There was another round of the more-or-less endless debate about the decline of the US not long ago, focused on the weak employment growth that has characterized the current ‘recovery’. I expect that the obvious inability of the US to exert significant influence, in either direction, over the fate of client regimes in North Africa and the Middle East will provoke some more discussion among similar lines.

As a public service, I’d like to bring an end to this tiresome debate by observing that the decline of the US from its 1945 position of global pre-eminence has already happened. The US is now a fairly typical advanced/developed country, distinguished primarily by its large population[1]. Precisely because the US is comparable to other advanced countries in many crucial respects, there is no reason to expect any further decline. [2]

As I’ve observed before, the US is similar to other leading countries in terms of key economic variables like output per hour worked and employment/population ratio. Like other countries it has some distinctive features, that can make it look good or bad on particular measures. Features on which the US is an outlier, in economic terms, include long average hours of work per employed person (particularly notable for women), high levels of inequality in wages and other incomes, low levels of public expenditure and taxation, an exchange rate that has typically been well below most estimates of purchasing power parity, and an international balance characterized by large deficits on the goods and services account, matched by large surpluses on the capital account.

In geopolitical terms, the US spends a lot more on its military than anyone else (in fact, more than everyone else put together) and (contrary to the beliefs of most Americans) hardly anything on development aid or other efforts at promoting global public goods. The amount of sustainable influence generated as a result appears pretty trivial. The number of places in the world where the US can directly determine, or even substantially influence, political outcomes is approximately zero – nothing like what might be associated with an old style Great Power, let alone a superpower or “hyperpower”.As I’ve observed before, Americans of all classes (except those directly connected to the military-industrial complex) get very little payoff for their military expenditure – trillions of dollars of expenditure has been unable to produce positive outcomes in a couple of relatively insignificant countries, or even to put paid to a bunch of pirates in the Indian Ocean.

On the other hand, it has to be conceded that the record of non-military aid and public good promotion is not exactly one of stellar success either. The fact is that the world is a complicated and intractable place, and running your own country is hard enough – the fact that international efforts work as well as they do is more surprising than the fact that so many fail.

I suppose it’s necessary to mention that the US has the capacity to destroy the world at a moment’s notice. But unfortunately for the world, so can Russia, probably China and maybe France or Britain. If the nuclear winter analysis is correct, even the regional nuclear powers could bring a rapid end to civilisation as we know it. And lots of other countries could easily acquire such a capacity if they were silly enough to want it.

Like other developed countries, the US has some notable areas of economic and cultural strength (IT, Hollywood) as well as areas of relative weakness (consumer goods, fashion and so on). While the precise pattern may change, I don’t see any reason to suppose that the US will either decline or advance dramatically in comparison to other developed countries.

The main implication of all this, for me, is that Americans should stop worrying about relative “decline”, “competitiveness” and so on, and start focusing on making the US a better place to live. This advice may seem gratuitous coming from an outsider. I can only respond that Australia had its own period of concern about relative decline (relative to Singapore and other Asian countries) back in the 1980s, and I said exactly the same thing then.

fn1. That effect is amplified for English-speakers. The US accounts for something like 75 per cent of developed-country native English speakers, and this is reflected in the attention it gets on blogs like this one.

fn2. As other countries catch up to the advanced group that includes the US, those in that group might be said to have declined in relative terms. But this doesn’t seem to me to constitute “decline” in any important sense.

Much recent discussion of the future of the euro, most notably that of Paul Krugman, has started from the idea that Europe is not an optimal currency area, and that a ‘one-size fits all’ monetary policy is therefore bound to lead to the kinds of problems we are now observing. At any given time, some countries would benefit from a more expansionary policy and others from a more contractionary policy, so the effect of monetary union is an unsatisfactory splitting of the difference.

Without resolving that issue in general terms, I want to argue that this is not an accurate description of the current state of the eurozone. It’s true that Germany is doing a lot better than the eurozone as a whole, and the peripheral countries a lot worse. So, the optimal policy for Germany alone would be tighter than for the rest of the eurozone. The peripheral countries might benefit from an even more expansionary policy (though that’s not as clear to me as it seems to be to others. A heavily indebted country that undertakes monetary expansion is likely to find it hard to sell bonds denominated in its own currency).

But when you look at the actual policies of the ECB, including Trichet’s recent threat to raise interest rates, it’s hard to see that this policy is optimal for any EU country, even Germany.

Particularly in GDP terms, Germany’s recovery has not been that strong, and an expansion based on exports could easily be derailed by the kind of currency appreciation that would follow an interest rate rise, or even a really credible commitment to hold inflation down. And given the difficulties of handing out explicit haircuts, a modest amount of inflation seems likely to be a low-risk way of easing debt burdens without endangering the (largely German and French, and also UK) banks that hold a lot of the debt.

To say that the problem is the ECB rather than the euro is, for some purposes, a distinction without a difference. But in other respects it is critical. If the optimal currency area analysis is correct then a breakup of the euro is probably inevitable and the big question is how to manage it. On the other hand, on the analysis offered here, the ECB must, in the end, be bluffing. Faced with the end of the currency it has been set up to manage, the ECB must eventually back down on everything else, including its inflation targets. The problem on this analysis is how to broker the politics of pushing the ECB towards large-scale quantitative easing and a higher inflation target.

This is, of course, complicated by the fact that, as discussed in a number of the contributions to a recent Crooked Timber seminar , the actual policies being pursued and advocated by Germany don’t necessarily correspond to any reasonable conception of Germany’s national interest. In particular (and by no means uniquely to Germany) policies that are primarily driven by the interests of banks have become the basis of a popular backlash against other scapegoats – in this case the citizens of the peripheral economies who are on the hook for failures of the financial sector. Until that’s understood, the disastrous policies of the ECB will continue to go unchallenged.