SIX CHARTS

How We Kick These Four Addictions Without Crashing the Economy

America is facing a growing and increasingly unsustainable dependency on debt, China, digital technologies, and easy money.

opinion

Taking a break from elections, this week’s charts update our May 2023 analysis, “The Four Addictions.” There we observed America’s growing and increasingly unsustainable dependencies on debt, China, digital technologies, and easy money.

Our central challenge this decade is kicking these four addictions without crashing economies, stifling innovation or provoking wars. Here’s how things look 15 months later.

1. Debt: Outlook Worsened

Federal debt as a share of our economy is tracking to exceed the World War II record by 2027, with the U.S. spending more on interest payments than defense for the foreseeable future. While 2023’s bipartisan debt ceiling deal reduced future debt by $1.3 trillion over a decade, experts predict annual deficits over $2 trillion this next decade, no matter who wins the White House.

2. China: Outlook Worsened

While the U.S.-China bilateral trade deficit fell to its lowest since 2010, the world has grown even more dependent on goods made in China as the PRC attempts to export its way back to economic health. (Experts debate whether increased U.S. imports from third countries are merely re-routed Chinese goods). Expect ongoing trade wars (tariffs/export controls/investment limits) and rising geopolitical tensions regardless of who wins in November.

3. Digital: Outlook Mixed

There’s little sign of reduced digital dependencies and growing evidence of negative societal externalities, such as young people spending less time spent with friends (below). Yet some increasingly see AI enabling a much-needed productivity boom, with open source AI accelerating innovation and finally bringing competition to challenge long-dominant tech titans.

4. Easy Money: Outlook Mixed

“Easy money”—historically-low interest rates + central bank quantitative easing + persistent fiscal stimulus—encouraged excessive borrowing & reckless investing. With Japan’s central bank now joining the rest in quantitative tightening and the AI hype cycle slowing, the effects of tighter money are everywhere: rising consumer credit card delinquencies, near record office loan defaults, consumers spending down their savings at an accelerating rate, and housing at its least affordable in over three decades.

5. The Central Challenge

The interplay between these issues makes solving each harder. Policies that might address any single “addiction” likely worsen the others. For example, to reduce dependencies on China we’d spend more on defense and R&D (worsening deficits), penalize unfair trade via tariffs and export controls (increasing inflation, which tightens monetary policy), and accelerate tech champions (rather than protecting consumers or aggressively policing tech monopolies).

6. Reasons for Hope

While reducing these entrenched dependencies is difficult, it’s not impossible. The U.S. faces many challenges but starts with advantages few other nations possess. Bet against America at your own peril.

The face of warfare is radically changing, disrupted by accelerating digital innovation. These changes are redefining global security and geopolitical power. Chris Brose, Chief Strategy Officer for Anduril Industries, examines what these changes mean for America in “The Kill Chain: Defending America in the Future of High-Tech Warfare (2020)”

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Bruce Mehlman

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