May 29, 2020
How America ‘Wins’ the Post-Pandemic World
As the winners and losers of the post-pandemic world shake out, America is having a terrible crisis.
It’s difficult to get past 100,000 (and counting) dead Americans from COVID-19, and the sharpest economic contraction since the Great Depression, and think otherwise.
The underlying rot that got us here has been festering for some time. You’ll recognize the familiar narrative…
The U.S. has long been in slow decline, burdened by debt, toxic politics, a lazy and spoiled population that’s long lost its edge, a crumbling infrastructure, and an obsession with brainless minutiae.
The election of President Donald Trump destroyed what was left of American credibility and leadership on the global stage.
And then came the coronavirus, along with nosebleed levels of incompetence on the world stage.
Of course, that sort of easy narrative is often wrong… especially if you’re an investor and looking forward.
So today, I want to share how, despite all the criticism, America might well wind up ahead of the rest of the world on the global post-pandemic geopolitical and economic stage.
I’m reminded of late-career American football quarterback Peyton Manning, who won a Super Bowl even though he could barely throw a ball. (More on him in a minute.)
No, America isn’t in its prime any longer… But it can still win. And not necessarily because of anything that it’s done well… Rather, because no one else is doing much better – and because the U.S. has such a head start…
1. The United States is “losing less” than anyone else.
I know… No country is a “winner” in a murderous pandemic that kills 360,000 people (and counting) and knocks 3% – the IMF’s glass-half-full estimate in April – off of the global economy.
But in a world where no single country is driving the agenda, and the seat at the head of the global geopolitical and economic table is vacant, the U.S. may nevertheless come out the other side of the coronavirus pandemic in a better position than any other big country. That’s partly because everywhere else is having a crisis that’s at least as bad as – even worse than – the American experience.
In other words, sometimes you “win” just by not losing…
Take China… Following the election of President Trump, the U.S. abandoned allies, defied traditional trade partners, ripped up long-standing international agreements, and knocked down the institutional pillars that have kept the world comparatively peaceful and prosperous since the end of World War II.
The path opened for China to make its case to be the grown-up in the room… the go-to global power that everyone warily respected.
In the early days of the pandemic, China won plaudits – from Trump and others – for what at the time seemed like a quick response to containing the coronavirus.
But in the COVID-19 world, January is a very long time ago…
That narrative has long since been bigfooted by whether China covered up the spread of the coronavirus… And what it should have done to prevent untold human suffering and a global depression.
But even before some guy in Wuhan got on the wrong side of a bat, China was already struggling under a snowdrift of problems, including numerous U.S.-China disagreements, tensions in the South China Sea, political challenges in Taiwan and Hong Kong, and the possibility of a technological Iron Curtain. Exacerbated by the economic fallout of the pandemic, these have the scope to eat away at the support of China’s middle class for the Communist Party – and erode the stability that Chinese President Xi Jinping so desperately relies on.
And well after we’ve returned to eating in (social-distanced) restaurants, China’s still going to be on its back foot. It took decades for China to wash the blood off its hands from the deadly 1989 protests in Beijing’s Tiananmen Square.
The damage to China’s credibility and prestige – domestically as well as internationally – for its role in the spread of COVID-19, and in the subsequent epoch-defining economic collapse, could make Tiananmen look like an unfortunate misunderstanding on a sunny square by comparison.
Back in the land of Champagne and sauerkraut, the European Union is too polarized, sclerotic, and crippled to project power beyond its own shores.
“The sick man of Europe is Europe,” explained the Wall Street Journal in May 2019. The laundry list of Europe’s challenges – pre- and post-pandemic – rivals even China’s… with internal divides, Brexit, divisions over immigration policy, the erosion of democratic values, and perennially anemic economic growth (clocking at just 0.1% in quarter before the coronavirus hit).
Some countries in Europe, including Germany, the Netherlands, Denmark, and others, are emerging from the pandemic in a strong position. But as a whole, the EU’s messy and disjointed response to COVID-19 has highlighted the disunion of the world’s biggest union. For example, open borders between member states, a basic and foundational element of the union, was one of the first casualties as EU members frantically barred their national boundaries to each other.
