If your neighbor’s house burns down and only half of yours does, you are relatively better off than your neighbor — but you’re worse off than you used to be. It’s in that sense that America’s prospects exceed Europe’s and Japan’s. But this advantage doesn’t erase the huge economic losses suffered by millions of Americans. Most will reasonably conclude that their country is in decline. Demoralized, they will be less supportive of U.S. economic, political and military leadership abroad. This is how domestic disappointment translates into global retreat.
But “Is America in decline?” may be the wrong question. The truth is that most of the affluent world — again, the United States, Europe and Japan — faces similar threats.
First: Their welfare states are overwhelmed. Aging societies face a collision between promised benefits and acceptable taxes. Either the first must be cut or the second must be raised. The politics are poisonous. As the Goldman report notes, how the United States handles its debt creates enormous uncertainty. The same is true elsewhere.
Second: Economic management is breaking down. Before the 2007-09 financial crisis, most economists thought they could avoid deep slumps and engineer acceptable recoveries. Confidence has given way to contentious disagreements. Policies are improvised.