Will they never learn?
The gurus and pundits are, once again, peddling the end of America – proclaiming that the U.S. dollar is a paper tiger, and the American economy is crumbling beneath our feet.
The best way to address this wrong-headed thinking is to confront it with the facts – brutally delivered by the global markets.
Looking back over the last 30 years, gold is up 224% and the S&P 500 has posted a return of 1,820%. And during this same time period, Japan was up 144%, and emerging markets were up 694%.
Despite the headwinds of a strong dollar, the S&P 500 has gained 47% over the past five years. The MSCI China Index, on the other hand, has been a huge disappointment – it’s up only 3.4%.
The U.S. dollar is also up 27.2% over a basket of six leading currencies and is on one side of 90% of global foreign exchange trades. In stark contrast, the Chinese yuan is on one side of only 2% of these transactions.
I could cite more statistics… For example, the value of American commercial real estate accounts for 40% of the value of the world’s commercial property.
But the point is, in good times and bad, America is a magnet for capital and is the best safe haven in the world.
How America Measures Up
Don’t think I ignore the tremendous challenges America faces. I get as frustrated as any American about our country’s shortcomings. More than half of my book – Red, White & Bold: The New American Century – outlines these significant speed bumps and how to turn things around.
But keep in mind that when a country decides in which currency to safeguard its trillions, it’s looking beyond the headline news of GDP growth, budget deficits, or the latest job report.
It’s looking at a bigger and deeper picture, and especially at institutions that promote resilience, stability, openness, flexibility, mobility, and transparency.
Because history shows that these traits lead to innovation in technology and finance, superior universities, vibrant entrepreneurship, openness to new talent, a stable currency, social mobility, and political stability.
Here are some of the benchmarks I have come up with to measure America’s relative strengths compared to other countries such as China:
- Protects citizen’s political, religious, and economic freedoms.
- Provides educational opportunity for all.
- Ensures a strong defense and conducts a foreign policy based on the broad national interest.
- Nurtures a culture of risk-taking and second chances while accepting inequality of results.
- Protects an independent judicial system and enforces the law in a fair, transparent, and consistent manner.
- Prizes a tradition of service and philanthropy.
- Conserves and uses natural resources wisely.
- Puts in place a low, fair, and simple tax system.
- Maintains a quality healthcare system open to all.
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In my view, China – as a semi-market, state capitalist country – would rank rather poorly on many of these benchmarks.
We take for granted what’s sorely missing in much of the world – due process, property rights, a free press, and especially the transparent and smooth transfer of political power.
While America could use improvement across the board, its glaring weaknesses are fiscal discipline and tax complexity. And it should move aggressively on both of these fronts immediately.
But on balance, America is an open, confident, flexible, and transparent society with the deepest and most sophisticated financial markets in the world.
And despite its faults, our political system is the most transparent and stable in the world, and preferable to multi-party parliamentary systems.
Then there’s the demographic angle. The U.S., in large part due to immigration, is still growing, while most of Europe, Japan, and especially Russia are rapidly declining. Southeast Asia does have a relatively youthful population, and China will become old before it becomes rich.
So during this presidential campaign and stock market volatility, keep your cool and your perspective.
In many ways, America follows the Dutch and British recipe for success outlined so well in Walter Russell Mead’s God and Gold: Britain, America and the Making of the Modern Word.
An open society open to the best talents in the world, free markets and robust trade, liberty, tolerance, strong financial markets at the heart of world commerce, maritime dominance, and science that startled the world.
All this has led to tremendous influence and affluence for the Dutch, the Brits, and now for America.
And if you put on top of all this our significant geographic advantage, huge size, ample natural resources, and decisive military strength – our opportunity to stay on top is even more compelling.
America sure looks like a safe haven to me.