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L. Todd Wood
A year and a half ago, I stood in Rome’s Foro Romano, in the Temple of Saturn, and wondered out loud how such a magnificent civilization that controlled most of the known world could have crumbled to a bunch of decaying ruins. It is obvious to me that even today, we still don’t understand what the Romans knew in terms of architecture, science and culture. To borrow a quote from Don Rumsfeld, of all people, We don’t know what we don’t know.
In the end, Rome was a corrupt, dysfunctional civilization that relied on outside entities to feed and clothe itself. The Romans devalued their currency, spent themselves into oblivion on far-off wars and destroyed their system of government that had worked for a thousand years. But the main thing that destroyed Rome is little known to many students of history: They forgot how to make stuff. In other words, their manufacturing declined precipitously; all the while, the barbarians advanced from the north.
America has experience a rapid decline in manufacturing jobs; the largest drop occurred after the Chinese were admitted to the WTO after the turn of the century. Since then, the process has only accelerated. Yes, in nominal terms, manufacturing has increased, but it is a much smaller percentage now of the American economy than it ever has been. And it’s still shrinking.
Much of this phenomenon has been explained away with the excuse that low-skilled jobs have been exported overseas, while high-skilled jobs have stayed here in America, where we have a natural advantage due to our highly educated work force. However, this is changing as well. Through theft, reverse-engineering, etc, China has made huge gains against American high-tech capability. In fact, the Chinese economy recently overtook the United States in purchasing-power as they continue to grow, produce and export to America. Yes, they have problems and there is probably a bubble, but the Chinese are winning the economic war.
Now America wants to become an energy export economy, taking advantage of expanded Hydraulic fracturing production out of the Permian Shale Basin and others areas. But the high volatility of oil shows the folly of relying on a commodity driven economy. One country that is a poster child for this syndrome is Russia. With all of the wealth that oil and natural gas provided the Russian Federation over the last decade, the Kremlin was remiss in not diversifying their economy into other areas. Now, with oil breaking through $58 a barrel as of this writing, there is pain all around that nation. But the difference between the United States and Russia is that Russia has $420 billion in currency reserves; the United States owes $18 trillion. Still, America would be wise not to follow in Russia’s footsteps.
The bottom line is simple: America is approaching a tipping point. She is coming to the edge of the economic cliff where her economy will not be able to sustain itself. A country cannot survive on flipping burgers alone. America is no longer hungry. She is feeding off the government goody bag trough. The entrepreneurial spirit is no longer taught in universities. Students learn how to “go federal” instead of learning how to “go public.” Getting a government job is the goal, not getting a patent on a new technology.
All of these factors contribute to the destruction of the U.S. dollar as the world’s reserve currency. Countries and corporations want to put their wealth into an asset that will hold its value. Something that will withstand a financial crisis due to its strong fundamentals. Without a strong manufacturing base, the U.S. dollar soon will not fit this description.
There are other ramifications for the United States not making anything anymore. Recent reports have revealed that ninety-five percent of antibiotics are manufactured in China. What happens if China decides no longer to sell us this product? I think you can figure that one out for yourself.
Rome ceased to be an empire because they ceased to be a manufacturing center. They ceased to be a producer and became a consumer. This type of economy can last for a while, until the bill has to be paid. Rome lasted for a thousand years. I fear time moves much faster now in our technology-based world.
It is said that in the end, Rome produced nothing and their only export was Dung. Think critically – are we approaching this point in the United States?