Colossus

by Niall Ferguson

  16. Calculated from the figures in the World Bank’s World Development database.

  17. Depending on the measure used, EU output will rise by between 3 and 9 percent.

  18. Figures from Maddison, World Economy.

  19. According to figures for 1999 from Eurostat.

  20. Danthine et al., “European Financial Markets After EMU,” table 2.2.

  21. Figures from the Bank for International Settlements. This was in fact predicted by the BIS: McCauley and White, “The Euro and European Financial Markets.”

  22. Figures from Economagic, OECD.

  23. Economist, April 12, 2003, p. 100.

  24. Al Jazeera, July 2002.

  25. European Convention, “Draft Treaty Establishing a Constitution for Europe,” CONV 850/03, Brussels, July 18, 2003.

  26. Michael Pinto-Duchinsky, “All in the Translation,” Times Literary Supplement, June 13, 2003.

  27. “Snoring While a Superstate Emerges,” Economist, May 10, 2003, p. 42.

  28. Richard Baldwin and Mike Widgren, “Europe’s Voting Reform Will Shift Power Balance,” Financial Times, June 22, 2003.

  29. Pew Global Attitudes Project, “Views of a Changing World,” June 2003.

  30. “America’s Image Further Erodes, Europeans Want Weaker Ties,” Pew Research Center, March 2003.

  31. The pro-American percentages currently stand at 70 in Britain, 43 in France, 60 in Italy, 45 in Germany and 38 in Spain.

  32. “Contradictions,” Economist, April 12, 2003.

  33. Statistics from various Eurobarometer surveys at http://europa.eu.int/comm/public_opinion/archives.

  34. Calculated from figures in the CIA World Factbook.

  35. Calculated from figures published by the Stockholm International Peace Research Institute.

  36. Figures from the Center for Global Development.

  37. David Roodman, “An Index of Donor Aid Performance,” Center for Global Development, April 2003.

  38. The results can be found in Foreign Policy, May/June 2003.

  39. Coker, Empires in Conflict, p. 38f.

  40. “Revitalising Old Europe,” Economist, March 15, 2003, p. 91.

  41. Ferguson and Kotlikoff, “Degeneration of EMU,” pp. 110–21.

  42. See Milward, European Rescue.

  43. Figures from Maddison, World Economy, table B-22.

  44. International Monetary Fund, World Economic Outlook, April 2003.

  45. Figures from the International Monetary Fund.

  46. Figures from the OECD (standardized unemployment rates).

  47. “Europe’s Heavyweight Weakling,” Economist, June 7, 2003, p. 44.

  48. Economist, March 22, 2003, p. 120. International measures of productivity are controversial, but even after one adjusts for the differences in statistical methods between the United States and the European Union, it is clear that labor productivity rose in the United States during the 1990s and declined in the EU: ibid., November 16, 2002, p. 100.

  49. Evans et al., “Trends in Working Hours in OECD Countries.”

  50. “Revitalising Old Europe,” Economist, March 15, 2003, p. 91.

  51. Economist, May 3, 2003, p. 108.

  52. European Convention, “Draft Treaty Establishing a Constitution for Europe,” CONV 850/03, Brussels, July 18, 2003.

  53. The EU will stop paying production-linked subsidies to arable farmers, but member states may continue to pay subsidies up to a specified percentage of past payments—up to a quarter in the case of cereals—if they wish: Rory Watson, “E.U. Hails New Era of Healthy Food and Green Living,” Times, June 27, 2003. The total amount spent on the CAP will continue at around $50 billion until 2013: Tobias Buck, Guy de Jonquiéres and Frances Williams, “Fischler’s New Era for Europe Farmers,” Finanial Times, June 27, 2003.

  54. Lea Paterson, “Farm-fresh Chance for Reform in Enlargement,” Times, July 29, 2003.

  55. Economist, May 27, 2003.

  56. Subsidies to American agriculture, most of which go to around four hundred thousand farmers, rose from $7.3 billion in 1996 to $22.9 billion in 2000. The 2002 farm bill restored the link between farm subsidies and production and will raise the total subsidy to American agriculture by around 22 percent compared with the 1996–2001 average. See in general Runge, “Agrivation,” p. 86f.

  57. At the time of writing, consumer price inflation in Greece was 3.8 percent per annum—the highest rate in the Eurozone—compared with just 0.7 percent in Germany, the lowest rate.

  58. German interest rates were around 2.5 percent on the eve of the monetary union. Thereafter Germany had to adjust to the Eurozone-wide discount rate of 4.5 percent. Only in 2003 did rates return to their pre-1999 levels.

