Washington may have cut an unlovable deal to avert a default on its debts, but U.S. and global stock markets are tanking anyway. That’s because the measures agreed Tuesday can’t reverse the slide of the U.S. economy — its fundamentals, to use a phrase beloved by politicians, are less than sound. So, what the world sees in America’s current plight is a superpower on the skids, and with it comes the inevitable dimming of the unrivaled global influence Washington has enjoyed since World War II.
Consider: With 22 million Americans un- or under-employed, GDP growth in the first half of this year was less than 1% — pretty much stalling speed, at which unemployment is more likely to increase than to decrease. And growth could shrink even further if cuts in government spending take more money out of the economy. America’s economy depends, for two-thirds of its growth, on consumer spending, which fell last month for the first time in two years. Depressed demand is at the center of the economy’s slump.
Laying off teachers, firemen and police officers to cut public spending further shrinks Americans’ buying power, taking money out of the economy and further suppressing demand. Consumers are not spending more because they don’t have jobs or fear losing them, and have seen the value of their homes and savings depleted. And businesses won’t invest and create jobs to expand output for which demand is shrinking. That’s why many economists warn that cutting government spending right now actually increases the chances of an even deeper recession.
If so, the resulting fall in government of tax revenues will see the national debt actually increase.
So what lessons will the geopolitical ‘stock market’ take from Washington’s summer of discontent?
1. ‘Nation Building at Home’ is Going About as Well as Nation-Building in Afghanistan
The very nature of the deal struck to avoid a debt default has set up a recurring series of ambushes, skirmishes and full-blown pitched battles over government spending for the remainder of President Obama’s first term, with Washington appearing increasingly ungovernable. Former CIA operative Paul Pillar compares the struggle over the debt default to a classic hostage situation, warning that by allowing a minority of Tea Party conservatives to set the national policy agenda by threatening to blow up the U.S. economy, President Obama has broken a cardinal rule by giving extremists much of what they want, effectively inviting his enemies to strike again, and again, and again.
For the next 15 months (and possibly long beyond), Washington will remain incapable of providing decisive leadership to chart a way out of its domestic economic crisis, much less on global challenges. And its plain to see, for both rivals and allies abroad, that a political system in thrall to the shibboleths of free-market fundamentalism will not allow itself to make the massive investment in infrastructure, education and industrial policy necessary to restore long-term U.S. competitiveness.
2. If Pummeling Obama Worked for the GOP, Why Not for Foreign Government?
To a foreign observer, the debt showdown — and the two years of partisan brawling that preceded it — would suggest that much of the opposition barely accepts Barack Obama’s legitimacy in the presidency. Pillar warns that the Cold War ethos that “politics stops at the water’s edge” has given way to a politics that deems it advantageous to diminish the political authority of the president — a lesson that will be taken on board by foreign leaders. Indeed, his handling of the Republican debt challenge will have suggested to foreign leaders that President Obama is politically weak, and appears to approach conflict as if he were a mediator rather than a protagonist. That impression of weakness and indecision has already been established by the Administration’s confused and ineffectual responses to everything from Iran’s nuclear program and Israel’s settlement program to the Afghanistan-Pakistan theater and the Arab Spring.
It has long been a cliche in Washington that foreign adversaries like to test an incoming U.S. president to take his measure; President Obama is not a new President, but it ought surprise nobody if in the months ahead seek to emulate the GOP and go toe-to-toe with him.
3. ‘Leading From Behind’, or Left Behind?
U.S. global leadership has been premised on a combination of untrammeled economic and military power. And while the U.S. currently remains the world’s biggest economy, its growth is slowing and on current indications, it’s likely to be overtaken by China within a decade. While Europe is stuck in the doldrums of an ever widening debt crisis, it is countries such as China, India, Brazil and Turkey that represent the dynamism of today’s world economy, moving more and more of their citizens into the middle class and raising the living standards of all. America’s middle class is shrinking, and the ranks of the poor are growing; hundreds of thousands of young people in Europe are on the streets protesting that the economic model their countries are following offers them no hope.
It’s not hard to see why emerging economies facing strategic choices in the years ahead may be more interested in hearing from China than in Washington’s advice, particularly because Beijing today is far better positioned to offer the sort of deep-pocketed friendship that helped by U.S. cultivate Third World allies during the Cold War.
