“A shattering moment in America’s fall from power”

I recommend reading this.  John Gray has much the same message as does so many posts on this site.

A shattering moment in America’s fall from power“, John Gray, op-ed in The Guardian, 28 September 2008 — “The global financial crisis will see the US falter in the same way the Soviet Union did when the Berlin Wall came down. The era of American dominance is over.”  Home truths from a critic of America.  An adaption of this, “Utopia Falls”, is in December 2008 Harper’s Magazine.  Excerpt:

Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over.

You can see it in the way America’s dominion has slipped away in its own backyard, with Venezuelan President Hugo Chávez taunting and ridiculing the superpower with impunity. Yet the setback of America’s standing at the global level is even more striking. With the nationalisation of crucial parts of the financial system, the American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated. In a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed.

Ever since the end of the Cold War, successive American administrations have lectured other countries on the necessity of sound finance. Indonesia, Thailand, Argentina and several African states endured severe cuts in spending and deep recessions as the price of aid from the International Monetary Fund, which enforced the American orthodoxy. China in particular was hectored relentlessly on the weakness of its banking system. But China’s success has been based on its consistent contempt for Western advice and it is not Chinese banks that are currently going bust. How symbolic yesterday that Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees.

Despite incessantly urging other countries to adopt its way of doing business, America has always had one economic policy for itself and another for the rest of the world. Throughout the years in which the US was punishing countries that departed from fiscal prudence, it was borrowing on a colossal scale to finance tax cuts and fund its over-stretched military commitments. Now, with federal finances critically dependent on continuing large inflows of foreign capital, it will be the countries that spurned the American model of capitalism that will shape America’s economic future.

Which version of the bail out of American financial institutions cobbled up by Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke is finally adopted is less important than what the bail out means for America’s position in the world. The populist rant about greedy banks that is being loudly ventilated in Congress is a distraction from the true causes of the crisis. The dire condition of America’s financial markets is the result of American banks operating in a free-for-all environment that these same American legislators created. It is America’s political class that, by embracing the dangerously simplistic ideology of deregulation, has responsibility for the present mess.

In present circumstances, an unprecedented expansion of government is the only means of averting a market catastrophe.

… The fate of empires is very often sealed by the interaction of war and debt. That was true of the British Empire, whose finances deteriorated from the First World War onwards, and of the Soviet Union. Defeat in Afghanistan and the economic burden of trying to respond to Reagan’s technically flawed but politically extremely effective Star Wars programme were vital factors in triggering the Soviet collapse.

… There has been a good deal of talk in recent weeks about imminent economic armageddon. In fact, this is far from being the end of capitalism. The frantic scrambling that is going on in Washington marks the passing of only one type of capitalism – the peculiar and highly unstable variety that has existed in America over the last 20 years. This experiment in financial laissez-faire has imploded.While the impact of the collapse will be felt everywhere, the market economies that resisted American-style deregulation will best weather the storm. Britain, which has turned itself into a gigantic hedge fund, but of a kind that lacks the ability to profit from a downturn, is likely to be especially badly hit.

The irony of the post-Cold War period is that the fall of communism was followed by the rise of another utopian ideology. In American and Britain, and to a lesser extent other Western countries, a type of market fundamentalism became the guiding philosophy. The collapse of American power that is underway is the predictable upshot. Like the Soviet collapse, it will have large geopolitical repercussions. An enfeebled economy cannot support America’s over-extended military commitments for much longer. Retrenchment is inevitable and it is unlikely to be gradual or well planned.

… Outside the US, most people have long accepted that the development of new economies that goes with globalisation will undermine America’s central position in the world. They imagined that this would be a change in America’s comparative standing, taking place incrementally over several decades or generations. Today, that looks an increasingly unrealistic assumption.

Having created the conditions that produced history’s biggest bubble, America’s political leaders appear unable to grasp the magnitude of the dangers the country now faces. Mired in their rancorous culture wars and squabbling among themselves, they seem oblivious to the fact that American global leadership is fast ebbing away. A new world is coming into being almost unnoticed, where America is only one of several great powers, facing an uncertain future it can no longer shape.

