Human Action

What Gives Rise to Society?

by Daniel James Sanchez

Robinson Crusoe is walking along the beach when he sees a little face looking up at him, half-buried in the sand. He digs it out, and finds that it is a little wooden statue of a pagan deity.

Friday is on the same beach, looking through a chest full of odds and ends that has washed up from a shipwreck. He finds a thick book with a cross on it. It is a King James Bible.

Later the two meet, see each other's finds, and agree to exchange them.

If the spirit of Aristotle were looking down from above, he might have (incorrectly) concluded from the exchange that the two goods were of equal value, reasoning that there would be no "exchange if there were not equality." [1]

On the other hand, the French statesman and economist A.R.J Turgot might have (correctly) concluded from the exchange that both parties must have considered the two goods to have been of unequal value: that Crusoe considered the Bible to be of higher value than the idol, and vice versa for Friday. This prerequisite for exchange is called a "reverse inequality of values."

As Turgot wrote,

Each would remain as he was … if, in his own mind, he did not consider what he receives worth more than what he gives. [2]

In other words, they would not have exchanged unless their respective scales of values looked like this:

Crusoe	Friday
I. Bible	I. Idol
II. Idol	II. Bible

Because with every voluntary exchange each party gives up a lower-valued good for a higher-valued good, every exchange is, by definition, mutually beneficial: a win-win situation.

Pleased by their increases in utility, Crusoe and Friday then look for other opportunities for exchange.

Both Crusoe and Friday have stores of timber and clay. Crusoe has five equal stacks of timber, and two equal piles of clay. Friday has the opposite: two equal stacks of timber, and five equal piles of clay.

We want our republic back

Eurocrisis: the politics of no-longer-great powers

The EU’s problems stem from a destructive attempt by its leaders to save out-of-date institutions.

By Bruno Waterfield 

Amid the uncertainty created by Europe’s sovereign-debt crisis, there is one thing we can be absolutely sure of: the Greeks won’t be getting to vote on the European Union’s ‘fiscal discipline’, the austerity medicine that is being rammed down their necks - and nor will anyone else. For the first time in the history of the EU, even governments that stand in the way of EU diktats have been toppled.

When the Greek government briefly floated the idea of standing against the EU orthodoxy, a coalition of Germany, France, the International Monetary Fund (IMF), the European Commission and the European Central Bank (ECB) threatened to plunge Greece into chaos. The result was that George Papandreou, the Greek prime minister, was summoned to Cannes last week to be told to step aside in favour of an unelected ‘national unity’ government.

The Greek leader had resisted strong behind-the-scenes EU pressure to suspend normal parliamentary democracy in favour of a unity government since June. But after his announcement that the Greek people would vote on the latest bailout plan, the campaign became open and explicit. Even after Papandreou abandoned his plan to hold a referendum, senior French, German and European officials demanded that he step down to allow for a ‘technical’ administration.

With a clear threat of economic force, José Manuel Barroso, the European Commission president, warned last Friday that unless the government was deposed by Monday, Greece would not be able get its next €8billion payment from the EU and the IMF, leading to national default and bankruptcy within a month. ‘What we expect to happen is to have a government of national unity’, he said. ‘What is the other option? Default and have real difficulties to pay wages to the public servants, to the schools, to the hospitals, which will lead to paralysis of the country. I am sure that the majority of the Greek people do not want this kind of chaos.’

Papandreou had to be overthrown for the mere suggestion that his government would allow voters, (especially in Greece, was the implication) to unpick decisions taken to uphold the common good of Eurozone financial stability. The EU’s demosphobia is based on experience. The question of referenda and referendum rejections has dogged the EU since the early 1990s, as its structures have become increasingly important to European governments. The Maastricht Treaty, which gave the European Union its name and created the euro, was only narrowly approved by a referendum in France known as the ‘Petit Oui’. The Danes voted No. In Britain, John Major’s Conservative government almost tore itself apart over the question of a British vote - a debate that is still haunting a new Tory-led coalition today.