  59. Figures from the Bundesbank.

  60. “A Boom Out of Step,” Economist, May 29, 2003. Cf. Posen, “Frog in the Pot”; Martin Feldstein, “Britain Must Avoid Germany’s Mistake,” Financial Times, April 22, 2003.

  61. I am grateful to my student Michael Darcy for his work on this question.

  62. Anatole Kaletsky, “How Blair Has Priced Britain Out of the Euro,” Times, June 12, 2003.

  63. Martin Wolf, “The Benefits of Euro Entry Will Be Modest,” Financial Times, May 12, 2003.

  64. Begg et al., “Sustainable Regimes of Capital Movements.”

  65. Figures from the International Monetary Fund, World Economic Outlook.

  66. Milward, European Rescue.

  67. “Giscard Plan for President Enters Most Divisive Phase,” Financial Times, April 22, 2003.

  68. Details can be found in Milward, European Rescue.

  69. Niall Ferguson, “The Cash Fountains of Versailles,” Spectator, August 14, 1993, pp. 14–16. Between 1958 and 1994 Germany paid 163 billion marks to the rest of Europe in form of net contributions to the European Economic Community/European Union budget, more (in nominal terms) than the total amount of reparations demanded at London in 1921.

  70. Britain is the exception that proves the rule. Voters there seem not to have noticed that their country ceased to be a significant net contributor in 1984, when Margaret Thatcher secured an ongoing rebate of a substantial proportion of Britain’s payments.

  71. Economist, March 1, 2003.

  72. Hitchcock, Struggle for Europe, p. 419.

  73. Ibid., p. 412.

  74. See Siedentop, Democracy in Europe.

  75. Figures from Eurostat.

  76. Rosecrance, “Croesus and Caesar,” pp. 31–34.

  77. Epitropoulos et al. (eds.), American Culture, p. 5.

  78. Bobbitt, Shield of Achilles, pp. 677–95.

  CHAPTER 8: THE CLOSING DOOR

  1. Gibbon, Decline and Fall of the Roman Empire, book I, ch. 17.

  2. Maddison, World Economy, p. 241, table B-10, p. 261, table B-16.

  3. Diamond, Guns, Germs and Steel.

  4. Pomeranz, Great Divergence.

  5. Platt, Finance, Trade and Politics, esp. pp. 95, 109. For an illuminating comparison of British and American approaches to informal empire, see Rauchway, “Competitive Imperialism.” As Rauchway notes, the British went quite far in Anglicizing those institutions over which they gained control, notably the Imperial Maritime Customs Service. The American approach was to assume that Americanization would happen spontaneously. For a more positive assessment, see Osterhammel, “China,” p. 643f.

  6. See Rodrik, “Feasible Globalizations,” p. 7f.

  7. See, for a recent review of Chinese performance, Hale and Hale, “China Takes Off.”

  8. Calculated from the various GDP statistics in the World Bank’s World Development database.

  9. Martin Wolf, “Rivals and Partners,” Financial Times, October 7, 2003.

  10. See, e.g., Mearsheimer, Tragedy of Great Power Politics, p. 362. Cf. Medeiros and Fravel, “China’s New Diplomacy.”

  11. See, e.g., Frank, ReOrient.

  12. Chang, Coming Collapse of China.

  13. Kennedy, Rise and Fall of the Great Powers, p. 689.

&n
bsp; 14. Ibid., p. 681 and note.

  15. Keynes is supposed to have said: “If the facts change, I change my opinion. What do you do, sir?”

  16. Paul Kennedy, “Power and Terror,” Financial Times, September 3, 2002.

  17. Ferguson and Kotlikoff, “Going Critical.”

  18. Medeiros and Fravel, “China’s New Diplomacy.”

  19. According to one estimate, members of the allied coalition reimbursed the United States for $54 billion out of the total cost of $61 billion.

  20. Cf. Ignatieff, Empire Lite, p. 95.

  21. Rubin, Hamidzada and Stoddard, “Through the Fog of Peace Building.”

  22. Figures from Statistical Abstract of the United States, various issues.

  23. Calleo, “Power, Wealth and Freedom,” p. 10. Cf. David Wessel, “Several Signs Highlight War’s Effect on Economy,” Wall Street Journal, March 27, 2003; Rigobon and Sack, “Effects of War Risk.”