Even as early as early 2003, before the invasion of Iraq, it had become clear that U.S. international influence was on the wane: Not only were U.S. efforts to win U.N. Security Council backing for military action strongly opposed by the likes of France, Germany, Russia and China; Washington could not count on the backing of such traditional client states as Mexico, Pakistan and Chile, or even Angola, Cameroon and Guinea — impoverished African nations that would once have seen much to gain in doing U.S. bidding.
If the U.S. had prevailed in Iraq and Afghanistan, naysayers in foreign capitals might have felt compelled to sullenly comply with Pax Americana. Instead, the world watched as 150,000 troops armed with the world’s most advanced weaponry and equipment still failed to impose U.S. will in Iraq and Afghanistan. Far from a demonstration of U.S. power, Iraq and Afghanistan turned into a demonstration of the limits of that power. So, for example, when Russia responded to Georgian provocations in 2008 with a punishing invasion of a country the U.S. had sought to bring into NATO, Moscow was clearly confident that there was precious little that an already over-committed superpower would do about it.
Similarly, for all the talk by Presidents Bush and Obama of keeping the option of military action against Iran’s nuclear facilities “on the table”, Iran has marched blithely past every “red line” established by Washington until now. North Korea, too, appears to be basing its calculations on the assumption that the U.S. is unlikely to respond to its provocations through force. And the “leading from behind” concept offered by Obama to explain the limited U.S. role in Libya has also suffered an ignominious fate as the European NATO allies have failed to dislodge the Gaddafi regime after more than four months of bombing.
4. Even the Sheriff Has to Eat
“General, your tank is a powerful vehicle,” wrote the antiwar German poet Bertolt Brecht. “But it has one defect: It needs a driver.” But that’s hardly the whole of it. The tank costs money, and the driver needs a salary and benefits. He needs food and water and an air-conditioned place to sleep. His vehicle needs fuel and spares, all of which must be transported to the war zone, often at exorbitant cost. And if he should be wounded, he might require a lifetime of treatment in the world’s most expensive medical system.
After a decade of expeditionary warfare in Iraq and Afghanistan that has cost America more than $1 trillion and rising, it has become obvious to the rest of the world that a declining economy significantly raises the obstacle to Washington launching new wars of choice. President Obama has long made clear that the U.S. simply cannot afford an open-ended commitment to Afghanistan, for example. And the Libya debacle offers a brutal riposte to anyone expecting European allies to take on more policing duties. It’s hardly surprising that, geopolitical reservations notwithstanding, nobody is suggesting that military action to stop Syria’s slaughter of protestors is an option.
5. The ‘Indispensable Nation’?
America’s economic plight is a major headache for China, because a decline in the U.S. investment rating or in the value of the dollar threatens to shrink the value of the more than $1 trillion of sovereign wealth that Beijing has invested in U.S. debt. A decline in U.S. consumer demand also threatens a key export market for China’s manufacturing sector.
Prudent investing, though, behooves China and other emerging economies looking for safe havens to park their own surplus funds requires diversification of their portfolios. And the extent to which emerging power centers seek alternatives to betting the farm on the dollar and the performance of the U.S. economy, their stake in America’s economic well-being diminishes.
A similar effect may already be underway in the geopolitical realm. Pakistan, for example, fits the profile of a traditional Cold War U.S. client state, yet it is clearly hedging its bets by deepening its ties with China and Iran even as it continues to bank on U.S. coin. Saudi Arabia has largely ignored the Obama Administration in fashioning its responses to the Arab Spring and Turkey now pursues a foreign policy independent of and often at odds with the United States and a range of regional issues.
Former Secretary of State Madeleine Albright memorably told an interviewer in 1998, “If we have to use force, it is because we are America. We are the indispensable nation. We stand tall. We see further into the future.”
It was America’s ability to project force across the world without restraint that, together with U.S. economic power, underpinned Washington’s ability to persuade others to follow its lead. The decline of U.S. economic power, highlighted by the debt-ceiling debacle in Washington, is a sharp reminder of declining geopolitical influence, also. There’s no single rival who benefits in a zero-sum Cold War-type equation. Instead, the relative power and influence of a number of other players, some rivals, some adversaries has steadily expanded. The Western economic order established with the U.S. as its “indispensable” core after World War II, and expanded globally after the collapse of the Soviet Union, is running out of steam, and with it the global balance of power is shifting, its components fracturing. But what will follow the “American Century” is far from clear. The age of economic austerity, on the geopolitical plane, will also be an age of great uncertainty.