In 2005, the EU was rocked when the Dutch and the French voted to reject the European Constitution, leading to a pact to make Europe a referendum-free zone (1). Only Ireland, due to a constitutional quirk, was allowed to vote on 2007’s Lisbon Treaty, the successor to the failed constitution. When that referendum was lost in 2008, the Irish people were told in no uncertain terms to think again by EU leaders. Ireland finally voted ‘Yes’ in October 2009 after being warned that if they rejected the treaty for a second time, the country would be destroyed by Europe’s deepening economic crisis. Just over a year later, the EU forced Ireland into a punitive EU-IMF austerity programme designed to help the central-bankers in Frankfurt rather than the people of Ireland, an irony that was not lost on millions of Irish voters (2).

It is worth taking a step back to look at how EU statecraft and institutions have come to give the current crisis its dynamic and severity. For the first time since the 1930s, a looming collapse of financial institutions holds out the real possibility of an economic crash alongside the reintroduction of force, or external compulsion, into European affairs as a political measure to ensure stability.

Uncharted waters and the compulsion of nations

The latest phase of the Eurozone crisis has taken European countries into uncharted and dangerous waters, where the EU openly talks of overthrowing or overriding elected governments and where compulsion has returned to relations between European states. The current crisis, manageable two years ago, has been made worse by the EU, whose institutions and decisions have generated and exacerbated tendencies that are now leading to a serious economic event.

The EU crisis is constitutional in origin. EU and Eurozone institutions are deliberately divorced from democratic pressures, including economic interests such as energy generators, manufacturing industry and research and development. As explained elsewhere (3), the EU has evolved as a mechanism for ordering politics in Europe, and relations between European countries, by insulating them from public accountability.

This development means that the entire European political order - established over the past two decades as a condition of German reunification, by the EU’s Treaty of Maastricht and by subsequent treaties - rests on a structure that is unable to deal with the practical exigencies of a real crisis.

Land and wealth

What Occupy Wall Street is getting totally wrong

The parallel fortunes of the 1 percent and the 99 percent

By Steve Chapman

If you want to know what motivates the people involved in Occupy Wall Street, you can get a good idea from Think Progress, a left-leaning website. It offers a map of the continental United States labeled, "If U.S. land were divided like U.S. wealth."

In this representation, 1 percent of the people hold title to most of the West and Great Plains area. Nine percent have a swath about the same size stretching from Minnesota south to Oklahoma and east to Maine. The other 90 percent of the population get only a narrow slice along the southern rim.

It's a stark, dramatic representation of the problem as OWS sees it. It's also a perfect illustration of the movement's economic misunderstandings.

Land, after all, is more or less fixed in supply. I can't obtain more of it unless someone gives up theirs. If the top 10 percent owned most of the land and barred everyone else from it, the rest would be pretty squeezed.

But wealth and income are not like land. To start with, they are not limited in supply — they can multiply many times over without end, and they have done just that. And, unlike with patches of soil, everyone can get more without anyone consigned to less.

There is not much more land in America than there was 50 years ago. But there is far more wealth. Since 1960, the total output of the U.S. economy, accounting for inflation, has more than quadrupled. Total physical assets have done likewise.

The conviction among OWS activists is that the rich have improved their lot by taking money from the not so rich — that wealth has been cruelly redistributed upward. What they overlook is that the real gains come from the creation of new wealth.

Steve Jobs did exceptionally well for himself, but he made the broad mass of consumers, here and abroad, better off in the process. Same for Sam Walton. What Oprah Winfrey created made her rich, but without her, those creations wouldn't have existed to entertain and gratify her audience.

Ten years ago, the richest person on Earth couldn't buy a device that does what the iPhone does. Today, anyone can get one free upon signing a two-year carrier contract. Entry-level cars are vastly better in amenities and reliability than your father's Cadillac decades ago.

