Have we passed ‘Peak America’?
Is it time for the baton to pass on?
It’s hard to believe that, 25 years ago, the United States was at the centre of the world. It had recently won the Cold War and enjoyed a moment of uncontested global primacy. The American military was the most powerful and unchallenged in the world. This hard power gave backing to a raft of international institutions made in the image of the US, and which were used to ensure the primacy of the American economy. Unemployment had fallen to historic lows and the economy had seen a long period of growth. This had spread prosperity across the nation, reflected in the booming stock market, which made Americans feel richer by the day. Was that moment the American Peak?
Within a decade the hubris was over and the sense of optimism had evaporated. The global financial crisis saw the house of cards on which prosperity had been built tumble down. The American economy had weakened considerably, to be followed by a decade of sclerotic growth. It’s primacy had passed to the newly emerging nations, especially China, to whom the world looked as the engines of growth. As the economic initiative passed to the Far East, so American authority in the world started to weaken. A string of failed interventions in the Middle East highlighted the limits to which American military power could be used, undermining the trust that American allies gave to the United States. This trust was further undermined by the advent of the Trump Presidency and continued under the Presidency of Joe Biden.
This leaves us in the curious position of today. The United States has the largest economy in the world, but it has lost its essential dynamism. America struggles to call to heel a number of its junior proxies, especially in the Middle East. A number of minor powers openly question the authority of Washington. As we occupy this point in history, are we seeing the decline of the US manifesting itself? If so, in what sort of timeline could this happen? And who are the successors to America? Alternatively, are we on the verge of witnessing a period of American renewal? What would that look like? And how would it manifest itself? These are the large issues of our times that are worth thinking about.
We are helped in our thinking by a short work by Peter Heather and John Rapley usefully titled ‘Why Empires Fall’. They expressly consider this issue and help to expand our earlier thinking around Ray Dalio’s conflict cycle (see here) and Peter Turchin’s model of elite competition (see here). According to Heather and Rapley, the source of decline can be attributed to ambition far exceeding the ability to achieve those ambitions. This harks back to Edward Gibbon’s notion of ‘imperial over-reach’ — trying to do too much with too few resources. In the modern context, debt is the vehicle by which nations over-extend themselves, which resonates with Ray Dalio’s model. On this basis, all of the authors mentioned believe that the US is on a trajectory of unsustainable debt, that it is unable to move away from that trajectory owing to internal and external commitments, and that some form of crunch lies along the pipeline.
It is hard to believe that this crunch would come in this decade, although there is an outside chance that it might. If the US is to follow a similar path to the UK, the crunch would follow a national humiliation that would cause a loss of confidence in the US Dollar as the global currency. For the UK, the crunch was the Suez Crisis in 1956, when it became evident that the UK was no longer a global power of the first order. The UK was unable to call to heel one of their proxies in the Middle East, and it was left to the US to resolve the issue. America is currently heading along that trajectory. The US President is unable to call Israel to heel over Gaza, which is causing many to call into question the level of authority that America enjoys. It is that loss of authority that encourages the enemies of the US to be a bit more bold in their actions.
In thinking about who might challenge the US, China appears to be the most likely candidate. There are grounds to question whether or not China itself has peaked (see here), but, laying aside those doubts, could China seriously challenge the US? At present, this is unlikely. The US is too strong and China has not been encouraged to adopt a bold foreign policy. China is currently patiently building its global support base. Our research suggests that this will include both Russia and Iran. If we think of these two nations as Chinese proxies, either directly or indirectly, then we can discern the beginnings of a global hierarchy of proxies that are currently challenging the American world order. Russia is currently disrupting the United States internally over support for Ukraine. Iran, through its support for Hamas, is currently placing America in an awkward position over its support for Israel. Both conflicts are undermining the authority of the US with the non-aligned nations, particularly in the Global South. It is here that American decline is likely to be measured because the non-aligned nations, such as India, have no great need to comply with US policy. This is evidenced by the way in which US inspired western sanctions on, for example, Russia are routinely ignored by the non-aligned nations of the Global South.
It could be that the US is just about to enter a period of global renewal. This would be underpinned by the renewal of the American economy. It is generally the case that the United States is a desirable country for emigration. There is no shortage of people looking to emigrate to the US, both legally and illegally. That has always been the source of dynamism for the US and there is no reason to suggest that it might not continue to be that way. A more open approach to immigration within the US is the type of supply side policy that could trigger a renewal. If that were to happen, then an American renewal, once kick started, could begin a virtuous cycle of productivity improvements, rising investment, growing real incomes, and increased prosperity. In this eventuality, all talk of Peak America would be a bit premature.
At present the optimistic scenario seems a little far fetched. American politics is fragmented and divisive, conditions which Peter Turchin describes as ‘elite competition’. This division is both a symptom and a cause of American decline and until this situation is resolved, one way or another, internal conflict is likely to be the more likely outcome. This indecisiveness could cause the enemies of America to become more bold, and that could trigger an American ‘Suez Moment’. That would be the point at which the challenges to the US would be most magnified. If they are not overcome, then we would have seen Peak America. If they are overcome, then perhaps we wouldn’t.
© Stephen Aguilar-Millan 2024
