In a previous posting I discussed the impact of the financial crisis on American hegemony. David Leonhardt has a nice follow-up piece on this issue.
At the turn of the 20th century, toward the end of a brutal and surprisingly difficult victory in the Second Boer War, the people of Britain began to contemplate the possibility that theirs was a nation in decline. They worried that London’s big financial sector was draining resources from the industrial economy and wondered whether Britain’s schools were inadequate. In 1905, a new book — a fictional history, set in the year 2005 — appeared under the title, “The Decline and Fall of the British Empire.”Leonhardt does bring up the resiliency of the American economy as a reason for hope, but at the same time mentions the burden of debt (or the cost of "financial overreach" as compared to Britain's "imperial overreach" per Niall Ferguson) cannot be escaped anytime soon.
The crisis of confidence led to a sharp political reaction. In the 1906 election, the Liberals ousted the Conservatives in a landslide and ushered in an era of reform. But it did not stave off a slide from economic or political prominence. Within four decades, a much larger country, across an ocean to the west, would clearly supplant Britain as the world’s dominant power.
The United States of today and Britain of 1905 are certainly more different than they are similar. Yet the financial shocks of the past several weeks — coming on top of an already weak economy and an unpopular war — have created their own crisis of national confidence.