Lifesaving and life-changing medicines and therapies once unknown are now commonplace. Food costs a fraction of what it once did. TV viewers used to have three channels to choose from. Now they have hundreds.

The wealthy are far better off than they used to be. But their improvement has not come at the expense of those down the economic ladder. Economists Bruce D. Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame find that over the past three decades, both the poor and the middle class have made substantial material progress.

"Median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009," they reported last month in a paper for the conservative American Enterprise Institute in Washington. Those in the bottom tenth of the income ladder enjoyed comparable gains.

Not that everything is copacetic. The Great Recession has wrought havoc on the middle class and the poor — eliminating jobs, reducing income and slashing the value of homes.

But if it's any consolation, the rich have seen their take shrink as well. Between 2007 and 2009, notes Steven Kaplan of the University of Chicago Booth School of Business, the share of all income going to the richest 1 percent of Americans fell by a full quarter.

The miserable reality today is not that the many are doing worse because our capitalist system is set up to fleece them for the benefit of the few. They are doing worse because the economy went through a cataclysm from which it has yet to recover.

When the economy crashes, it's those with the least education, fewest options and slimmest resources who suffer most. That's true, by the way, in noncapitalist societies as well as capitalist ones. In either, people who have done nothing wrong often suffer.

At moments like this, it's not surprising that many Americans would resent the wealthy and feel the urge to punish them. But the OWS demand for action against them is the equivalent of honking your horn when you're stuck in a traffic jam. It makes a lot of noise, without getting you anywhere.

Immortal fallacies

Typical Example of Media Mis-Reporting Trade Data

WASHINGTON POST — "The U.S. trade deficit fell in September to the lowest point this year as foreign sales of American-made autos, airplanes and heavy machinery pushed exports to an all-time high. The deficit narrowed 4 percent to $43.1 billion, the third straight decline and the smallest imbalance since last December, the Commerce Department reported Thursday.

Through September, the deficit is running at an annual rate of $558.2 billion, up 11.6 percent from the imbalance for all of last year of $500 billion. A higher deficit acts as a drag on economic growth because it means fewer jobs for American workers."  

MP: The story from the Washington Post above (emphasis added) is a typical example of how the media frequently mis-reports international trade data, for the following reasons:

1. Once we account for all international transactions including:  a) purchases of goods and services, b) investment income payments and receipts, and c) purchases of financial assets, there is an overall balance of U.S. international transactions, and the "balance of payments" account equals zero.  That is, the only way the media can report a trade "imbalance" is to completely ignore investment income, financial transactions and capital flows.  

2. The assertion that fictitious "trade imbalances," or "trade deficits" for only goods and services, are associated with "fewer jobs for Americans" is not supported by the empirical evidence.  According to research at the Cato Institute by Dan Griswold:

"Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose."

The Tunis expedition

Myths of Individualism

By Tom Palmer

It has recently been asserted that libertarians, or classical liberals, actually think that "individual agents are fully formed and their value preferences are in place prior to and outside of any society." They "ignore robust social scientific evidence about the ill effects of isolation," and, yet more shocking, they "actively oppose the notion of 'shared values' or the idea of 'the common good.'" I am quoting from the 1995 presidential address of Professor Amitai Etzioni to the American Sociological Association (American Sociological Review, February 1996). As a frequent talk show guest and as editor of the journal The Responsive Community, Etzioni has come to some public prominence as a publicist for a political movement known as communitarianism.

Etzioni is hardly alone in making such charges. They come from both left and right. From the left, Washington Post columnist E. J. Dionne Jr. argued in his book Why Americans Hate Politics that "the growing popularity of the libertarian cause suggested that many Americans had even given up on the possibility of a 'common good,'" and in a recent essay in the Washington Post Magazine, that "the libertarian emphasis on the freewheeling individual seems to assume that individuals come into the world as fully formed adults who should be held responsible for their actions from the moment of birth." From the right, the late Russell Kirk, in a vitriolic article titled "Libertarians: The Chirping Sectaries," claimed that "the perennial libertarian, like Satan, can bear no authority, temporal or spiritual" and that "the libertarian does not venerate ancient beliefs and customs, or the natural world, or his country, or the immortal spark in his fellow men."

