Sunday 19 October 2014

Is America's decline a self-fulfilling prophecy?

National decline always manifests itself in the mind of a nation's citizens before it shows itself in any practical way. Perceptions often then shape the reality - much like in economics, these expectations define behaviour to such an extent that they become self-fulfilling prophecies. Pew centre research last year indicated that 70% of Americans believe that their nation’s influence around the world is declining. Perhaps more significantly, 48% of respondents believed that China was the world’s largest economy. This is well wide of the mark. Whilst Chinese GDP, in purchasing power parity (PPP) terms, is set to overtake the USA by the end of this year, PPP is little more than an indicator of relative prices – in dollar terms Chinese GDP is still $5-6 trillion less than the US figure of $17 trillion. Of course it is hard not to see China, with its population of 1.2bn, one day consuming an equal number of goods and services as the USA (population 300 million), but this is not an imminent event. There is clearly a deep sense of unease amongst Americans about how their nation's global standing has changed since 2007; it is indistinct and difficult to pin down, but two of the elements are as follows:

The first way in which perception has started to alter the national psyche is the attitude of Americans towards China. In many ways China has replaced the USSR as the necessary ‘other’ in the American national psyche. Like the USSR it is seen as authoritarian, a threat to the American way of life, mysterious and powerful. However, this time it is different. China – through trade – is seen as already having infiltrated the USA more successfully than Soviet spies ever did. I have had a series of increasingly bizarre conversations with American friends and relatives about China; the crux of these is ‘I don’t trust the Chinese but I don’t know why’. They then promptly pop along to Walmart to stock up on cheap, well-made Chinese goods. Like the USSR, China is seen as capable of surpassing the USA in the areas in which it prides itself (global influence, power and productive might). Essentially, they think Chinese strength will come at the expense of American weakness; that China will win this one. Americans are viewing the US-China relationship through cold war lenses partly because of a fickle and increasingly balkanized media. The American public has rarely been kept well-informed by its media, but the current media landscape is absurdly partisan. The truth is that no two nations have been so economically entwined in history as the US and China. Despite the barely credible headline growth figures, the truth is that China has struggled since 2008 to plug the gap created by weakness in its main export market and has resorted to a historically unprecedented fiscal and monetary binge in response. Essentially, a prosperous China = a prosperous America. Of course the relationship is far from plain sailing – bumps have been caused by cyber hacking and spying - but it is a great trading partner. Americans shouldn’t feel guilty when buying Chinese-made goods, but nor should they be jumping for joy at the prospect. It is a reality to be accepted like queues at airport security or the person in lectures who won’t stop asking questions. 

Secondly, there is a recognition that US political institutions, which were once the envy of the world, are in a deep malaise. Congressional deadlock is nothing new, but it is believed to be worse than ever - this is borne out by the facts. According to the Brookings Institute, during the 80th Congress (1947-8) fewer than 30% of significant issues were left unlegislated as contrasted to 70% in the 112th Congress (2011-12). There is a strong anti-political narrative that holds that all politicians are corrupt, selfish and in the pockets of donors. This is often an excuse for people to justify their disengagement and intellectual laziness. However, it is fair to say that the money and backing required to run for office does place an enormous strain on any legislator’s independence. Whatever the facts, people are clearly discontented with national politics.

Yet, in contrast to the widely believed narrative that the US has been in decline since 2007, in some ways it has actually increased its global dominance over the last five years. In recent years, the USA has strengthened its hold over the financial markets. Since November 2010 the Fed has added almost $2.9 trillion to its balance sheet; it is an interesting point in itself that this hasn’t been hugely inflationary, but significant also for the dependence on dollar liquidity that this has engendered. One only needs to remember the stock market crashes in Asian markets during the summer of 2013, the so-called ‘taper tantrums’, when the Fed first threatened to slow its monetary injections. Furthermore, the US has maintained its ability to police the financial markets. For those unversed in international finance, it is truly startling that US District Judge Thomas Griesa has been able to stop the payment of interest on non-US law denominated Argentinian sovereign debt from a New York courtroom. In fact the explanation is simple - because of the continuing dominance of US domiciled investors and the abject fear of commercial banks that their ability to clear dollar transactions might be suspended, US courts effectively exercise a worldwide jurisdiction. And, finally, it remains the world’s pre-eminent military power by quite a distance. Even if Chinese military spending exceeds its officially reported level, which it almost certainly does, they are several hundred billion dollars behind the US’ 2014 budget of $801.3bn. It speaks volumes for US power projection that the F-22 Raptor – developed in 2007 – was seen by military chiefs as too powerful for use until its recent debut in Syria. Of course there are pressing issues for the US military to address – such as its inability to close military bases or the cosy relationship between the Pentagon and arms manufacturers - but the perceived loss of US military might has much more to do with the choices of its Commander-in-Chief than any change on the ground.