It was only after weeks of bickering – one of the few things at which the EU excels, even compared to American lawmakers – that the EU’s rich states finally agreed to help bail out Italy and Spain, the third- and fourth-largest economies in the EU.
There’s a chance that the dismal failure of the EU in the face of the coronavirus will be a catalyst for change. But Germany, the solid rock foundation of the EU, can only do so much, and right now it looks like the structural divisions within the EU will prevent the continent from getting its act together.
And the (non-China) emerging markets – the supposed growth engines of the global economy – are doing the worst of all. Brazil has more cases of COVID-19 than any other country except America. The country’s president is applying the “ignore it and it will go away” strategy to pandemic management (the same one the U.S. White House abandoned in mid-March or so). When he’s not wading into crowds of supporters, he’s fending off a rapidly metastasizing scandal that has a not-small chance of resulting in his impeachment.
India – which implemented a lockdown with four hours’ notice and elevated a pandemic into a massive internal immigration crisis (plus pandemic) – has moved into the top 10 list globally of total coronavirus cases. But the total case count, and the mortality rate, is surely absurdly undercounted, as testing in India is running at just 5% – the same (and also too low) levels of the U.S.
Over in Russia, the popularity rating of President Vladimir Putin is hitting all-time lows, as he tries to fob off responsibility for crisis management to his prime minister (who was sidelined with the virus) and Moscow’s mayor. Russia has the third highest number of COVID-19 cases of any country in the world, and it’s only getting worse. And as I wrote a few months ago, Russia and other emerging markets – like Nigeria, Venezuela, and Iran that rely on oil like you and I rely on air – are going to be among the biggest losers.
Put it all together and it’s clear… The U.S. is having a lousy pandemic crisis, but other big countries are having an even worse time. That alone doesn’t mean that America is going to come out ahead… But it sure helps.
2. The U.S. has the fumes of the strong American brand to run on.
That brings us back to Peyton Manning – one of the best quarterbacks and strongest leaders on the field in American football history. In what would be the final season of his career, Manning was struggling through pain, throwing wounded ducks, and showing his age. Nevertheless, in 2016 his team won the Super Bowl – despite Manning, rather than because of him. An exceptionally strong defense was able to compensate for Manning, who at that point was barely running on fumes.
And right now… the U.S. is that season’s Peyton Manning: a former all-time great who’s getting by on the fumes of past success and glory.
For centuries, the American brand as “the land of opportunity” has attracted the smartest and most motivated people from the rest of the world. After all, it’s thanks to the – now sadly quaint – sentiment of the Statue of Liberty that, as Ian Bremmer of political risk consultancy Eurasia Group explains:
… the U.S. produces far more of both the biggest digital platform companies and the startup “unicorns” that will drive innovation in artificial intelligence, Big Data, cloud computing, autonomous vehicles, drones, and other cutting-edge technologies that will dominate global economic development in decades to come.
Thanks in part to all those smart immigrants who arrived in the U.S. before President Trump, who has steadily made it more difficult for foreigners to become residents or citizens, the country also has the wind of strong demographics at its back. A growing working-age population is boosting productivity – and economic growth – in the U.S. The opposite dynamic (an aging and shrinking workforce) is sucking the life out of the economies of Europe, Japan, and even China, and will be a drag on growth in future decades.
Another legacy of American greatness that will help it emerge from the pandemic crisis in a position of strength is its enduring “soft power.” That’s a country’s ability to attract or persuade other countries and people based on cultural predominance and reputational influence, rather than guns or money. The U.S. ranks first in the Global Soft Power Index, which is based mostly on America’s clout in entertainment, media, sports, and science.
And although many living in the U.S. might not realize it, the American brand has taken a serious beating…
The overall score of the U.S. on the survey – which consultancy Brand Finance put together based on interviews with 55,000 people in 87 countries – was dragged down by poor showings in the categories of reputation, governance, and political stability.
Yet despite the reputational challenges of President Trump, the U.S. still scores as the unrivaled rule-maker of the world.
Finally, there’s the English language. If you’re born and bred in the U.S., you probably have one of the most coveted skills on earth… You speak English, which is the lingua franca of the world. Almost everywhere you go, English is the assumed default if you don’t speak the local language.