More politely, Sen. Dan Coats (R-Ind.) and David Brooks of the Weekly Standard have excoriated libertarians for allegedly ignoring the value of community. Defending his proposal for more federal programs to "rebuild" community, Coats wrote that his bill is "self-consciously conservative, not purely libertarian. It recognizes, not only individual rights, but the contribution of groups rebuilding the social and moral infrastructure of their neighborhoods." The implication is that individual rights are somehow incompatible with participation in groups or neighborhoods.

Such charges, which are coming with increasing frequency from those opposed to classical liberal ideals, are never substantiated by quotations from classical liberals; nor is any evidence offered that those who favor individual liberty and limited constitutional government actually think as charged by Etzioni and his echoes. Absurd charges often made and not rebutted can come to be accepted as truths, so it is imperative that Etzioni and other communitarian critics of individual liberty be called to account for their distortions.

ATOMISTIC INDIVIDUALISM

Let us examine the straw man of "atomistic individualism" that Etzioni, Dionne, Kirk, and others have set up. The philosophical roots of the charge have been set forth by communitarian critics of classical liberal individualism, such as the philosopher Charles Taylor and the political scientist Michael Sandel. For example, Taylor claims that, because libertarians believe in individual rights and abstract principles of justice, they believe in "the self-sufficiency of man alone, or, if you prefer, of the individual." That is an updated version of an old attack on classical liberal individualism, according to which classical liberals posited "abstract individuals" as the basis for their views about justice.

Those claims are nonsense. No one believes that there are actually "abstract individuals," for all individuals are necessarily concrete. Nor are there any truly "self-sufficient" individuals, as any reader of The Wealth of Nations would realize. Rather, classical liberals and libertarians argue that the system of justice should abstract from the concrete characteristics of individuals. Thus, when an individual comes before a court, her height, color, wealth, social standing, and religion are normally irrelevant to questions of justice. That is what equality before the law means; it does not mean that no one actually has a particular height, skin color, or religious belief. Abstraction is a mental process we use when trying to discern what is essential or relevant to a problem; it does not require a belief in abstract entities.

It is precisely because neither individuals nor small groups can be fully self-sufficient that cooperation is necessary to human survival and flourishing. And because that cooperation takes place among countless individuals unknown to each other, the rules governing that interaction are abstract in nature. Abstract rules, which establish in advance what we may expect of one another, make cooperation possible on a wide scale.

Free market money

Will Western Civilization Rediscover The Moral Foundations Of Sound Money?

By Bill Frezza

What is money, and from where does it draw its value? This is a question Greece is facing as its people stare into the abyss. Our turn will come.

We are not the first to wonder. The 19th century French economist Frédéric Bastiat asked and answered that question in 1849, stating that money was a promise to “Pay the bearer a service equivalent to what he has rendered to society.” Note the past tense — a product or service must be rendered before money can properly come into existence.

Just as importantly, Bastiat recognized that equivalence was not fixed or even defined. Instead, it is up to the knowledge and judgment of each individual every time he or she engages in voluntary exchange. This freedom creates the information content that is known as a “price.” It is also how economies learn to effectively allocate resources and promote growth. Adam Smith dubbed it the “Invisible Hand.”

Wealth, or capital, is simply deferred consumption that is put to work. When done wisely, wealth multiplies, leaving more to consume tomorrow.

Money’s unredeemed promise might be tokenized by a paper note, a gold coin, or a few bits in a computer database. Every form of tokenization has its strengths and weaknesses. History demonstrates that the soundness of the token is directly proportional to the difficulty of its creation, as this helps ensure stability of the money supply.