That said, the picture has not been uniformly positive. The US has seen a marked decline in its soft power in recent years. Where once only words were needed to influence, cajole and prohibit, actions are now required.  Take the UN Security Council: although the USSR was by far the most common user of the veto, since its fall the Russian Federation has used the power very sparingly – however its recent persistence in blocking resolutions on Syria and Ukraine has been notable. Unsurprisingly, these are the two crises over which Obama has drawn red lines or made threats about consequences without any desire to back up his threats with military deployments. Furthermore, institutions crafted by the US at the Bretton Woods conference in 1944 have largely failed to reform and are rightly viewed with distrust in many parts of the world. The position of managing director of the IMF is still, somewhat bizarrely, reserved for a European, whilst European countries retain a massively disproportionate influence through the quota system – which determines votes and contributions. Both the IMF and the World Bank are seen as rigid adherents to austerity and fiscal discipline when it comes to third world nations, but far more willing to accept laxity in the developed world. In the face of Congress’ refusal to reform the IMF, efforts by Brazil, Russia, India, China and South Africa to create an alternative development bank should be applauded. If soft power has at its basis respect for cultural, political, governmental and societal systems, then dysfunctional Bretton Woods era institutions deserve their slide into irrelevance. 

In sum, the prescription is clear: the US must use hard power sparingly but more wisely and regain some of the moral credibility lost in Iraq. This must begin with extricating itself from what is shaping up to be a brutal war between Shias and Sunnis across the Middle East. Whatever their limited involvement might be in airstrikes against ISIS, Qatar and Saudi Arabia continue to fund ISIS as a bulwark against Shia Iran. Western countries can only further play into the narrative that they are against Islam by their participation. The comparisons between the Nazis and ISIS continue to pile in: whilst the massacring of innocents is always a justification for humanitarian intervention, the US has felt no great need to stop the Lords Resistance Army – which continues to kill with abandon in eastern Congo – or numerous other thugs around the world; why is this any different? On the domestic front, the separation of powers between the judiciary, legislature and executive needs re-examining in light of the partisan environment. However, in a land where the constitution is sacrosanct and rarely amended, such a fundamental change looks impossible.  Thankfully the vitality of the economy is largely out of politicians' hands and instead spread across 300 million shoulders. 

The world is moving towards an era with no clear global hegemon, but the US looks set to remain a first among equals for a while yet.

1 comment:

  1. The US is first among equals in the sense that the British were just before WWII. There are some serious structural problems. America's welfare state was funded on tax receipts from its working class; however, US trade policy has more or less outsourced that working class. The Chinese do not pay FICA taxes to the US Treasury. In spite of comparative advantages, these trade policies lead to strategic disadvantages. America relies on China for rare Earth minerals rather than mining its own. That gives China the upper hand in those situations.

    Large-scale projects are now routinely over-budget and take much longer than projected. Boston's big dig or the replacement of the Eastern span of the Oakland-San Francisco Bay Bridge are examples of how America isn't competitive anymore. It took uneducated hard laborers 4 years to build the Oakland-San Francisco Bay Bridge back in the 1930s, but it took 25 years to replace half the span after a serious earthquake. The bottom line is that countries like China don't have all of the political institutions like environmental groups, race-norming, labor practices, procurement rules, etc. that America does now. America may have the F-22, but we only have 140-150 or so, not a 4-5k plane wing.

    We still fly B-52s from the late 1950s, but we're retiring A-10s built in the 1970s. It's pathetic. We should be able to buy off-the-shelf jet engines for a 737 and build a new A-10 in short order. Yet, we don't have that ability. The procurement system is far too corrupt.

    We used to be able to put a man in space. We have no national manned space program either.

    Then you get to even weirder political grounds: the left pushes completely pointless notions like homosexual equality and homosexual marriage with the assertion that it was somewhow wired into our constitutions even though the founders of the United States would hang sodomites by the neck. Our political class is decadent and useless. I'm often puzzled as to why our enemies don't just attack us while we have such weak leadership.