or postsecondary education have the opportunity."

After reviewing education nationwide, Reich asked rhetorically: "Have we collectively gone out of our minds? Our young people — their capacities to think, understand, investigate and innovate — are America's future. In the name of fiscal prudence we're endangering that future." * Political polarization and U.S. deficits. The November congressional elections and emergence of tea party and rightwing Republicans dedicated only to ousting Obama from power and taking the U.S. back to the mythically pure days of the Founding Fathers is an example of political polarization, but polarization is occurring at all levels of society. An example is the emergence of bankers- cum-gamblers as the highest paid people in America, who are determined to resist attacks on their privileges.

Obama has a lot to think about. Doing enough to put the U.S. back on track will be much tougher.

Kevin Rafferty is editor in chief of PlainWords Media.


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