40 years since the assassination of Robert F. Kennedy, America is confronted with the most thrilling prospect of political transformation. The unusually named candidate of mixed origin possesses unprecedented oratory skills and uses them to carry the promise of a spiritual renaissance, gaining the hearts and minds of idealistic intellectuals and not-quite-enfranchised black “minority” alike. Yet this remarkably enthusiastic, unlikely alliance labors within a nation sliding fast from its hard earned global pre-eminence. One does not have to espouse a Hegelian eschatology to notice that many of the pillars of America’s material prowess have been undermined - its artificial wealth propped up by successive asset bubbles, its sophisticated military machine capable of power projection around the planet and, last but not least, the dollar.
The creation of the United States was an eminently post-Enlightenment affair and in many ways, unlike its elder transatlantic cousins, the country has never lost its modernist optimism. Despite the dysfunctional character of some 50% of American families, the country’s citizens retain economically beneficial confidence and usually exude unparalleled faith in material progress. The systemic tolerance of business failure, the ethic of enrichment and the entrepreneurship rooted in the combination of frontier spirit and oft-lauded rule of law have all conspired against the prophets of gloom and doom. But the self-perpetuation of the system created on these foundations has been erected on much more dubious scaffolding – the centralization of the media since 1970s (dulling whatever residual curiosity into the exclusive focus on local news), competitively public displays of religiosity (as a ready-made label of “morality”), tacit promotion of recurrent asset bubbles (redirecting productive capital into ever thinner subsectors of the real economy), myopic tolerance of innumerable public taboos (“race”, “recession”, “lobbies”). No wonder conspiracy theories continue to thrive.
The oft-reiterated “hope” seems to assume that the transformation should come from the clean-up of special interests and from closing the gap between the young people’s enthusiasm for change and the well entrenched system of power brokers whose networking practices have durably distorted the work of the legislative and of the last two administrations. And indeed, this derivative political subsystem seems to have gained momentum since the early 1990s, something that the middle-aged (and anti-Bush) intelligentsia, gripped by the nostalgia for the tech-bubble era, often fails to recognize.
Coincidentally, these two decades may have also been the last easy period for a country whose underclass has swelled in numbers and in unhealthy obesity; a country whose public educational system has reinforced sharp divisions in advancement opportunities between various groups; a country whose workers have seen unprecedented wage compression and dug into debt facilitated by illusory home equity and a toxic credit market; a country whose tradition of wasteful resource management has led it to the brink of an energy crisis; a country whose lopsided remuneration system has pushed boardrooms to lobby for policies that shifted global capital flows away from democracies and into rival nations; a country whose current account is unable to recover from negative territory because it barely produces anything competitive that would be of value to its trade partners, and what it can produce in significant surplus, it cannot export for lack of adequate infrastructure; a country whose roads, bridges, power stations and phone networks crumble under years of underinvestment in appropriate physical and intellectual capital; a country whose political elites have for years focused on selected proxy issues of no concrete impact for the lives of most of its citizens; a country whose best educated nationals espoused extremist pet projects overseas and distorted US foreign policy through successful activities of influential and well-financed interest groups…
This astounding litany of woes would have sunken many a nation into a prolonged lethargy and economic depression. But not America, the land of ever diminishing opportunity, but opportunity nonetheless.
Should we, therefore, just “hope” that the US will simply readjust its domestic policies and assume again its dominant role in the world’s economic affairs? Not quite. One critical difference between this election and the last change in the White House lies in the shifts of global power that has occurred since.
There was a time where solipsism served America well. Small commercial travelers would crisscross this vast continent visiting accounts and seeking new clients. Big shot bond traders could always find domestic credit products to trade. Baseball World Series were what “the world” represented for Americans. The foreign, the exotic, the transoceanic were those poor places whose citizens sometimes owed America peace and sometimes owed it hamburgers. Otherwise, many of the unfortunate souls born in less blessed regions could, and did, find solace in immigration to this Promised Land. They brought their intriguing cuisine, worked hard and educated their children into mainstream success. The hosts’ total ignorance of the outside world and lack of interest in differences made these immigrants’ life easier than in other lands that periodically welcomed the shipwrecked. Despite occasional focus on border stalking militias and the probing, anti-terrorist infrastructure at the ports of entry, America remains a much more hospitable destination for new settlers than most of other developed nations.
But the ignorance of the world out there is no longer America’s asset. The tectonic shifts in the distribution of global savings since the beginning of this century and the accompanying changes in the industrial and military capabilities have made America’s deceivingly comfortable insulation a self-defeating proposition. Unlike in the 1980s, the country can no longer count on its allies to re-establish a lasting order in the currency markets. The flow of goods and economic factors is increasingly dominated by nations that do not perceive themselves as America’s allies. And unlike in the 1980s, the economy will struggle to revert the swelling of its trade account deficit, at least unless the unit costs in the inflation-plagued emerging markets meaningfully catch up with the costs of operating new industrial parks in the United States. Finally, as the importance of the financial services has grown exponentially in its contribution to the US economy, its incredible shrinking will not be easily replaced by other forms of economic activity.