About John Gray (from Wikipedia)

John N. Gray is a prominent British political philosopher and author, formerly School Professor of European Thought at the London School of Economics. … {He} has written several influential books on political theory, including “Straw Dogs: Thoughts on Humans and Other Animals (2003), an attack on humanism, a worldview which he sees as originating in religious ideologies. Gray sees volition, and hence morality, as an illusion, and portrays humanity as a rapacious species engaged in wiping out other forms of life while destroying its natural environment. His latest book is Black Mass: Apocalyptic Religion and the Death of Utopia.

Afterword

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To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp relevance to this topic:

FM posts looking at our future, about structural changes to America and the world:

  1. Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
  2. Say good-bye to the old America. Welcome to our new socialist paradise!, 17 September 2008
  3. Another voice warning about the nationalization of AIG, 18 September 2008
  4. Another step away from our Constitutional system, with applause, 19 September 2008
  5. Slowly a few voices are raised about the pending theft of taxpayer money, 20 September 2008
  6. America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
  7. Legal experts discuss if the Paulson Plan is legal, 21 September 2008
  8. German Finance Minister Peer Steinbrück explains how the world is changing, 30 September 2008
  9. America has changed. Why do so many foreigners see this, but so few Americans?, 1 October 2008
  10. America is changing. Read some chillling words from a liberal economist, 2 October 2008

14 thoughts on ““A shattering moment in America’s fall from power”

  1. Isn’t this article exaggerating somewhat? The US is likely to be the most powerful nation in the world for a long time to come even if we are no longer the hyper-power we were in the 90’s. The article makes it sound like the US is going to be powerless in the world.
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    Fabius Maximus replies: It would be odd that a nation with such large debts, supporting its life-style with massive foreign borrowing, would long remain the world’s most powerful nation. Perhaps you could explain what you mean by “most powerful.”

  2. I have no solid opinion on whether or not Gray’s predictions will bear out (I suspect he’s exaggerating). However, this bit from his bio is interesting:

    “Gray sees volition, and hence morality, as an illusion, and portrays humanity as a rapacious species engaged in wiping out other forms of life while destroying its natural environment.”

    As this is his worldview, it is tempting to extrapolate how he must feel about America in general, which is undoubtedly informing this piece.

  3. And talking about sound finance. “Volcker issues dire warning on slump“, The Telegraph, 17 November 2008 — “Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.”

    He is correct as usual.

  4. Germany, Britain, Italy are all officialy in recession. China’s exports are dropping dramatically. The commodity countries, especially oil, are seeing similar demand decline. If we all crash together, the US may still be on top of a weaker whole.

    Our military still gives us veto over aggressive physical moves by other countries — China vis a vis Taiwan, for example. On the other hand, China is our creditor and has the hammer on us in that way.

    Alternate energy, and green infrastructure, are held out as new frontiers in which the US can recover industrial and global leadership. But who will fund the R&D if the Treasury can’t print or borrow any more dollars?

    I question Gray’s assertion that this moment marks the end of free-market capitalism. There never was a truly free market economy – it’s always been supported by government tax and trade policies, regulatory agencies run by industry insiders (as in the current Treasury, for example), taxpayer funding of R and D, government created markets (defense and prison industries, for example) etc.

    There is not, and can’t ever be, a government separate from or antagonistic to capital. As some wag has said, we are not experiencing increasing government control of the market, but increasing concentration of capital, and increasing privatization of government.

  5. It isn’t so much laissez-faire that killed us. No government which pushes for an expansion in homeownership via incentives for intentionally lax lending standards, combined with an expansion in social services, wage increases, and a trade imbalance can hope to remain solvent.

    In the same way an angry man with a large gang and a big gun could walk into a bank in the wild west and keep asking for loans, while providing payment by intimidating his gang, and sometimes outsiders, the US government took on much more debt than any private person would be allowed, encouraged banks to adopt the practice of lending to people in similar positions, and has apparently run out of outsiders from which to extract money and cheap commodities. The fact that our currency and economy are in the hands of a cartel of those same banks does not help.

    This is the cost of the US government’s attempt to prevent the market from punishing rampant stupidity and rapacious greed.

  6. For dominance relative power is always the measure (J. Mearshiemer gives the example of the Navigation act which retarded UK less than Dutch growth). The US could lose absolutely but still stay on top if everyone else does worse, hence if it gains wealth relative to other countries so that after a crash it’s position was stronger the US might not be too worried from a geopolitical standpoint. I admit I have no idea how likely this is or how it could come about – if it could. Gray must be talking about Europe which must benefiting (relativly) by minimising its involvement in wars. (The US seemed to benefit from the time it stayed out of WW1) .

