The Relative Decline of the Western Economies

April 16, 2011 by  
Filed under Economics

Many of us have a sense and concern that China (and even India) are on a path to overtake the U.S. and other western countries in economic might. There is a real basis for that concern, as reflected in actual GDP per capita and other important indicators.

Niall Ferguson is a Harvard financial historian. I have written about Ferguson before because he is an advocate of learning lessons from financial history. Ferguson has recently put together a slide show that clearly demonstrates in objective terms the shift in global economic power from the west (e.g., us) to China.  He characterizes this shift as “unstoppable” and compares it to how Japan overtook the UK in economic power in the mid 1960’s.

Perhaps the most striking of the objective indicators in Ferguson’s presentation is this:  In 1968, the per capita GDP in the U.S. was 33 times that of China. By 2008, that ratio had declined to 5:1.  Think about that, particularly considering how many Chinese there are.

Ferguson examines the effects on these trends caused by recent stimulus and quantitative easing actions taken by western governments. It has made things worse. Much worse. The collective debt problems of western governments have put is in critical care.

Take a look at slide 29 in Ferguson’s presentation, where he cites the Congressional Budget Office. The CBO has stated that to merely stabilize our debt to GDP problem, the government must either decrease “all adult benefits” by 12.5% by 2015 or increase “all taxes” by 11%.  If we wait until 2025, those percentages increase to 26%! This is from the CBO, the in-house experts that Congress pays to tell them the truth.

Ferguson also notes that China is extremely wary of inflation imported from the west, caused by our quantitative easy (flooding the economy with new money). As a result, China is slowly but steadily decreasing the amount of U.S. treasury securities that it owns.

The “sovereign debt crisis” is real. I encourage everyone to review Ferguson’s slide show (linked below) and then share it with your Congressperson. They will likely ignore it unless you make it clear that your vote is at stake.

Niall Ferguson: The West And The Rest.

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4 Responses to “The Relative Decline of the Western Economies”
  1. Gw in TN says:


  2. FV says:

    …”CBO has stated that to merely stabilize our debt to GDP problem, the government must either decrease “all adult benefits” by 12.5% by 2015 or increase “all taxes” by 11%”

    1.Is defense spending included in the “all adult benefits” and, if not, why not?

    2. If the debt problem is so dire, why have the politicians extended the Bush tax cuts? Isn’t that irresponsible? And isn’t it even more irresponsible for politicians to plan to make them permanent?

  3. FV says:

    For those who want to listen to Niall Ferguson on the West and the Rest, you can do it here:

  4. With the majority of the world’s economic power continually transferring to the East (where 52% already resides there) and where by 2075 some leading economists have estimated that the East’s share of economic power will have increased to between 2/3rds to 75% of the world’s GDP, what future does the West have? With little more than 25>33% of the projected economic pie, not very much it has to be said. But what is the real reason why this unparallel decline in economic terms has happened (where the West once controlled nearly 82% of the world’s turnover) ? Its roots can be traced to both political and business ineptness and complacency. For the West forgot to place constant innovation at the top of its economic policies. Its political and industrial leaders forgot that time does not stand still. Therefore if the West is to prevent a vastly unbalanced world economic order that will bring great social harm to its populous over the next six decades, it has to place invention and innovative exploitation as its major priorities and involve all its people in the task ahead. Considering the unimaginable ramifications if we do not, the West has to implement without haste now the creative infrastructure for its people so that their world changing ideas can emerge (that fundamental thinking that has created over 80% of the technological world that we see today according to international studies). Then and only then can the West hope to recapture any significant economic power back and provide a future for those in the West who are born now. For presently we have the wrong economic model in the West that does not take into account what the history of science and technology tells our western politicians and industrialists. This is our greatest weakness and why if we do not change our current economic thinking, the West will eventually become without reservation subservient to the East. Consequently over the next few decades we simply have to start to move towards this new economic model before it becomes far too late for us. The writing is increasingly on the wall now and we have to act to prevent the global economic war being totally lost. For things look bad now, but in a mere few decades from now things will be far worse if we continue to adopt the same failing economic thinking that presently persists in the West.

    Dr David Hill
    Chief Executive
    World Innovation Foundation

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