This is a nation in manifold crisis. One day it may be the housing crisis and another day it’s “America’s oil crisis”. On both days, it will be poor people’s health crisis. 1/6 of the population lacks any health coverage but there is no shortage of ideological demagogues, such as Gary S. Becker, a widely respected 1992 Nobel Laureate in economics. During the run-up to 2004 presidential election Prof Becker notified American voters that economic theory does not warrant state’s intervention in the provision of health services. The market would simply govern the forces of supply and demand, dixit the Nobel Laureate. Never mind the efficiency loss, caused by the fact that a large chunk of the 45 million people left behind by the “market forces” cannot even afford eyeglasses.
This is a country, where you keep ahead of the Joneses. That means a house slightly larger than Joneses’, with impressive cubic volume to heat it in winter or cool it in summer (no Gulfstream or Kuroshio here, so the inter-seasonal amplitude is quite extreme). But the Joneses may not even notice that, courtesy a distorted power market, blessed with easily available natural gas and ubiquitous coal deposits. From these massive, oversize family houses, at least five times a week you have to out-drive the Joneses in your gas-guzzler, which runs on not-so-easily available gasoline, mixed with controversial (but available) ethanol. And when you do not, you are probably mowing your oversize and over-Jones-sized lawn, using a diesel-powered mower. The 1950s’ suburbanization of America was once the source of its strength, with ample land for greenfields construction and living standards considered “high”. Tragically, this has since promoted large-scale wastefulness and now caught the eyes of the nouveaux riches in fast developing emerging markets. The Zhangs and the Singhs are falling under the same illusion of unlimited space as perennially regenerative of equity and wealth. Watching the tiptoeing economies of resource-mindful Japan and Switzerland one could almost applaud.
For the most gifted American politician in 40 years, things will get only tougher. Not only because the famed Clinton machine will do its utmost to derail his campaign and reach out again to the matriarchs and Appalachians after another four lost years. Things will get tougher not only because more financial institutions will not be able to cover up their losses. No, things will get tougher because America will not be in a position to catch up with rising interest rates worldwide. As the hikes elsewhere increase the yield differential between various currencies and the dollar, the US energy bill will continue to rise, compounding the supply problems experienced by America’s two of the four largest exporters – Mexico and Venezuela. The constitution of the former slows down productive investment in its exploration and extraction capacity. The regime of the latter has fallen prey to a mirage of a just society, billing for the implementation of (well-intentioned, but lunatic) ideals the country’s oil monopoly. PDVSA’s days as a reliable oil supplier are counted. And then what? Blame the oil majors and the market speculators? These cheap tricks are poor populism and poorer policy yet, unless its proponents want to durably increase the volatility of their own pension fund accounts.
So while the current President will enjoy his 6-week vacation in Crawford, TX, the rest of the country will wonder what to do next, and so will the presidential candidates. In the short term, one could provide a shot in the arm by delivering necessary technology to the struggling oil industry in Venezuela and Iran. Alas, the former has a proven record of nationalizing natural resource assets, the latter is the currently most popular whipping boy in D.C. For as long as American Israel Public Affairs Committee and its messianistically obsessed Evangelical allies run the US foreign policy, any strategist suggesting economic engagement with the Tehran cranks risks Alan Dershowitz’s ire and instant political death.
In the longer term, the stabilization of fuel prices will depend on the demand destruction, but here the signals have been distorted, not least due to widespread domestic price controls imposed in the fast-growing emerging markets. Chinese domestic gasoline prices are between 40% and 70% below international prices, but the subsidies cost Beijing only 0.6% of GDP. As we have seen in Indonesia and India recently, these subsidies are a finite game, but they are unlikely to be removed entirely, at least not in China and the Gulf countries. With double-digit cost-push inflation spreading across Asia and former Soviet Union, the question of the subsidies may morph into a question of survival for the undemocratic regimes that run these economies. Despite the pressure from other Asian economies, China is unlikely to its “perfect” inflationary storm before the end of the Olympic Games.
America’s influence over the world’s affairs and over the world’s economy is at nadir. It is not through the illusion of force, projected by its deep blue navy or the PR appeal of its Hollywood flicks that the US will muster support for sustainable global policies, or bolster the Western, and allegedly universal values. Under the self-destructive excesses of the Clinton administration and the disastrous drift of the Bush-Cheney clique, today’s America commands at best fragmentary and grudging respect in the world. Thousands of miles away from the self-absorbed trailer parks stuck in the perennial wealth gap there is an urgent need for a critical, systemic shift in the perception of the United States. Barack Obama’s first six months in office, should he reach it, could deliver just that by taking out, even temporarily, some of the anti-American venom which has poisoned international relations for much too long and emboldened dictators, imperialists and religious fundamentalists around the globe.
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