The Post-American World

Book Review of Fareed Zakaria’s The Post-American World

Fareed Zakaria, Editor of Newsweek International and host of CNN’s Fareed Zakaria, has emerged in recent years as one of America’s best minds in current events and world politics. His recent book, The Post-American World, touches on several issues near and dear to our research. The gloomy title aside (this book got quite a bit of notoriety when then-candidate Barrack Obama was seen reading it during his campaign), Zakaria is actually rather optimistic about the economic prospects of the United States. He does discuss the role of demographics in America’s position in the world, which is a good start.

As this book has already been reviewed by countless others, we will steer clear of the sections most often reviewed, which are generally foreign policy related and compare the United States today with the British Empire last century.  We’ll start instead with Mr. Zakaria’s commentary on the US health and pension system, which echoes our own work on the subject:

Consider the automobile industry. For a century after 1894, most of the cars manufactured in North America were made in Michigan. Since 2004, Michigan has been replaced by Ontario, Canada. The reason is simple: healthcare. In America, car manufacturers have to pay $6,500 in medical and insurance costs for every worker. If they move a plant to Canada, which has a government-run health care system, the cost to the manufacturer is around $800 per worker. In 2006, General Motors paid $5.2 billion in medical and insurance bills for active and retired workers. That adds $1,500 to the cost of every GM car sold. For Toyota, which has fewer American retirees and many more foreign workers, that cost is $186 per car. This is not necessarily an advertisement for the Canadian health care system, but it does make clear that the costs of the American healthcare system have risen to a point that there is a significant competitive disadvantage to hiring American workers.

Zakaria also makes the point that tying healthcare to employment tends to tie people to their jobs and lesson their ability to leave lest they lose their health insurance. It also tends to make them fear free trade and globalization. The result is that the American economy is less dynamic and productive that it would have been under a more fluid labor market.

Moving on, Zakaria also refers to demographics as America’s “secret weapon,” at least vis-à-vis Europe and East Asia:

All in all, Europe presents the best short-term challenge to the United States in the economic realm.

But Europe has one crucial disadvantage. Or, to put more accurately, the United States has one crucial advantage over Europe and most of the developed world. The United States is demographically vibrant. Nicholas Eberstadt, a scholar at the American Enterprise Institute, estimates that the U.S. population will increase by 65 million by 2030, while Europe’s will remain “virtually stagnant.” Europe, Eberstadt notes, “will by that time have twice as many seniors as older than 65 than children under 15, with drastic implications for future aging. (Fewer children now means fewer workers later.) In the United States, by contrast, children will continue to outnumber the elderly…. Some of these demographic problems could be ameliorated if older Europeans chose to work more, but so far they do not, and trends like these rarely reverse.”

This goes to show that, with demographics, it’s all relative. The United States does indeed have a better long-term demographic prognosis than Europe or East Asia. But that doesn’t mean that the prognosis is good. “Less bad” doesn’t mean good.

Furthermore, Zakaria falls into the same trap as most economists that have approached this issue. He focuses on demographics as it applies to workers. The Sizemore Investment Letter focuses instead on the demographic characteristics of consumers. As Japan has proven for nearly two decades, a country can still produce with an aging workforce, but it ceases to consume at the same pace. And in an economy dominated by consumer spending, this is a problem.

The Post-American World is full of other interesting points that deserve more space than we can offer here. We highly recommend this book for your summer reading.

 

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