And everyone wants to learn English. According to one estimate, around 300 million people in China – that’s nearly the entire population of the U.S. (where around three-quarters of the population speaks only one language) – is trying to learn English. That’s soft power…
Like Peyton Manning, the U.S. may be past its prime. But so far, it’s been able to get by on past glories, a strong brand, and soft power.
And America has another supreme advantage… its currency.
3. The U.S. has the dollar.
As the global reserve currency, the U.S. dollar reigns supreme, and COVID-19 can’t touch that.
Roughly 80% of all $100 bills in circulation are now held overseas… up from only 30% in 1980. This dramatic increase of large bills outside the U.S. is a testament to the confidence and security the rest of the world recognizes in the dollar.
As Foreign Affairs magazine explains,
… because the U.S. Federal Reserve controls the supply of dollars, it is, now more than ever, the world’s central bank… The dollar is also the currency that other nations overwhelming prefer to hold in their treasury reserves.
This “reserve currency status” has been a perk of empire since Portugal was the dominant world power… A country that enjoys steady global demand for its currency – often purchased in the form of government bonds – can borrow cheaply from abroad… It helps Americans borrow money in order to buy cars and homes, and it allows Washington to run up deficits it could not otherwise afford.
Despite the best efforts of China and the EU, the U.S. dollar is the foundation of the global financial system. Around 90% of global financial transactions that go through banks are conducted with the dollar – even if they don’t involve U.S. buyers or sellers.
As of late last year, just over 60% of global foreign exchange reserves are in dollars (the euro trails at 21%). The biggest and most liquid market in the world, by far, is for U.S. Treasuries. When companies, investors, and governments want safety, they go to the U.S. dollar.
When stability and liquidity are self-reinforcing, success begets success with reserve currencies. No pandemic can take that away…
America Has an All-Star Supporting Cast
As Sports Illustrated magazine wrote after that 2016 game, “Peyton Manning was not the reason Denver won the Super Bowl.” Instead, as Rolling Stone magazine explained, “[Manning] did pretty much what he’s been doing for the majority of the season… which is to hand the ball off and make a few wobbly and dyspeptic throws and stay the hell out of the way of the Broncos’ defense, which will likely go down as one of the great units in NFL history.”
Manning won on the fumes of a Hall of Fame career – and because he was a calm, confident, smart leader on the field. But most importantly, he had a fantastic supporting cast…
That’s also similar to the U.S. now, as the New York Times explains…
America has a failed federal government, laughed at and pitied the world over. But America is not a failed state. It will be saved by its scientists and doctors, its hospitals and universities, its nimble and creative companies, and leaders in the statehouses who act more decisively than the family of frauds in the White House.
Peyton Manning retired a champion, after winning his second Super Bowl. He knew his time was up – and that he was lucky to have played a final season, to say nothing of going out on top.
Countries don’t retire, but right now it’s difficult to tell if the post-pandemic success of the United States is a prelude to another great season… or the end of an era.
Still, despite the challenges it faces, America will come out of the other end of the pandemic in a strong position… not necessarily because it’s doing well, but because everyone else is doing worse. And for now, that’s enough to “win” in the post-pandemic world.
May you find your way through the chaos.
Now here are some of the stories we’re reading…
How the Pandemic Is Permanently Reshaping Our Economic System for the Better
In a matter of weeks, COVID-19 spurred seismic shifts in how we work, learn, and transact, and it helped usher in a new era that is smarter and fairer.
Buying Homes Will Look Different After COVID-19
A growing number of Americans are considering fleeing cities for the suburbs. Video home tours, a trend that was already increasing, may become routine. And rather than gathering in a courthouse or office conference room, more and more buyers and sellers are signing documents remotely instead.
Why Does Zoom Exhaust You? Science Has an Answer
On video calls, looming heads, staring eyes, a silent audience, and that millisecond delay disrupt normal human communication…
Gary Busey: ‘I passed away after brain surgery. Then I came back’
When he was a contestant on The Celebrity Apprentice, Donald Trump concluded: “He’s either a genius or a moron and I can’t figure it out.”
And let us know what you’re reading at [email protected].
Chaos Chronicles Editor, American Consequences
With P.J. O’Rourke and the Editorial Staff
May 29, 2020