Economic Potential Energy

A recent Foreign Affairs article enumerates the many reasons that the United States will continue to enjoy its position as the world’s lone superpower, despite China’s gains in some areas.  The central argument of the piece is that the U.S. fosters innovation and economic incentives in a more efficient and effective manner than the PRC.  Of particular interest, and what many commentators miss when contrasting strengths of the two countries, is the underlying “potential energy factor” at play [my term].  By this, I mean that the U.S. is not only currently in a position of economic strength, but that its various inner workings, when fully harnessed, could continue to multiply its advantages in ways unavailable to the competition.

In physics, potential energy refers to “the energy that something has because of its position or the way its parts are arranged.”  When mapped to the world of international relations, the potential energy of nations means assessing precisely how positions and parts are arranged relative to other states or international bodies.  One’s position can be generally assessed against the rest of the world, or measured against a specific “other.”

The UN’s inclusive wealth index provides one such measure of potential energy, taking into account three factors: “(i) manufactured capital (roads, buildings, machines, and equipment), (ii) human capital (skills, education, health), and (iii) natural capital (sub-soil resources, ecosystems, the atmosphere).”  As the FA authors note, this measurement is far more illustrative than GDP alone, and produces a stark divide between the U.S. (~$144 trillion) and China (~$32 trillion).  Furthermore, the core U.S. advantages that underpin those figures are unlikely to erode in the near to mid future.

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Unfortunately, most examinations of the economies of the two states misses this important angle.  This is partially the result of analysis hamstrung by a dogged insistence on utilizing GDP as the sole measure of economic vitality.  In fact, a far more complete (and complex) picture is developed when we balance an examination of relative strengths between what is presently identifiable (via metrics such as GDP), and what ripples beneath the surface (as in the inclusive wealth project).  By using the latter measure, one is able to more fully grasp the present context while examining the engines whirring away under the surface.  It is often through this additional breadth of analysis that gravity, nuance, and vulnerability present themselves.

Inclusive wealth, while an incomplete indication of the true balance of potential economic power due to a failure to consider such issues as reserve currency, trade alliances, or political climate, is nonetheless useful.  In the defense world, parallels exist with the net assessment methodology pioneered by the legendary Andrew Marshall at the Pentagon’s Office of Net Assessment, advocates of assessing military might through means beyond simple quantitative measures of tanks, troops, and airplanes.  In economics or defense, decisions are best supported via a more holistic and integrated view than might be gleaned by a single measure alone; the comparison of a video versus a photograph.

As a thorough read of the excellent intellectual biography of Mr. Marshall reveals however, it is not merely enough to tack on additional metrics and average the sum.  A macro analysis of which factors are being considered, why they are selected, how they are measured, the psychology and culture at play, (and more) must be undertaken in order to ensure full analytic rigor.  After all, in defense or economics, a snapshot, no matter how vivid, can only capture a point in time.  It is the analyst’s job to bring that photograph to life, allowing the viewer to perceive a full range of motion… and perhaps even discern what might happen next.

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The views expressed in this blog are those of the author and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. Government.
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