- Jiang Xueqin’s May 5, 2024 class argues that the United States’ transition from a manufacturing republic to a global empire after 1991 is the root cause of its current economic and political decay, and that this imperial logic is now driving America toward a war with Iran that it will lose, permanently reshaping the global order.
The American Republic at its peak (1950–1980)
- From 1950 to 1980, the U.S. economy was manufacturing-centered: manufacturing accounted for roughly 40% of GDP and employed 30% of the workforce.
- This era produced the wealthiest, best-educated middle class in human history: a single factory worker could afford a house, a non-working spouse, multiple children, two cars, vacations, and a secure pension on a 40-hour workweek.
- American workers during this period were, in material terms, better off than elites in Africa, Asia, or South America.
The shift to a financial economy
- After 1980, the Reagan Revolution and neoliberalism (free-market primacy and deregulation) reoriented the economy from manufacturing to finance.
- Today, financial services account for 22% of GDP (versus manufacturing’s 10%) and generate 40% of all profits while employing only 5% of the workforce.
- This “financialization” has had several major consequences:
- Political power shifted from organized labor and the middle class to Wall Street and a coastal, Ivy League-educated “Professional Manager Elite” concentrated in cities like New York, San Francisco, Washington DC, and Boston.
- Education and talent are misallocated: top graduates, including PhDs in statistics and AI, flock to hedge funds and Wall Street rather than productive sectors like technology or science.
- The economy became speculative rather than productive: financial services essentially gamble with or invest existing money rather than create new goods or value.
- Economic instability increased: the dot-com crash (2001), the subprime/financial crisis (2008), and recurring bank failures are symptoms of an economy driven by asset bubbles (housing, stocks) rather than real production.
- Inequality widened dramatically: the top 1% capture a growing share of wealth and profits.
- Social mobility collapsed: young people face a “rentier economy” where they can never afford to buy a home and can only rent, eliminating the traditional path from labor to ownership.
How empire caused financialization
- The standard explanations for financialization—“late-stage capitalism” or neoliberalism alone—are incomplete. The deeper cause is America’s transformation into a global empire after the Soviet Union collapsed in 1991.
- With no rival superpower, America could set the rules of the global economy so that it would always win, causing global wealth to flow into the U.S. and inflating asset prices.
- Bretton Woods (1944): the U.S. dollar was established as the global reserve currency, initially backed by gold.
- Nixon ended the gold standard in 1971 because of overspending on Vietnam, the space race, and domestic programs. The dollar’s value was preserved by transitioning to the petrodollar: Middle Eastern oil producers (especially Saudi Arabia) agreed to sell oil exclusively for U.S. dollars.
- Post-1991 trade theory vs. reality:
- The theory: trade allows each country to specialize in its comparative advantage, and over time wealth “tricksles down” to workers in poorer countries, who then buy goods from rich countries, balancing the system.
- The theory also predicted capital would flow from rich to poor countries for higher returns.
- In reality, elite capture in countries like China means trade-generated wealth does not reach workers; wages have stagnated for 30–40 years.
- Instead of reinvesting in their own economies, elites park their wealth in the U.S. because it is the safest place—the dollar is the global reserve currency, and the U.S. military guarantees security.
- Result: global wealth concentrates in the U.S. Today, the U.S. holds roughly 60% of global stock market wealth; Japan, the next largest, holds only 6%, and China—the world’s second-largest economy—holds just 3%.
- This flood of foreign capital into the U.S. created the asset bubbles and speculative finance that define the current economy. Wall Street profits not by growing wealth but by charging management fees on increasingly risky assets, incentivizing speculation over prudence.
The national debt and why creditors tolerate it
- U.S. national debt is approximately $34 trillion (about one-third of GDP), with roughly half owned by foreign creditors (Japan holds about $1 trillion, China about $800 billion).
- Interest on the debt costs $1–2 trillion every two to three months; there is no realistic path to repayment.
- Creditors continue buying U.S. Treasuries for three reasons:
- The petrodollar system means the debt can still be used to buy oil.
- The U.S. military is unchallenged, so the money feels safe.
- There is literally nowhere else to park such vast sums of money.
- In theory, this could continue indefinitely—the debt could grow to $340 trillion—because America is an empire.
The Ukraine war as an existential threat to the empire
- Russia’s invasion of Ukraine is a direct challenge to American imperial dominance. Putin’s message: the empire is a “paper tiger,” and its invincibility is a myth.
- If Russia succeeds, the foundational beliefs that sustain the empire—that America is invincible, that the dollar is safe—will be destroyed.
- The war is going badly for the U.S. and Ukraine; it is nearly over.
Why America cannot simply reindustrialize
- Returning to a manufacturing economy would solve America’s problems: it is self-sufficient in resources and would not need to rely on global trade or foreign creditors.
- However, reindustrialization is effectively impossible for three reasons:
- Political resistance: the financial sector now holds all the political power and will not accept a return to an era when manufacturing and labor dominated.
- Cultural/speculative mindset: young people prefer speculative activities (e.g., Bitcoin) to factory work, because speculation offers the hope of quick wealth while factory labor requires decades of hard work just to afford a house.
- Logistical and investment challenges: rebuilding factories and the supply chains to move goods would require enormous capital and time (estimated at roughly 50 years).
Why invading Iran is the “easiest” imperial option
- America cannot fight Russia directly (nuclear weapons) and cannot reindustrialize (political and cultural barriers). Invading Iran is, within the logic of empire, the most viable remaining option.
- An invasion would accomplish three things:
- Restore the perception of military invincibility, reassuring foreign investors that the dollar is safe.
- Secure the petrodollar: Iran is the world’s fourth-largest oil exporter; controlling Iran (and by extension Iraq and the surrounding region) means controlling the oil that underpins the dollar’s value.
- Control global trade routes: most of the world’s shipping passes through that region.
- The deeper motivation is to prevent the financial economy from imploding. If China, Japan, and other creditors lose confidence and sell their U.S. Treasuries, America would face both a sovereign debt crisis and the loss of “easy money.”
- America is described as an empire addicted to easy money: people have grown so accustomed to making millions through speculation that they cannot tolerate a return to productive labor. This addiction is what will drive the decision to invade Iran.
Imperial hubris and the inability to imagine defeat
- Empires suffer from imperial hubris: they impose their own reality on others, creating a feedback loop in which no one can tell the empire the truth.
- Because an empire’s power depends on the belief that it is invincible, it cannot internally entertain the possibility of collapse—if it could, it would never collapse.
- A thought experiment: given the choice, most people would rather be “stupid and arrogant” than “smart and strategic,” because arrogance feels good while intelligence brings self-doubt and depression. Empires, like individuals, choose the path that feels good, which is why they refuse to consider that they could be wrong—and why they eventually collapse.
Historical arc of the American empire
- The empire began to take shape after World War II, when America controlled half the world, but it was constrained by the Cold War.
- From 1950 to 1980, America treated its workers well not out of generosity but out of fear: the real threat was not the Soviet Union itself but communism as an opposing ideology that could inspire worker revolts.
- After the Soviet Union collapsed in 1991, there was no longer any opposing ideology to capitalism. America no longer feared internal revolt or external challenge, allowing the empire to operate without restraint.
- The perception of American invincibility held until Russia invaded Ukraine. That event emboldened challengers: Hamas’s October 7 attack on Israel, for example, would likely not have occurred without the signal that America could be defied.
- America now feels compelled to act—to prove it is still the world’s foremost military power—not out of strategic necessity but to protect the financial system and the imperial self-image that sustains it.