  24. Davis et al., “War in Iraq Versus Containment.”

  25. Thom Shanker, Bush to Focus on Benefits of Rebuilding Effort in Iraq,” New York Times, September 21, 2003. See also Donald Hepburn, “Nice War. Here’s the Bill,” ibid., September 3, 2003; Richard W. Stevenson, “78% of Bush’s Postwar Spending Plan Is for Military,” ibid., September 9, 2003.

  26. “We are spending $4 billion a month to run a country which has a monthly GDP of $2.5 billion,” a retired military official told the Financial Times this summer. “Something is wrong here”: Financial Times, August 29, 2003. Cf. Ali Abunimah, “Iraqs Chilling Economic Statistics,” March 18, 1999, http://www.globalpolicy.org/security/issues/irq3–22.htm.

  27. According to the Summers and Heston “World Tables,” Iraq’s real GDP per capita in 1980 was $6,900 in 1985 international dollars, compared with an American figure of $15,101. The World Bank’s World Development database gives figures for gross national income per capita in current dollars of $3,380 for Iraq and $11,850 for the United States. The Economist Intelligence Unit estimated Iraq’s per capita GDP in 1999 to be just $247, compared with an American figure of $32, 260–130 times as high.

  28. Max Boot, “A War for Oil? Not This Time,” New York Times, February 13, 2003; Peter Slevin and Vernon Loeb, “Bremer: Iraq Effort to Cost Tens of Billions for Iraq,” Washington Post, August 27, 2003.

  29. See, for an example, Seymour Melman, “Looting Our Lives,” Znet, April 22, 2003.

  30. The first owner of a commercial Hummer was the bodybuilder, actor and now governor of California Arnold Schwarzenegger.

  31. Kenneth N. Gilpin, “White House Foresees Deficit Reaching $455 Billion This Year,” New York Times, July 15, 2003. Cf. Edmund L. Andrews, “Leap in Deficit Instead of Fall Is Seen for U.S.,” ibid., August 26, 2003.

  32. All figures from Congressional Budget Office Web site, http://www.cbo.gov.

  33. Gokhale and Smetters, “Fiscal and Generational Imbalances.”

  34. Details in Lawson, View from No. 11, p.37.

  35. Gabriel Stein, “Mounting Debts: The Coming European Pension Crisis,” Politeia, Policy Series No. 4 (1997), pp. 32–35.

  36. Interestingly, the others are nearly all ex-British colonies: Australia, Canada, Ireland and New Zealand. According to international comparisons done in 1998, each of these countries could have achieved generational balance with tax increases of less than 5 percent: Auerbach et al., Generational Accounting Around the World. The catch is that solving the public-sector pensions problem may simply have created a comparably large private-sector pensions problem; there is alarming evidence that many company pensions schemes are woefully underfunded and are unlikely to deliver what they have promised to company employees when they retire.

  37. The proposed reform effectively bribes the elderly to join Health Management Organizations by offering them a drug benefit. But this will increase rather than reduce expenditure inasmuch as it will cost between $400 billion and $1 trillion over the next ten years. The scheme also retains the traditional and very expensive fee-for-service Medicare system and permits the elderly to switch back to it whenever they like. Unfortunately, they are likely to switch back just when they are becoming expensive to treat. Finally, the HMOs are free to shut down and ship their customers back to the traditional plan whenever they become too expensive.

  38. As Laurence Kotikoff has argued, one way to do this would be to close down the old system at the margin and enact a federal retail sales tax to pay off, through time, its accrued liabilities. What workers would otherwise have paid in payroll taxes would now be invested in special private retirement accounts, to be split evenly between spouses. The government would make matching contributions for poor workers and would contribute fully on behalf of the disabled and the unemployed. Finally, all account balances would be invested in a global, market-weighted index of stocks, bonds and real estate.

  39. Alison Shelton, Laurel Beedon and Mitja Ng-Baumhackl, “The Effect of Using Price Indexation Instead of Wage Indexation in Calculating the Initial Social Security Benefit,” AARP Public Policy Institute, July 2002.

  40. See most recently Catão and Terrones, “Fiscal Deficits and Inflation.”

  41. Figures from Economagic (Federal Reserve Bank of New York). In the middle of 2003 there were some signs of a slight upward shift in investors’ inflationary expectations. The yield on ten-year treasuries jumped to 4.3 percent, party in response to expectations of higher economic growth and higher share prices, but also party in response to the government’s and the CBO’s revised deficit forecasts. The yield curve, which had become more or less flat by the late 1990s, was showing signs of sloping more steeply upward. At the end of 2000, the spread between ninety-day and thirty-year interest rates had been slightly negative (minus 42 basis points). By August 2003 it stood at over 400 basis points. Finally, the spread between yields on ten-year bonds and index-linked bonds with the same maturity widened slightly, from around 140 basis points in October 2002 to over 230 basis points in late August 2003. Yet this still seemed a relatively modest reaction, given the size of the fiscal crisis facing the United States. Figures from Bondsonline.com, Economagic.

