America on Brink of Societal Meltdown
A nerve-wracking week in Europe has fixed attention on the Euro crisis with talk of default and death, “spasm or spiral”, more rescues and bailouts. But the new political and economic reality of the summer of 2011 is the prospect of the United States on the brink of financial disaster.
This time the country is being held hostage by Congressional Tea Party members – 60 in the House and four in the Senate – passionate in their rigid hatred of big government and their fanatical refusal to allow the debt ceiling to rise. They are playing a dangerous game of brinkmanship, ignoring practical common sense and conventional wisdom, and threatening to destroy America in order to advance their political agenda.
It sounds very like other fundamentalist ideologies threatening the world today, the only difference being that the Tea Party has not yet resorted to violence and bloodshed to achieve its ends. A loss of generational memory and a refusal to learn from history are driving this new political faith, immune as it is to reason and fact, and seemingly fuelled by blind denial and a belief in a populist pseudo-religion called Free Market Fundamentalism.
Since 1940, the US Congress has raised, extended or altered the debt limit 91 times, so it is apparent to most people that once more is not going to be a cataclysmic event. In a country where the people have gone from mass prosperity to severe recession in 50 years, it would appear that the Tea Party mentality has confused the notion of public debt with immorality. According to its ultra-conservative acolytes, the common good refers only to those who are ideologically pure, usually Christian, white and wealthy.
The Tea Party obsession with public debt and the debt ceiling is an extension of libertarian economic policies, as discussed by Naomi Klein in her widely read book, The Shock Doctrine. She reminds us that disaster capitalism had its origins 50 years ago in the University of Chicago under Milton Friedman, which produced many of the leading neo-conservative and neo-liberal thinkers whose influence is still powerful in Washington today. Since 2008, we can see disaster capitalism at work again, turning the shock of a crisis into an opportunity for the financial market to prosper instead of the economy at large.
The amount of America’s public debt – $14 trillion (8.6tn) and rising – is indeed cause for alarm, and it may not be sustainable into the future. But my contention is that there are deeper forces at play which should be causing greater alarm, and the current talk of debt ceiling extension is merely diverting attention away from more important economic issues. Rather than digressing into fundamentalist ideologies we should be looking to contemporary global history for the perspective we need to discuss economic realities.
In his latest book, The Post-American World, the Indian American journalist Fareed Zakaria looks at America’s economy in a global context and says that today’s reality reflects not so much America’s decline but the rise of the rest of the world. In 2010, 85 countries grew at a rate of 4 per cent or more. India’s GDP in 2010 was 9.7 per cent, while China’s “cooled” to 9.5 per cent in the second quarter of 2011. Countries all over the world have prospered dramatically, and while global markets took a drop after 11 September, 2001, they bounced back again within two months. Each subsequent terrorist attack seems to have had less effect on global markets, suggesting that our modern economy is more resilient than we think and is effectively trumping politics. The global financial panics, the debt crisis in the European Community, the global recession and natural calamities like the Japanese tsunami have all been unable to stop or even slow down the incredible global expansion that is taking place.
So where does the US stand in relation to the global economy? Economic history has fluctuated between a conservative political system with libertarian economic policies and the vision expounded by JK Galbraith whose liberal humanism rejected the technical analyses and mathematical models of “neoclassical economics” as being divorced from reality. Recently however, conventional wisdom, known as “the Washington consensus”, has dominated policy-making both in the US and increasingly in other European countries, resulting in what the late Tony Judt called “uncritical admiration for unfettered markets, disdain for the public sector, and the delusion of endless growth.”
The US has never fully embraced the European values of social democracy, but there have been times in recent US history when administrations have saved the country – Roosevelt’s New Deal is the classic example. Recognising that an austerity program was no solution for a depressed economy, Roosevelt was persuaded to focus on the real economy, not just Wall Street’s demands. Able to withstand orthodox economic theory of the time, he recognised that shared income gains were not incompatible with economic growth, in fact they were essential to it.
Fast forward to 2011 and we have the same anachronistic orthodox thinking bringing the nation to its knees, with the accumulation of wealth and income at the top proving disastrous to society as a whole. In order for this generation to survive, people are having to work longer hours, accept less pay and fewer benefits, and draw down on savings or borrow to the hilt to get by. By 2007, the typical US household owed 138 per cent of its after-tax income. And between 2002 and 2007, American households had withdrawn and spent $2-3tn (1.2-1.8tn) in equity tied up in their homes. This situation is unsustainable.The need for intervention from a strong government is obvious, yet what we are seeing is action only as an expedient, not on principle. There should be more public discussion on the need for a new ethical approach to what Judt described as “private affluence and public squalor” and a stronger argument made against the current “reckless enthusiasm for financial markets at the expense of the country’s industrial base.”
We must look beyond the irrational religiosity and flag-waving of the Tea Party with its hostility to government and romanticising of free markets. American voters are rightly concerned about the huge cost of the debt interest being passed on to future generations. Like a personal credit card debt, it is all too easy to want to deal with it later just as Congress appears to be doing right now, with their last minute negotiations appearing to lead to a temporary fix. Painful as it is, new revenue sources will have to be found and it should not be too unpalatable for Republicans to return to Reagan-era tax levels. As US leaders struggle to find a way forward without damaging the fragile recovery, time must be spent analysing and remedying the underlying causes.
The current obsession with debts and deficits overlooks the real issue of 14 million unemployed. Nobel Laureate, Joseph Stiglitz, describes the recalcitrant Republicans as “the party of the 1 per cent, by the 1 percent, for the 1 per cent” and says that “shared sacrifice” was not in their vocabulary. Any suggestion of an austerity program is cynical to the extreme, especially as it is being played out in Texas. Governor Rick Perry, perhaps a Presidential candidate, has presided over the most radical state budget in recent history. Balancing the budget without raising revenues has crippled the state’s economic future and, by slashing $23 billion (14bn) from education and health care budgets, Texas is earning its name as “the national laboratory for bad government”.
Equating the stock market with the economy has profound moral and economic consequences when the middle class no longer has the means to buy what it produces. The debt ceiling crisis has revealed the cracks in capitalism’s foundations. Without a working middle class, long-term recovery will not be possible if all the income is going to the top.
There can be no return to “normal”, as economic conditions as they are now can only produce disappointment, anxiety and anger. Economist and former Clinton adviser Robert Reich warns that movements like the Tea Party are a prescription for nationalism, isolationism, intolerance and paranoia. When it is cloaked with the morality of fundamentalist religion and economic philosophy, it becomes a dangerous mixture.Sooner or later, Wall Street will have to acknowledge its role in the slow jobless recovery, and accept that its position as the richest and most powerful industry in the United States gives it some responsibility towards ensuring the country’s future prosperity. The big banks will be forced to accept reforms, as they have done in the past, and recognise that their ultimate prosperity relies on a regulated market place, a prosperous middle class and strong democratic institutions.
The false arguments about the deficit and the debt ceiling being promulgated by the ideologues in the Tea Party and the Republican Party are doing their country a great disservice. As the deadline of 2 August approaches for action on the debt ceiling, we will soon see if the US economy is too big to fail.
Dr. Azeem Ibrahim is a Fellow and Member of the Board of Directors at the Institute of Social Policy and Understanding, and a former research scholar at the Kennedy School of Government at Harvard and a World Fellow at Yale.
This article was originally published in The Scotsman.
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