U.S. -- Europe -- China -- Who Has The Best Future?

We now hear all the time about the best days being behind America.

Poll after poll shows that Americans are pessimistic about the bleak future we'll leave to coming generations.

That China will overtake us soon, if it hasn't already. And so on.

In the 1980s, the experts declared game over for the U.S. -- Japan was the proclaimed winner. After Japan faltered, next came a new winner -- Mexico. Now it's China.

But is it really?

Whose Economy Has It Worst?, co-written by Ian Bremmer and Nouriel Roubini, provides reason for optimism about America's economic future.

The current uncertain situation and future outlook for each of the European, Chinese and U.S. economies are described as follows:

"It's no wonder that global markets are so jittery. The world's three largest economies can't continue along their current paths, and everybody knows it. Investors watch nervously for signs that China is headed toward a hard landing, that America will sink back into recession, and that the euro zone will simply implode.

In all three cases, kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier. Which economy will be the first to stumble on its problems?"

Unsurprisingly, of the world's three largest economies, Europe is likely to be the first to fall by the competitive wayside. Its countries have too much culturally embedded socialism, several have too few prospects for sustained economic growth relative to sovereign debt levels, and throughout the continent there exists too little cohesive or coherent structural governance capability to deal effectively with the sovereigns' many problems.

Next to drop out of the race will be China. This may be surprising to some, but the reasons for China's second place finish are logical and threefold. Its dangerously heavy dependence on exports for growth, its emphasis on state and private fixed investment spending instead of focusing on individual domestic consumption, along with the communist party's state-directed model of capitalism, all bode ill for China's longer term economic future.

The article says this:

"China's growth remains dangerously dependent on exports to Europe, America and Japan.

To ensure long-term economic expansion (and political stability), Beijing must figure out a way to encourage Chinese consumers to buy more of the products that local manufacturers make. This will demand a massive transfer of wealth from the state and China's state-owned companies to Chinese households.

But Beijing is moving in the opposite direction. The leadership responded to Western market turmoil not by boosting consumption but by increasing state and private spending on fixed investment, which now accounts for nearly half of China's growth. The result has been an explosion in residential and commercial real estate, more state spending on infrastructure and more cheap loans from state-owned banks to state-owned enterprises.

Indeed, a key obstacle to reform is that China remains so heavily invested in its state-managed model of capitalism. Of the 42 Chinese companies listed in the 2010 edition of the Fortune 500, 39 were state-owned enterprises, and three quarters of China's 100 largest publicly traded companies are government controlled. Party officials with a stake in the success of state-owned enterprises have amassed considerable power within the leadership, and they ferociously resist efforts to transfer away their wealth to private enterprises and ordinary citizens.

China has the cash and foreign reserves to postpone a crisis. But growth is slowing, financial stresses are rising, and there is good reason to fear that China's days of can-kicking are numbered as well."

That leaves the U.S. as the winner. Numero uno. But why us?

Briefly here's what the authors say about the U.S., including the demographic advantage associated with a relatively young workforce:

"Which leaves the U.S. No one can restore confidence in America's long-term fiscal health without a credible plan to cut spending on entitlements and defense while raising revenues, which are now at a 60-year low as a share of GDP. But don't expect any immediate solutions from Washington. The campaign season will only exacerbate petty partisanship and political gridlock, which means that the structural problems of the U.S. economy are likely to persist.

But the longer-term future appears much brighter for the U.S. than for either Europe or China. America is still the leader in the kind of cutting-edge technology that expands a nation's long-term economic potential, from renewable energy and medical devices to nanotechnology and cloud computing. Over time, these advantages will yield more robust economic growth.

The U.S. also has a demographic advantage. In Europe, declining birthrates and rising sentiment against immigration point toward a population that will shrink by as much as 100 million people by 2050. In China, thanks in part to its one-child policy, the working population has already begun to contract. By 2030, nearly 250 million Chinese will have passed the age of 65, and providing them with pensions and health care will be very costly.

Despite debate over illegal immigration, the U.S. population will likely rise from 310 million to about 420 million by midcentury. . . .

Finally, despite the rising exasperation of the American public, the U.S. is significantly more likely than Europe or China to quit kicking the can down the road. Nothing much will change during the election year, but 2013 offers a chance for real fiscal reform."

This all makes sense to me. In the end, we will do the right thing, and that means that the free market entrepreneurial approach will win the global race again. I can't wait for 2013 to get here.

In the meantime, let's hold our noses and hope for the best while planning for the worst in 2012.

Thanks. Bob.