Niall Ferguson: The Black Swan Investors Should Fear

Indeed, American views of the world reflect this downsizing even against the facts. Americans have regarded China as the No. 1 economic power since November 2009, though it is only this year, and only by one (disputed) measure, that China’s GDP has overtaken ours on a purchasing power parity basis.

Though the U.S. in actuality remains economically dominant, Ferguson says is likely that China will in fact overtake the U.S. within the next two decades because of America’s diminutive GDP growth rates.

“We are living through one of the most astonishing reversals of economic fortunes in economic history,” Ferguson said, noting the average American was 20 times richer than the average Chinese in the 1970 but just four times wealthier today.

And though the U.S. has demographic advantages over a rapidly aging China and a renaissance in energy production, the economic historian noted “two major manmade problems that will be persistent headwinds to U.S. growth as we go forward in the coming decades.” One is mounting U.S. debt, a trend which our political system seems incapable of arresting, and the second is education. While many point out that socioeconomically disadvantaged groups do worse on standardized tests, Ferguson noted that “even students in China whose parents are manual workers do better in math than the students of professionals in the U.S. … If you don’t think that will have a profound effect on the future economic performance of the U.S., you are dreaming.”

That educational deficit also has serious consequences for a nation whose citizens, polls show, have a hard time finding Ukraine on the map — a few of those surveyed even pointed to North America.

The reason why, according to Ferguson, is that while the president is sincere in his belief that policing the world is antithetical to peace, it is a wrong belief.

Already, more people have died in the Middle East under President Barack Obama’s 5 ½ years in office than under George W. Bush’s eight years.

Jihadist Islam has spread beyond the Middle East, even Ferguson’s native U.K, where London is an active Islamist hub.

Noting the kidnapping of Nigerian schoolgirls by jihadist terror group Boko Haram, Ferguson commented, bitterly:

“Tweeting a hashtag by the first lady from the White House: Is that our response to this threat?”

Similarly, U.S. passivity in Eastern Europe has emboldend Russia and ignores the fact that the U.S. has “many, many military options short of war.”

Ferguson’s biggest fear is in East Asia, particularly the increasing brinksmanship between China and Japan, which he says is aggravated by U.S. passivity.

To those who might argue that trade in the region is too important to yield to war, Ferguson quotes Japanese prime minister Shinzo Abe, who himself noted that the huge volume of trade between Britain and Germany in 1914 did not prevent those great powers from entering protracted military conflict.

Ultimately, the reason for that epochal conflict, Ferguson argues was geopolitical tapering on the part of the British, which led to an ambiguity in its foreign policy that the U.S. is imitating today.

“Not having a strategy, not needing a George Kennan, is the surest recipe for geopolitical disaster,” Ferguson said.

Monetary policy is a more popular subject of discussion at financial conferences than war and peace, and investors at a similar conference in 1914 would not likely have had much to say about war and peace either; but the historian concluded his talk with this warning:

“If there is one black swan you need to fear, it is the black swan that is going to fly straight out of Obama’s geopolitical taper.”

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Check out Niall Ferguson: 4 Reasons America Is Falling Apart on ThinkAdvisor.