Whether you ultimately agree or disagree with his conclusions, this essay by John Gray of the London School of Economics in today’s Globe and Mail is a succinct statement of the deep issues confronting the American political economy.
The fate of empires is very often sealed by the interaction of war and debt. That was true of the British empire, whose finances deteriorated from the First World War onward, and of the Soviet Union … Despite its insistent exceptionalism, the United States is no different. The Iraq war and the credit bubble have fatally undermined U.S. economic primacy. The United States will continue to be the world’s largest economy for a while longer, but it will be the new rising powers that, once the crisis is over, buy up what remains intact in the wreckage of the U.S. financial system …
The irony of the post-Cold War period is that the fall of communism was followed by the rise of another utopian ideology. In the United States and Britain, and to a lesser extent other Western countries, a type of market fundamentalism became the guiding philosophy. The collapse of U.S. power that is under way is the predictable upshot. Like the Soviet collapse, it will have large geopolitical repercussions. An enfeebled economy cannot support the United States’ overextended military commitments for much longer. Retrenchment is inevitable and it is unlikely to be gradual or well planned.
Meltdowns on the scale we are seeing are not slow-motion events. They are swift and chaotic, with rapidly spreading side effects … A U.S. retreat from Iraq will leave Iran the regional victor. How will Saudi Arabia respond? Will military action to forestall Iran acquiring nuclear weapons be less or more likely? China’s rulers have so far been silent during the unfolding crisis. Will U.S. weakness embolden them to assert China’s power, or will China continue its cautious policy of “peaceful rise”? At present, none of these questions can be answered with any confidence. What is evident is that power is leaking from the United States at an accelerating rate. Georgia showed Russia redrawing the geopolitical map, with the United States an impotent spectator.
Outside the United States, most people have long accepted that the development of new economies that goes with globalization will undermine the country’s central position in the world. They imagined that this would be a change in the United States’ comparative standing, taking place incrementally over several decades or generations. Today, that looks an increasingly unrealistic assumption.
Having created the conditions that produced history’s biggest bubble, U.S. political leaders appear unable to grasp the magnitude of the dangers the country now faces. Mired in their rancorous culture wars and squabbling among themselves, they seem oblivious to the fact that U.S. global leadership is fast ebbing away. A new world is coming into being almost unnoticed, where the United States is only one of several great powers, facing an uncertain future it can no longer shape.
The ultimate outcome of this ongoing financial crisis will be a new and different geography of capitalism – within nations and across them.
October 2nd, 2008 at 12:52 am
This is a good analogy of our situation. Most alive today have not experienced and thus cannot comprehend the profound changes and major decisions that need to be made. This is a transitional economy that is shifting from one era dominated by the US and our consumer oriented glutted lifestyle… to a new highly mobile global system. The end result will be a drastically different lifestyle for many in the US and abroad. The current financial melt down was first bought and paid for by our corporate modern day robber barons who asked government to get out of the way. Well they did and now when the market economy folds they want the bailout that they alleged they could manage better than any regulatory overseer. We have to fix our banking, credit and trade system and then address our tax code and invest in new innovation infrastructure that will rebuild our prowess. Alas, I fear our monetized political system that is driven by special interests will not make wise and prudent decisions to empower a new Green technology and energy revolution to meet its potential and revive our nation.
October 2nd, 2008 at 1:20 pm
Mr. Gray is absolutely right… and for that matter so too was Jane Jacobs in 1984. You simply cannot spend more money than you make (especially on transactions of decline: unearned transfers of city earnings, unremitting military expenditures, and forced advanced-backward trade) for extended periods of time and expect that you will not eventually suffer economic consequences (ala Rome, Spain, Holland, France and Britain)
If we want to end the related threats of Islamic extremism, the enormous global transfer of wealth, our rising federal deficit, and our dependence of foreign energy, then I believe we must solve our energy crisis.
Our demand to supply situation with regard to petrol is the root of nearly all of our current problems and is the reason for our current decline. We (I am referring to the US here) are simply putting band aids on gaping wounds by trying to impose control over the world oil supply for our benefit.
I am not so gloomy, however, as to declare the American era over because there is one way out…. innovation. If we could simply produce our own energy, many of our current problems would wither away, and our era would not be over, at least for now.
