We are number 2!
Jeremy Hobson: When it comes down to it, the reason we’re having this debt ceiling fight right now is three little letters: AAA. The nation’s AAA credit rating is a symbol of America’s economic strength and the fact that, if you loan us money, we’re going to pay you back.
So is our standing in the global economy about to fall? Well if it is, commentator Liaquat Ahamad says that’s not a bad thing.
Liaquat Ahamed: China is projected to overtake the U.S. as the largest economy in the world sometime around the end of this decade. And there’s a possibility within 40 years China’s economy will be twice our size. So how will we adjust to no longer being number one?
Now, it is important to remember that being number one involves more than just having the largest GDP. A little history, first. The U.S. overtook Britain as the biggest economy in the world in 1870. But London remained the financial center of the world and the pound was the dominant currency for another 40 years. So just because the Chinese have a bigger GDP than ours does not necessarily mean the immediate end of U.S. dominance.
But things will be different. Most importantly, we will need a change of attitude in this country. Currently we set the rules for the global economy. Then through a process of carrots and sticks we get everyone else to follow those rules.
Once China becomes the largest economy it will want to get into the act, trying to influence things like how our corporations operate in the global marketplace, what our credit rating should be and on what terms we can borrow. We are not going to like many of these new rules. But we’re going to have to swallow our pride occasionally and go along with them.
Losing the number one position will not by itself lead to a fall in our standard of living. In fact there can be some benefits to no longer being the dominant player. During times of crisis, we have often had to take on more than our fair share of the burden of stabilizing the global economy. That allowed smaller countries to freeload off our efforts.
So it will be nice to let the Chinese start picking up the tab and freeload off them for a change.
Hobson: Liaquat Ahamed is the author of Lords of Finance. If you’ve got a comment — write to us.
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