The Bush Economy, Part 2

More than one month ago, on December 12, I put out a blog on the failings of the Bush economy.(See the archive.) In the past week the failures of his economic policies have been driving down the stock market, and have prompted the head of the Federal Reserve to call for an economic stimulus package as quickly as possible.  Bush's immediate response has been to call for an across the board tax cut. Now, recall that the foolish tax cuts of his first year in office helped to over-heat the economy, and recall that these overwhelmingly favored the very rich. The immediate problem is not that these same rich people need yet another tax cut, but that relief is needed specifically by the middle class. More specifically still, people who bought houses recently need help in paying their mortgages. Rather than give a tax cut to everyone, in other words, Bush should be focusing on those families who are on the brink of going under. If they default on mortgages, the ripple effects will further destabilize the entire economy. What to do?

First, Congress should step in and guarantee mortgages, helping banks and borrowers to renegotiate the terms of their debt. Neither banks nor borrowers gain anything if the mortgage market collapse. Rather than just give some money to everyone, including rich people who already have received a terrific tax cut, and then hope that the economy as a whole will be stimulated enough to help people with big mortgages, why not attack the problem directly?

Second, Bush should admit that the US cannot afford to keep spending $1 billion a day in Iraq. There were strong military and strategic arguments against going into that war in the first place, but they made no impression upon the true-believers who directed policy. Perhaps the Republicans will listen to an economic argument, especially in an election year.

Third, the Democrats should seize this opportunity to attack the Republicans for their mistaken foreign policy and their failed economic policy. During the last week in the Nevada Caucuses we have witnessed some rather pitiful in-fighting, especially from the Clinton side. It is time to tell the American people just how bad a President Bush has been. The Democrats have to attack the neo-conservative policies that have weakened the United States financially and hurt its international image. Obama must move beyond "feel good" unity and hope toward a more detailed vision of what will change and how. And Clinton should stop crowing about her vast experience and start to show the American people that she has the courage to confront the Republicans and hold them accountable for their mistakes. 

Unfortunately, I doubt that any of these things will occur. In an election year Congress is likely to be distracted, and the Democrats may not want to rescue the Republicans. They may calculate that the worse the economy gets, the less chance there is for McCain or Romney or whoever it turns out to be. Nor should one expect that Bush will retreat from Iraq. He will no doubt stubbornly "stay the course," just as Richard Nixon stubbornly stayed in Vietnam, convinced that a victory and vindication would eventually come. Even if Bush suddenly did change his mind, it will take more than a year to get the troops out in an orderly fashion, and that $1 billion a day will continue to hemorrhage out of the economy. Finally, it seems that the Clintons may lower the tone of the Democratic primaries. Bill Clinton in particular has become more aggressive toward Obama. In contrast, McCain and Huckabee on the whole seemed to be take the high road of civility in South Carolina.  (But note the latter has begun to embrace the Confederate flag!)

In short, while the economic woes of the US continue to worsen, there is no clear sign yet of intelligent policy or good leadership from Bush. Meanwhile, the Democrats may squander the opportunity to lead in an internal war of attrition. 

Problems with maintaining American Hegemony

The phrase "The American Century" accurately suggests the rise to dominance of the United States between 1900 and 2000. It is unlikely that this dominance can continue long into the new century, however. There are two sets of arguments to support this prediction: those that have to do with foreign affairs and those which are domestic.

The United States was the world's greatest military power at the dawn of the new millennium and the predominance of English as the language of science, the Internet, and business, ensures a central place to the United States in the new century. Yet, its economy no longer produces one third of the world's goods as it did in c. 1920. The greatest opportunities for growth lie in Asia, where China and India each have populations four times as large as the United States. Both are nuclear powers, and China has an ambitious space program with the goal of a manned mission to the moon. The "tiger" economies of nations such as South Korea, Taiwan, and Malaysia have already shown that Japan is by no means the only Asian nation capable of mastering advanced technologies and competing in the global marketplace. At the same time, the launch of the Euro currency and the expansion of the European Union to include new members has created a counterweight to the NAFTA free-trade zone of the U.S., Mexico, and Canada. (On the other hand, Europe's population is aging and shrinking, its labor markets are less flexible, and its taxes are higher.) The U.S. economy continues to grow, but as a percentage of the world economy it will become smaller.

Not only is the U.S. economy becoming a diminishing part of the world's economy, but also the globalization of business is eroding the centrality of the American market. In one sense, this globalization represents the triumph of American business values. Yet globalization also lessens the importance of nations, merging them into larger markets and into international organizations. Environmental problems such as global warming and energy shortages will almost certainly increase the pressure to think internationally, rather than in more narrow, national terms. Smaller countries have learned this lesson already, but it appears to be difficult for larger nations to recognize their interdependence, and hardest of all for the United States, as the last remaining superpower, to do so. Regrettably, Washington has not been a leader in reducing global air pollution, for example, and the 2000 election campaign did not result in an environmentally sensitive administration. Quite the contrary. President Bush, as a former (failed) oil entrepreneur, wanted to drill for more oil on public lands and nature reserves. His cabinet has many ties to the oil and automobile industries, but few ties to computer firms such as Microsoft or Intel. George Bush tried to think parochially in his first administration, but was forced to admit that global warming does exist halfway through his second administration.

Which brings us to some domestic reasons why the United States may slip a bit from its position of global hegemony. While the economy remains dynamic, the objects selected for development are not those best suited for the long term. The huge American investments in private automobiles and highways have created a rigid infrastructure that sprawls across a vast landscape, in contrast to other nations that have invested in high-speed trains and public transportation that concentrate the population and give them more transportation choices. In much of the United States, walking to the store is impossible. Consumers have no choice but to use their automobiles even to make the smallest purchase. Americans cannot easily change their consumption patterns to respond to rising energy costs. In the marketplaces for housing, transportation and conveniences, the majority of American consumers have ignored long-term environmental problems such as global warming, and thought too little about the energy needs of the rest of the world, while insisting on their consumption (and pollution) practices. If you want to see what the US might have done instead, visit a nation like Denmark or The Netherlands. They are also buying more cars than they used to, but in a pinch they can take public transport or bicycle. 

This Blog explores many topics, but the question of how the United States will adjust to a gradual decline of its hegemony remains a theme throughout. This is written without any pleasure at the changes described. I am, after all is said, an American, born in the middle of the American Century, witnessing the next act in the nation's history.