Is China the New America?

This piece in Foreign Policy says yes. Those that agree like to point out that after World War II, Great Britain, glorious empire though it may have been, was extravagantly in debt; the U.S. was a net creditor to the world, and Britain's most important source of financing. When Egypt nationalized the Suez Canal in the 1950s, Britain wanted to fight back. But the U.S. made clear that its financial support was contingent on the UK's withdrawal from the canal. Britain had to choose between financial ruin and geopolitical power. And so the mantle of global leadership was passed from debtor to creditor.

Now, of course, the U.S. is leveraged to the hilt -- the national debt recently surpassed $11 trillion -- and the world's top creditor nation is China, which sits on about $2 trillion worth of reserves. According to the FP, the story of today's financial crisis has the U.S. "playing the role of Britain -- the exhausted debtor economy -- and China taking the place of the United States as the world's largest creditor."

I think such a stark comparison is wrong for a number of reasons, including the fact that the U.S. lets the dollar float freely, and so doesn't have to prop it up artificially like Britain did in the 1950s. Moreover, even though China has a large treasure chest, it's not in the same position today as the U.S. was in the 1950s. It doesn't have a well-developed domestic financial system, and it's still a very poor country, with most of its population living in rural poverty.

Tyler Cowen, the ur-econoblogger and George Mason University professor, goes so far as to say that "the United States is, relatively speaking, a countercyclical asset." In other words, when things are going really well, the U.S. loses ground on a relative basis -- witness the emerging-markets boom of 2002-2007, when even Vietnam saw a surge of investment, and the dollar hit record lows against the euro. But "the worse things go for the world as a whole, the more the United States gains in relative power and influence." There are three reasons for this:

"In bad times, international cooperation tends to break down, which increases the relative influence of larger economic and political units."

Japan and Europe are starting to shrink, and China is a demographic time bomb because of its one-child policy. Only the U.S. has a healthy profile in this area.

France has had five constitutions since 1789, and China has suffered a Cultural Revolution, a Great Famine, a Communist takeover and more -- all in the last half-century. Russia is even worse. America has "one of the oldest and most durable nation-states."

Walter Russell Mead made a similar argument in The New Republic in February. Crises tend to reinforce Anglo-Saxon capitalism, in part, he says, because much of the rest of the world is only "half-heartedly capitalist," and a crisis in capitalism strengthens the political extremists and despots who wreck countries in the long run. Both pieces are worth your time.