What Made America Great (and how do we get back there)?

I hear lots of rhetoric about how this party or that party is ruining America, and how American was great before this politician or that politician took power. Political group X is ruining out nation, but jump on board with political group Y because they are going to solve it. Lets step back from the rhetoric for a moment and discuss just what made American great, and what will be required to get back to that level of success. For the purposes of this post, let’s just define “great” in terms of wealth. Generally speaking, Americans had the purchasing power to get the best and most stuff. That is, they enjoyed the most stuff (automobiles, modern houses, personal computers, etc.), and even our poor live lives of luxury compared to the rest of the world (indoor plumbing, electricity, TV entertainment, etc.). Where did all this wealth come from?

The United States emerged as an international powerhouse just after the Civil War. Sure, we won the Revolutionary War (then lost, or at best stalemated in the War of 1812), but we were by no means competitive with Great Britain as an economic or military force. Two factors played a role in the United States’ emergence as a world power: access to natural resources and credit.

While most of Europe had pillaged their natural resources before ever arriving in the Americas, and certainly before the 1800s, the United States was only then gaining access to the Louisiana Territory, Oregon Country, and Southwest. Its native inhabitants lived on subsistence diets and did not view the environment with the same exploitative mindset that Europeans brought West. As the US took hold of all the resources in the West—precious minerals, lumber, water, etc.—the federal government subsidized its extraction and the economy boomed. Though the US entered the industrial revolution a smidge behind Britain we had far more resources to extract, process, and benefit from, and ultimately surpassed them. In 1890 Frederick Jackson Turner famously declared that the American West was closed because it had been settled and no longer held the unique characteristics once attributed to it (open land and resources for the taking). By then, however, the United States already achieved economic superiority over much of the world, and it took a few more decades to fully tap much of those resources. This, combined with isolation from Europe that tore itself to shreds and bought our food and weapons during two world wars, enabled the US to surpass all other nations in terms of economic wealth.

In the post WWII-era the US continued to symbolize economic wealth despite lacking the untapped resources it once enjoyed. How? The answer is simple: credit. Credit started to spread to everyday Americans in the late nineteenth century, but really it is in the mid-twentieth century that consumerism and mass credit emerge as the new resource which the US had in abundance. Americans bought houses and appliances and cars and all sorts of material possessions based on credit. Credit is essentially an early payment based on the trust that we are good for it. The problem is that credit spun out of control (an inherent characteristic of credit) and large segments of our economy (like the housing market) were propped up by this imaginary wealth. That all came crashing down two years ago.

So how do we get “great” again? We cannot re-create the first circumstances that led to American wealth and prestige unless we invade some underdeveloped nation and take all their resources—that was, after all, the gist of Europe’s (and the US’s) imperialist policies one hundred years ago. The second tool that led to the US’s greatness—the availability of credit—proved risky. It works for a while but then leads to a crash so that things can be based on actual wealth. It will probably build back up again, and crash again, and repeat. History has shown us that boom and bust cycles are the nature of fiat currency based economies. Ultimately, we cannot return to the over inflated levels of wealth, based on speculative credit, unless we again over-inflate our economy with speculative credit (and then we’ll also begin down the road to the next fallout).

So when politician X or Y says that the other one is to blame, and that he/she will fix it, they are just telling you the rhetoric that they think will convince you to vote for them. In reality, nobody can boost our economy back to where it was unless they (1) create more resources, or (2) jump back on the speculative credit-based economy that is destined to fail. Of course, the national budget and Americans’ personal budgets are all overly dependent on credit already, so it would be hard to infuse much more. There is one hope. New technology may open up new industries and, in a sense, create new resources (oil was really only a resource once the industrial age began; wind or water may become a greater resource with new environmentally friendly technology); however, we’ll never be able to re-create the extreme wealth that was tapped in the American West from 1800 to 1900.

The real solution to America’s problems is sustainable development, production, and consumption. It won’t be fast; it won’t be pretty; but it will be stable and safe. Unemployment may never drop to 3-4%, but it is quite possible that such numbers are only possible when you meet one of the two above criteria. Perhaps we may have to accept 5-7% unemployment, and it may take a while to even get there--I don't claim to know. I do know that we must learn to settle for living a little less affluent than our parents (less we rely on credit like them). Politicians can’t admit that, and American’s don’t want to either, so instead everyone promises better days and hope that gullible masses will follow, driven by thier own hope that it might be possible. The truth is, however, that we cannot live on credit forever, and it only brings heartache in the end. Don’t trust anyone with big promises or accusations—it’s just rhetoric to get them elected, not responsible management of the situation.