I often wonder what would happen if we could go back in time and spend the half trillion dollars that we spent destroying things in Iraq on creating things (specifically energy alternative) in the U.S.
We obviously cannot, but damn, why don’t our leaders recognize this?????
Am I just way off base and wrong here or something?
October 2nd, 2008 at 2:31 pm
This is a great article. There is another factor at work as well I think.
For several decades now, many of Americas leading companies and industries have been able to use political clout to avoid facing global economic, business and technology realities.
Take the automobile industry. Rather than innoviate to quieter, more reliable and more fuel efficient vehicles — not to mention better ways to manufacture them — as Toyota and other global players have done, the big three lobby for legislative assistance and handouts that allow them to avoid change: The cheapest gasoline in the industrialized world; the US sprawling freeway system (both of which allow for bigger vehicles than policies and economic realities in the rest of the world); tariffs on foreign imports; fighting legislated fuel efficiency standards; etc.
The end result is a barrier preventing Americans from being a part of a global economic shift until it becomes a “revolution” or “shock” rather than gradual change.
Continuing to reassure voters that they are “the best and most efficient workers in the world” or that “the american economy and businesses allow for the most innovation” (to paraphrase babble heard out of both political camps) may make the pending downfall that much tougher on “main street”.
October 2nd, 2008 at 3:38 pm
Oh yeesh – just start with the conclusions and work backwards I suppose.
“The irony of the post-Cold War period is that the fall of communism was followed by the rise of another utopian ideology. In the United States and Britain, and to a lesser extent other Western countries, a type of market fundamentalism became the guiding philosophy. The collapse of U.S. power that is under way is the predictable upshot.”
OK, let me see if I have this right. The American rise to greatness was based on sensible economic philosophy, but, like the Soviets before us, we fell prey to a utopian ideology, and began turning to ‘market fundamentalism?’
Wow.
I would love to hear Mr. Gray’s depiction of the US from 1776 to World War II.
Outside of the exceptional period of Mr. Roosevelt’s reign, with price controls and 94% marginal income tax rates on the highest earners, the current US economy is HIGHLY regulated relative to every other period in American history.
But seriously, even if you do believe that deregulation, low taxes, etc. is part of a utopian ideology dubbed “market fundamentalism,” you must acknowledge that America’s economic ascension from its birth was precipitated on having the least regulated and least taxed economy of its time?
Yeesh, and just the language of this is jarringly misleading.
“A new world is coming into being almost unnoticed, where the United States is only one of several great powers, facing an uncertain future it can no longer shape.”
Huh? When, praytell, was the future not “uncertain” and when could the US “shape” it? When we were hiding under desks to practice for the Ruskies? During the glory years of Vietnam? The oil crisis of the 70’s?
When we were bombed to finally draw us into World War II? I suppose our invasion of Normandy and eventual victory in WWII was ‘certain?
How about the depression? World War I? Certainly held our future in our hands then…
19th century?
Unfortunately, Mr. Gray is suffering from a bad case of sensationalism, buttressed, as always, by a wonderfully mistaken nostalgia.
The world has always been multipolar, and thanks partly to the US’ efforts, we are seeing even more poles springing up. Zakaria does an excellent job describing this phenomena as the ‘rise of the rest’ in The Post-American World.
Mr. Gray comes off like an over-excited undergrad.
October 3rd, 2008 at 9:55 am
Over-excited undergrad or not, he is right (albeit implicitly) about 1 fundamental thing. Unremitting military expenditures, perpetual transfers of unearned urban wealth, and forced advanced-backward trade brings down “empires”. I cannot think of even one counter example in documented history. Can you?
At no point in U.S. history, pre-WWII, did the U.S. engage in such activities to the extent it does today.
Is it, then, a coincidence that the U.S. rose then and contracts now?
November 27th, 2008 at 10:20 am
It’s always a bad idea to fight a war without paying for it. Johnson and Nixon tried to do it and it led to the dark days of stagflation. The difference here is that unlike Vietnam, Iraq is actually a resource rich country that will be able to ‘pay’ for its security. As for the current financial panic, like all panics, it is a crisis of confidence. It will resolve once everyone calms down and gets back to work. The US will continue to lead – not because of any special policies but in spite of them. Let the people just get on with it and stay out of the way. First, do no harm.