The moral claim real money places on society on behalf of its bearer comes not from the intrinsic value of the token but from the fact that the bearer had previously produced some good or service deemed valuable by others. This is what gives money its moral legitimacy.

Western Civilization has forgotten this, and we are all paying the price.

Ironically, the inventors of democracy may be the first to rediscover the moral foundations of money, as barter networks begin springing up across a demonetized Greece. Hundreds of them are now in operation, many in anticipation of the shock to come when Greece is inevitably forced to say goodbye to the euro. These networks are lubricating commerce just as jobs and euros in the formal economy are running dry.

Members of barter clubs receive Local Alternative Units, or TEMs for their Greek acronym, in return for some product or service rendered to another member of the closed community. Fellow community members agree to redeem these TEMs in kind, and are cast out if they don’t. While it sounds primitive, and it is, TEMs are real money.

Through the use of TEMs, Greeks are becoming reacquainted with the moral foundations of money. “The most exciting thing you feel when you start is this sense of contribution,” a participant reports in a recent news story. “You have much more than your bank account says. You have your mind and your hands.”

Compare this to government fiat currency, which has largely displaced real money. Manufactured on the whim of unaccountable officials and rooted in government debt rather than private assets, fiat money is circulated, pyramid-like, through a fractional reserve banking system until its connection to reality is entirely severed.

Modern fiat currency fuels the growth of both government and the financial sector because it is not a promise to repay that which has been produced. Rather, it is a threat to squeeze the taxpayers of the future, including the yet unborn. And because the tokens can be manufactured at will, governments can harness the power of inflation to pay off their debts in coin that is worth less than the currency in which those debts were incurred.

Those near the source of modern money creation are expert at its manipulation, weaving it into complex financial instruments that function more like casino chips than real money.  Wealth accumulated under this system is not capital at all, but rather a pile of IOUs, the sum total of which can never be redeemed. When too many customers try to redeem these IOUs at the same time, financial institutions fail—unless these institutions are bailed out by governments, propped up with more IOUs. This can cascade until too many people try to redeem those IOUs, at which point governments begin to fail.

Which brings us back to Greece.

While more extreme in magnitude, what is going in Greece today is also going on throughout the Western world. Lined up like dominoes are other governments whose accumulated IOUs vastly exceed their ability to bully taxpayers into making good on them. Governments that squeeze producers and consumers too hard soon learn that growth suffers, making anticipated tax revenue evaporate before it is even collected.

It doesn’t have to be this way. But if we don’t learn from Greece’s mistakes we will surely repeat them. Let’s hope the rest of us rediscover the moral foundations of money before we are forced to experience barter clubs firsthand.

Food for thought

Biofuels: Fields Of Pipedreams

By Larry Bell

“Plant it and they will come.” Sure, but just when might we begin to expect those benefits; the ones promised with passage of costly federal legislation such as the Renewable Fuels Act (2005) and the Biofuels Security Act (2006)? We’re still waiting for some sign of taxpayer and consumer paybacks — or perhaps at least some hopelessly die-hard optimists are.

There is some indication that many members of Congress are beginning to join the pessimist camp. Last June the Senate sent a strong message to the U.S. ethanol industry in the form of an overwhelmingly bipartisan 73-27 vote as part of an economic development bill to eliminate its $6 billion of annual tax credit subsidies, along with foreign ethanol import tariffs. The House also voted 283-128 to bar public spending on special blender pumps and tanks necessary for higher ethanol concentrations — support the ethanol lobby has been seeking to replace tax credits and tariffs. Although bills providing such bans are unlikely to overcome White House vetoes, these sentiments may signal a different outcome when the current ethanol subsidy expires on December 31.

