The End of American Economic Model and A New Era

The American economic model is near death. Note, I am not saying that American economic system is going to die. Capitalism, free market economy and entrepreneurship will continue to dominate world economic system for a long long time. However, the age of an extensive use of energy as the basis for economic growth is over. Maybe I am too late to point this out. The trend has started from the 1970s, not today. But the ramification was not clear until energy crisis was magnified by financial crisis as well as food crisis. None of the previous recession or crisis has such profound impact and deep interconnections, many thanks to globalization, financial engineering and technological advancement. Growing global coordination and governance was able to contain some of the crisis and straighten out abnormal economic abruptions, but apparently there are certain limits that nation-states are not ready to cross, as recent events of EU, WTO and G8 meetings showed to us.
The expanding disconcert among international actors is largely due to changing dynamics of global economic power as well as natural resource possessions. Aggregated demand for energy from developing countries, particularly China which followed American industrial model closely, has finally surpass supply in the 21st century, inflating energy prices to a breaking point. While on the other hand, sellers of energy, oil especially, are either despotic or unstable politically, adding so called security premium to the price. Higher than ever energy prices endangered global economy: U.S. and China in particular. These two countries are working together as the engine of global trade and development, while China offering low price consumer products to Americans and low interest money to finance the purchase at the same time. The Chinese cheap labors and American greedy consumers are at the center of this cycling model.
However, when we celebrated the dazzling speed of Chinese economic development and the increasing wealth of American corporate profits, we missed two fatal weaknesses of it: no matter how low the interest is, you’ve got to pay it back and no matter how low the energy price is, there will be a day of total depletion. So the party is over now as we all know how it happened. Politically, some call it “the return of history”. Other than a new game of great power struggle, what’s at the bottom is a new competition for energy security.
There is only one way to avoid war and safely transfer to a new model of economy: a true sustainable and renewable economy. But the pain is too acute and the transition is too long to bear for many in the U.S. and China. Democracy and harmonious society require sophisticated and smart political skill to navigate through these perilous waters. If not handled well, a pro-environment government could be voted out of office for ignoring people’s suffering and a pro-industry upgrade group could be silenced for sacrificing jobs or social stability.
Once realizing the impasse of American model today, China has a better chance of altering its course toward a greener future. New buildings could be more energy efficient, new factories could be more environmental friendly, new transportation system could be emission free, if the government put in a set of regulations that make sense economically and pragmatically. After all, riding buses and bicycles isn’t as bad as we thought.

P.S. I love all the small cars running around on the American roads now. Feels like Europe sometimes, haha….