I've been hearing about American decline all my life.

Khrushchev declared that "History is on our side. We will bury you." That has to rank with Percy Bysshe Shelley's famous, but fictional proclamation:

“My name is Ozymandias, king of kings: Look upon my works, ye Mighty, and despair!”

In the seventies, the Japanese were going to eclipse us economically, which was rather ironic since growing up, Japanese manufacture was always associated with cheap and rather shoddy construction (a contrast made famous in "Back to the Future"). Now we get to enjoy further irony, as Toyota is getting the reputation for making cheap and shoddy cars...

China is our newly-appointed successor with naming rights for the century, but considering past experience, forgive me if I remain incredulous.

He expects that by 2040 China's GDP will be $123 trillion, or three times the entire world's economic output in 2000. He says China's per capita income will be more than double what is forecast for the European Union. China's 40 percent share of global GDP will be almost triple that of the United States' 14 percent.

Fogel finds many reasons for this, including the increased productivity of the 700 million (55 percent) rural Chinese. But he especially stresses "the enormous investment China is making in education."

While China increasingly invests in its future, America increasingly invests in its past: the elderly. China's ascent to global economic hegemony could be slowed or derailed by unforeseen scarcities or social fissures. America's destiny is demographic, and therefore is inexorable and predictable, which makes the nation's fiscal mismanagement, by both parties, especially shocking.

Great piece of rhetoric by Will, but as per usual with these kinds of statistical extrapolations, they fail to take into account the 'other guy's' structural problems.

Rarely mentioned in such analyses is China's own aging problem. The population of the People's Republic will be considerably older than the U.S.' by 2050. It also has far more boys than girls--a rather insidious problem. Among the younger generation there are already an estimated 24 million more men of marrying age than women. This is not going to end well--except perhaps for investors in prostitution and pornography.

In the longer term demographic trends actually place the U.S. in a relatively strong position. By the end of the first half of the 21st century, the American population aged 15 to 64--essentially your economically active cohort--are projected to grow by 42%; China's will shrink by 10%. Comparisons with other competitors are even larger, with the E.U. shrinking by 25%, Korea by 30% and Japan by a remarkable 44%.

Setting demographics aside, one has to consider the question of culture. Why, with its demonstrably inefficient and ineffective educational system, does the U.S. always kick everyone else's economic butt over the short and long-term?

I've quoted this just recently, but I'll do it again because it really encapsulates the salient quality in any economically dominant culture.

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded- here and there, now and then- are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.This is known as "bad luck." --Robert Heinlein

It is specifically the American embrace of individual freedom that makes it possible for the 'extremely small minority' to create the wealth that powers the American pseudo-empire.

Every country in the world has little Steven Paul Jobs being born at this very moment. How many of them have the culture that will allow their SPJs to become 'Steve Jobs'? How many of them would give a long-haired, bearded guy with a prototype product with a plywood case that his long-haired, bearded friend made in his Mom's garage, after dropping out of college, getting his girlfriend pregnant and chucking it all to spend some time in India?

Do you really think this could happen in China?

The answer to that question answers all others.

Krugman accused China of "engaging in massive capital export - artificially creating a huge deficit in China's capital account". China is running a current account surplus with the US, which by definition means that China is exporting capital to the US. In my view, the most important reason why China should not run a current account surplus consistently against the US is simply because China is one of the poorest countries in the world, and should not engaging in financing the consumption binge of the richest country in the world. China is running "twin surpluses" - current and capital account surpluses. It means that while importing capital in the form of FDI and foreign debts with high costs, it exports capital in the form of piling up greenbacks and US treasuries with low yields or no yields at all. By doing so, China has been engaging in a massive wealth transfer to the US. How could Krugman argue that China is "making everyone else poorer"? The losses incurred in financial transactions between China and the US could be trivial compared with the capital losses China may suffer in the future. China has parked its savings in the US treasures while US fiscal debt ratio has been surging. Following the upcoming structural changes such as aging, China will run down its foreign exchange reserves sooner or later. A very big question for China is: When it needs to redeem its treasuries, can America honor its debt obligations? History may show that China is the biggest victim of the post-Bretton Woods international monetary system, a system of the dollar standard. Under this system, everything hinges on the integrity of the American government and the Fed, or the speed of their printing press. The American government and the Fed have let down those who have trust in them. For its own sake, China should stop further piling up greenbacks massively.