Ethanol refiners and other advocates typically cite energy independence as a compelling argument for the massive subsidies. Unfortunately, any notion that we can ever fuel our way towards energy security by planting waving fields of grain is seriously misguided.  Those who would have us believe otherwise grossly exaggerate potential capacities and ignore unpleasant consequences Both deceptions are prevalent in marketing hype that tells us what we might really wish to believe, namely that biofuels offer Earth-friendly, sustainable fossil alternatives that can wean us away from our “oil addiction.” Unfortunately, this is not the case.

For starters, let’s focus on corn ethanol (more commonly known as grain alcohol), since it is currently the only domestically-produced commercial biofuel. It really isn’t renewable at all when you consider that nearly as much fossil fuel-generated energy is required to produce it as it actually yields.

Then consider the land use requirements. An attempt to produce enough ethanol to replace gasoline altogether would require that about 71% of all U.S. farmland be dedicated to energy crops. By way of illustration, let’s just think about brewing all of our present U.S. corn production into 180-proof grain alcohol. That would displace, at most, about 14% of the gasoline we presently guzzle.

About 35% of the estimated 4.6 billion bushels of all U.S. corn grown this year will be consumed by the ethanol industry, producing nearly 14 billion gallons of alcohol. Congress has mandated that ethanol blended into U.S. gasoline will increase to 35 billion gallons per year by 2022. This will require that crop land dedicated for this purpose be expanded from 88 million acres now to about 233 million acres (slightly more than half of our 461 million acres total crop land to meet about 7% of our total automotive fuel needs).

Since U.S. farmland is scarce and expensive, each additional acre of corn used to produce ethanol is one less that is available for other crops such as soybeans and wheat, which have seen price increases of more than 240% over the past five years. This, in turn, produces a ripple effect that raises costs of meat, milk, eggs, and other foods with both national and international consequences. Since U.S. farmers provide about 70% of all global corn exports, even small diversions for ethanol production have produced high inflation levels in America and shortages abroad.

Cellulosic ethanol produced from switch grass and other low maintenance plant materials wouldn’t compete nearly as much for land needed for food crops, but has proven to be far more difficult to process than promoters have suggested. The generous government subsidies we have provided haven’t succeeded in nudging them anywhere close to commercial viability.

Ethanol also competes with people and livestock for water — lots and lots of water. It requires about 4 gallons of water to make one gallon of alcohol fuel. This is in addition to other water that production facilities typically recycle. Many Corn Belt regions where distillers are sited, particularly in the Midwest and the Great Plains, have already begun to experience significant water supply problems. Agricultural irrigation along with cattle feed lots located near the plants to take advantage of the co-product distillers grain add to local water demands. Consequently, aquifers in many areas are being depleted faster than they can recharge.

There’s also a big water pollution problem. Ethanol mandates are prompting more and more corn to be planted on land that is poorly suited for agriculture, causing erosion and pesticide runoff to infiltrate groundwater and aquifer resources. Rather than rotating corn planting with soybeans to replace soil nitrogen, many farmers are planting corn year after year and adding large amounts of nitrogen fertilizer. On average, about 30 pounds/acre of each 140 pounds/acre of nitrogen fertilizer leaches away and runs off into creeks, lakes and aquifers.  Even more runoff occurs when corn isn’t rotated with other crops because the soil develops clumps requiring more tilling that loosens it, resulting in more erosion. Some of that polluted runoff winds up in drinking water, posing special health problems for children and pregnant women.

And, unlike fossil fuels, wasn’t biofuel supposed to be “green.” Actually, it’s a lot browner than advertised. Even though ethanol fuel may produce marginally less CO2 emissions than gasoline does (in case you really care about that), this doesn’t account for the CO2 emissions released during corn planting, fertilizing, harvesting and distilling, which on balance, pretty much nullifies any difference. Burning ethanol also releases large quantities of nitrogen oxide (smog) that causes respiratory disease.

In fact there is growing evidence that biofuels may actually release more CO2 emissions than conventional petroleum-based petroleum does.