  42. See Shiller, Irrational Exuberance.

  43. See Robert J. Shiller, “Will the Bond Bubble Burst?,” Project Syndicate (June 2003).

  44. For a popular introduction to the subject, see Mark Buchanan, Ubiquity.

  45. In Germany in May 1921—to give an extreme example—it was the announcement of a staggering postwar reparations burden of 132 billion marks that convinced investors the governments fiscal position was incompatible with currency stability. The assassination of the liberal Foreign Minister Walther Rathenau in July of the following year delivered the coup de grâce, sending both interest rates and exchange rates skyrocketing: Webb, “Fiscal News.”

  46. Chet Currier, “Deflation-Defense Strategy Uses Treasuries, Cash,” www.bloomberg.com, April 26, 2003.

  47. David Leonhardt, “Greenspan, Broadly Positive, Spells Out Deflation Worries,” New York Times, May 22, 2003.

  48. Statistical Abstract of the United States, 2001, table 552.

  49. Bonney, “France, 1494–1815,” pp.131ff., 152f. Cf. Bosher, French Fi-nances.

  50. Maddison, World Economy, table 2–26a.

  51. Calleo, “Power, Wealth and Wisdom,” p. 9. The Bank for International Settlements estimates that the U.S. current account deficit is equivalent to almost 10 percent of the rest of the world’s savings: John Plender, “On a Wing and a Prayer,” Financial Times, July 3, 2003.

  52. Hugo Dixon, “Is the U.S. Hooked on Foreign Capital?,” Wall Street Journal, March 6, 2003.

  53. Päivi Munter, “Foreign Holdings of U.S. Treasuries Hit Record 46%,” Financial Times, September 11, 203.

  54. International Monetary Fund, “Transcript of the World Economic Outlook Press Conference,” April 9, 2003.

  55. That is the only way to explain the fact that the United States consistently receives higher investment income from its investments abroad than it pays out to for
eigners who have put their money into American assets, even though the capital value of American-owned assets abroad is significantly smaller. I am grateful to Alan M. Taylor for this point.

  56. David Hale, “The Manchurian Candidate,” Financial Times, August 29, 2003.

  57. I am very grateful to Deirdre McCloskey for her comments on this point. For two differing views, see Brad DeLong, “The Endgame for the U.S. Current-Account Deficit,” September 16, 2003: http://www.j-bradford-delong.net/movable_type/2003_archives/002242.htm.

  58. Ronald McKinnon, “The Dollar Standard and Its Crisis-Prone Periphery: New Rules for the Game,” unpublished paper, Stanford University, September 9, 2002.

  59. See the discussion by Hali Edison, “Are Foreign Exchange Reserves in Asia Too High?,” in International Monetary Fund, World Economic Outlook, October 2003, pp. 78–92.

  60. See Edward Alden, Jeremy Grant and Victor Mallet, “Opportunity or Threat? The U.S. Struggles to Solve the Puzzle of Its Trade with China,” Financial Times, November 4, 2003.

  61. McKinnon and Schnabl, “China: A Stabilizing or Deflationary Influence?” and “Return to Exchange Rate Stability in East Asia?” See also Ronald McKinnon, “China and Japan, Déjà Vu?,” Stanford University, March 2, 2003.

  62. See Martin Wolf, “A Very Dangerous Game,” Financial Times, September 30, 2003.

  CONCLUSION: LOOKING HOMEWARD

  1. Thomas Wolfe, Look Homeward, Angel, p.5.

  2. See Johnson, “America’s New Empire for Liberty.”

  3. For a different account of the differences, see O’Brien, “Governance of Globalization.”

  4. For a skeptical answer, see Jowitt, “Rage, Hubris and Regime Change.” See also Simes, “Reluctant Empire.”

  5. “The Price of Profligacy,” Economist, September 20, 2003.

  6. At the time of writing, foreign central banks’ holdings of U.S. Treasury and “quasi-governmental agency” bonds for the first time exceeded $1 trillion: Päivi Munter and Jenny Wiggins, “Treasury Holdings Top $1,000bn,” Financial Times, November 11, 2003.

  7. The interest rate on a fixed-rate fifteen-year mortgage rose from 4.5 percęnt to 6.4 percent between the spring and summer of 2003: “Stormy Summer,” Economist, August 9, 2003.