Created on 17/6/2008
During those particularly American rites of passage, the Primaries and later, the election for President we tend to forget the bigger issues. What is happening to the USA and its place in the world?
The last few days have seen President Bush visit the UK and address his place in history. It was almost surreal to see the outgoing President standing shoulder to shoulder with our fairly new Prime Minister. In fact they looked as if someone must have got the running order wrong. The President looked great, almost floating a foot above the ground, whereas the Prime Minister looked like the world had just pooped on his head. Not a bad idea perhaps?
From the outside it might look as if the two big armed conflicts, in Iraq and Afghanistan, should be America’s principal concern. Although these are undeniably important, they pale into insignificance against the fast looming economic crisis that faces America. With a national debt of more than $2 trillion (that is two thousand billion dollars!) and a still staggeringly high balance of trade deficit, America will not, in future, be able to borrow and spend its way out of recession, and this could lead to leaps in unemployment, business confidence collapsing, and therefore a depression.
It is not that America cannot and does not manufacture anything anymore, which might be the common misconception, but it doesn’t make much for the consumer when compared to its new Asian economic foes. America still supplies the world with heavy machinery, big ticket, heavy, industrial items, creative industries output and raw materials. From the latest statistics it is still the world’s biggest manufacturer. The trouble comes from the fact that it is also, by much bigger margins, the world’s biggest consumer. There are several possible outcomes to this imbalance.
America could and maybe should work hard to increase its exports even further. This will be helped, and is, to a degree happening because of the shrinking value of the US $. Once the mightiest and simplest manifestation of American hegemony over the global economic system it is no longer anything but an embarrassment. Two months ago, in Mexico, I had my U.S. dollars rejected by Mexican shopkeepers who would once have been fighting for these symbols of American financial muscle. I remember the same thing once happening to me, in the seventies, with our pounds sterling, and it is a very unpleasant reminder that things are seriously wrong with your country and its place in the world order, when this happens.
On the plus side America is already fairly well placed in terms of its productivity and output levels. There has been good recent investment in plant and machinery, but as the recession bites there is a concomitant decrease in consumer demand that results in less need for this increasing efficiency. Investing more in infrastructure was the right thing to do, but it probably came too late in the economic cycle.
If America’s consumerism helped to fuel the recent boom in the economic cycle could its own rapidly decreasing consumer demand save it from itself? I doubt this is a possibility because the poor credit situation and the consequent lack of liquidity are presently locked in a negative spiral. It’s as if we have to beat ourselves up economically first, then we can look at the other side of the suffering.
Of course the best thing that America could do for itself as a short and medium term fix is to reduce the amount of everything it consumes. This would damage the rest of the world because we have become addicted to the drug that was created via America’s consumer spending. Long term America is going to have to reduce on almost everything it uses, or we are all going to have even more major problems. For example there just isn’t enough fuel in the world for it to be sustainable for about 20% of the world’s gasoline to be used on the freeways of California.
We have not come to the bottom of this economic downturn yet and one of its prime causes was the sub prime mortgage debacle from which there can be no easy escape. It is unavoidable that there will be more pain to come from the lunacy our bankers imposed on the rest of us with their profligacy and stupidity. Their greed seemed to make them forget their own rules and codes and common sense. Because there was big money to be had while the music played no one remembered that it was bound to stop. There were no soft landings to be found.
However poorly reported it has been Bush and Brown will have been told that there have been food riots in several countries around the globe in the last months, and similarly there have been further violent riots about the price and availability of oil products. We stand together on the edge of a general breakdown of international law and order, divided by days from disintegration.
The sovereign investment groups do have enough money to strap a financial parachute onto America’s back as it leaps into the precipitous drop into the money chasm so that their landing is cushioned. I’m not sure that they aren’t getting too much fun watching the US discomforted. The Germans have a word for it, “schadenfreude”, which means the sheer pleasure of observing someone you don’t like, suffer misfortune. The big funds come out of the oil rich Arab states, China and some other Asian success stories. I think they’ll enjoy America suffering. However, in the end where else is there for them to invest that’s a better, bigger investment opportunity which they can also enjoy living in if all else fails. America has gone from being the engine to become the envied lifestyle.
I have always liked America and what it has stood for historically. I don’t believe it has unfailingly done the right thing, but name a single country that has. It has tried to do the right thing on most occasions and that’s a big plus for the rest of us. America is, therefore, generally a benign influence and a guardian for what’s right and decent. Despite the protests against Bush for breathing in and out I am convinced that most people share my positivism towards the USA. My reason for saying this is not because there has been a poll on which I can base this argument; it’s subtler than that. But ask yourself what television and films you watch, what music you listen to, what games you play and books you read? The odds are enormously high that the vast majority of these will come from America. Add to this the shops, the clothing lines, the restaurants, fast food outlets and coffee bars, predominately from the States. We are culturally very closely linked to America, not because we have to be, but because most of us want to be. The sneering glitterati will stick their noses up at this argument as they despise America, but are nevertheless irresistibly drawn towards it.
Does this decreasing economic power of the American juggernaut lessen the country’s ability to dictate events politically on a global scale? Not yet, is the answer for now. America is still the sole superpower; able to project its power, economically, socially and militarily around the world, when and how it wants. But this will not continue to be the case if the American economy fails to get its own economic house in order. I think, on balance, that this is more than a desirable outcome if you love our western form of democracy and lifestyle.