As reported in the journal Science, “Corn-based ethanol…instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years.” This is because big biofuel markets encourage farmers to level forests and convert wilderness areas that serve as CO2 sinks into farmlands.

Ethanol transportation imposes additional difficulties and costs. Unlike oil and natural gas, it can’t be moved through existing pipelines because it readily absorbs water and various impurities. Instead, it must be transported by truck or rail, either of which is more expensive.

Then there’s an ultimate problem with E-10 and greater ethanol blends, namely that they are lousy fuel. In addition to absorbing water, eating up fiberglass boat fuel tanks and rubber fuel line gaskets, clogging up valves and totally destroying small two-cycle engines, they deliver poor efficiency. (Trust your mechanic on these matters, not what you here from the Renewable Fuels Association trade organization.) Since the energy density is about one-third less than that of gasoline, more must be burned to produce the same amount of power, translating into reduced gas mileage per gallon.

So what about those promised benefits for us taxpayers and consumers? You may have surmised by now that we’re being hosed at the pump. According to a January 2010 Rice University Baker Institute for Public Policy study , the government spent $4 billion of our money in subsidies during 2008 to “replace” about 2% of our gasoline supply at an average taxpayer cost of $82 per barrel. That amounted to $1.95 per gallon on top of the average gasoline retail price.

It is high time to realize that ethanol alcohol clearly isn’t the big renewable and clean energy solution it was brewed up to be.

An epic bust is coming

China's Economy Goes From Boom To Bust

by IBD EDITORIAL

The news these days is filled with stories about the euro zone economies and their ongoing crisis. But another, potentially bigger and even more important crisis is brewing — this one in China.

Amid seemingly endless stories about the Chinese Miracle and how China's soaring economy is about to overtake the U.S. comes news that suggests the death of America as No. 1 may be exaggerated — and, in fact, may be dead wrong.

Indeed, China's economy may be on the cusp of a major growth reversal.

The cause: China's imploding real estate market. Since late summer, Chinese home prices have tumbled, partly a result of Chinese government policies intended to keep the economy from overheating.

Barclays Capital Research, the venerable British bank, predicts China's home prices will fall 10% to 30% next year, hitting the economy hard — and putting at risk the Chinese economy's 20-year string of 10% average GDP growth.

But that's only the beginning of the Big Cooldown.

Much of China's growth over the past three years has been fueled by a massive pile of debt. Chinese banks have lent an astounding $8 trillion since 2008 — an amount that dwarfs the Eurozone's $4 trillion in debt.

That debt binge is now abruptly ending as China begins to ratchet up interest rates and limit home-buying to keep prices in line. An epic bust is coming.

How big will the bust be? Earlier this week, the Conference Board predicted China's GDP growth will fall to 8.7% next year — about in line with Barclay's outlook.

But from there, if you're Chinese, things get scary. From 2013 to 2017, China's growth will average 6.6%. And after that, through 2025, it will average just 3.5%.

Doesn't sound so bad? Well, economists generally believe growth below 6% for China is tantamount to recession, given its huge debts, rampant rural poverty, tens of millions of underemployed, massive infrastructure investments and aging work force.

So, like fast-growing but overly indebted Japan before it, China may be entering a period of relative economic stagnation — marked by rising prices, increasing social pressures from rural Chinese seeking a better life in the big cities, and rising costs for its fast-aging population.

"If China's growth decelerates that fast, that far," wrote columnist Walter Russell Meade on his Via Meadia blog, "the biggest question in world politics won't be how the rest of us will accommodate China's rise. The question will shift to whether China can last."

That's quite a big change from headlines reading "China Will Overtake U.S. Economy" and "Age of America Nears End," both of which we saw just last summer.

Sure, China may dodge its economic bullet. But chances are it won't. And when it happens, China's bust will make the EU's — and U.S.' — seem tiny by comparison.