I have two points to make about the relationship between economics and foreign policy. The first is to distinguish between the domestic economic and domestic political constraints on power; and the second is to argue for a new conceptual approach to the integration of politics and economics.

Political Constraints on American Power

Let’s begin with the first issue, the distinction between domestic economic constraints and domestic political constraints. The first has to do with the economic resources available to the U.S. government relative to those of other political units, economic growth rates, and the fiscal sustainability of the underlying growth models. The second has to do with the degree to which the political system can translate those resources into effective foreign and security policies. The latter might be thought of as a kind of discount rate applied to the former, and that discount rate varies for different political entities. Many of the discussions of American “decline” (or lack thereof) have failed to distinguish between the underlying economic base and the political discount rate. I believe that American society is not in decline because the overall situation of the economy is relatively strong, but that the political system has been subject to considerable decay.

Of the major political actors in the world today, the political discount rate is probably highest for the European Union (EU). The EU as a whole is somewhat larger in population and total gross domestic product (GDP) than the United States (though not in per capita terms), and it has had some success in turning that economic power into political outcomes (for example, in exporting its policies on genetically modified organisms, or GMOs, to Africa). But overall (and by design), it lacks a sufficiently hierarchical decision-making structure that can delegate power and resources to an executive. It is hard for the EU to be a strong unitary actor. This is the most true in foreign and defense policy, where its inability to stabilize the Balkans in the 1990s or prevent the United States from invading Iraq in 2003 were widely recognized. But this lack of political decisiveness also extends to economic policy, where the European Central Bank (ECB) has significantly weaker powers and autonomy than the United States Federal Reserve.

China’s discount rate, by contrast, is relatively low, since it is ruled by a relatively disciplined Communist Party that brooks no internal dissent. There have been some questions raised about the Party’s control over the People’s Liberation Army (PLA), but no real evidence that this amounts to a serious problem. China’s underlying economic power has been exaggerated, but has grown quickly and is rapidly being turned into political influence in East Asia.