    On BBC WS last night a American economist remarked “the Chinese make a lot of simple cheap goods, but they can’t make a car, think about that. The Chinese can’t build a car by themselves.”

    Paul Kennedy’s Rise And Fall of The Great Powers seemed to be predicting a collapse of US power though overstretch with bases (like UK coaling stations) around the globe. He scoffed at the idea that the USSR would collapse.
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    Fabius Maximus replies: Was it a comedy program? Aprox 7 million cars will be build in China during 2008, and probably wil export cars to the US in a few more years. They are also a major producer of semiconductors, and are producing an aircraft manufacturing industry. In all 3 cases domestic companies are gaining market share.

  7. On BBC WS last night a American economist remarked “the Chinese make a lot of simple cheap goods, but they can’t make a car, think about that. The Chinese can’t build a car by themselves.

    1) After Peak Oil, people will be riding horses and riding rickshaws.
    2) Korea can build a car.
    3) After the collapse of the Big Three, the United States will not be able to build a car, either.
    4) If I ever win the lottery, the first thing I am going to do would be to order a Morgan.

  8. As Iraq becomes a better democracy, Bush’s victory will be credited to Obama and the lack of any better alternative (China? Russia? India? the UN? the impotent EU???) to ‘American dominance’ will mean America continues to be the biggest fish in the international ocean.

    But the others will be more noticable, altho unlikely to be particularly more united in any positive international purpose.

    John Gray’s gloating over the end of the Free Market ‘ideology’ is likely to be overblown.

  9. ??? China makes cars. Geely and Shanghai Automotive Group are the two that spring to top of mind immediately. Not household names, but neither were Kia, Hyundai or Toyota a while back.

    Seems like the sort of conceit that led to serious discussions during the Russo-Japanese war among Russian generals — were Russian soldier the equivalent of two or three Japanese?
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    Fabius Maximus replies: Agreed. Here are some articles on the subject.

    One Chinese product not ready for export“, International Herald Tribune, 17 October 2006:

    Like other industries in China, this one is dominated by foreign- led joint ventures and subsidiaries of multinationals, which are first buildingcars for sale in the local market and plan to export later.

    More proof that China does have an auto industry: “Facing a Slowdown, China’s Auto Industry Presses for a Bailout From Beijing“, New York Times, 18 November 2008.

  10. That economist might have been talking about the quality and safety of Chinese cars relative to other manufacturers. See here and here. Would you consider driving a car that crashed like this at 40 mph?
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    Fabius Maximus replies: Just like those cheap Japanese cars in the 1960’s. Absurd to think that a company like Toyota or Honda could ever successfully challenge GM or Ford!

  11. I should have made it clear that he immediately qualified his remark to say the Chinese cars were all joint ventures his point was they can’t (or don’t want to) design and manufacture a car without a foreign partner. This may be clever of them, I have read that in the 19th century the Chinese who had been importing arms instituted a policy of “Self Strengthening” by manufacturing their own cannon, rifles ect.. It proved disasterous because their products were sub-standard. Japanese naval technology was supplied by British shipyards for quite a while but by WW2 their destoyers and torpedoes at least were the best in the world. If Japanese could do it I agree the Chinese design and manufacture will achieve the same competence. Leading economists seem to think China has economies of scale and nothing else.

  12. Would it necessarily be a bad thing if America wasn’t so powerful anymore – 4.5% of the world’s population having 24% of its GDP and 50% of its firepower (or somesuch)? An alien looking in from outer space who had no idea on how that had come to be just might say Those seem like a pretty strange collection of stats. Especially if said alien gave any credence to the concept that Power tends to corrupt and absolute power corrupts absolutely. And figured corruption could have some downsides.

    Whoever decided that nationhood was “good” – Lots of little “city states” just might sound way less powerful and way less dangerous? Maybe we should get rid of nukes AND get rid of nations – Nice thought. But the liklihood of it happening seems low when our natural tendency appears to be to want to clump together into ever bigger and hopefully more powerful agglomerations. And who’d enforce the “rules”? Such are the paradoxes of life.

    Hmmm, that aside; Some other comments …

    America seems pretty paranoid to me? I was initially a bit shocked to read Obama’s inauguration speech and see him make mention of America’s enemies – That explained a bit – America reckons it has enemies! Not saying it doesn’t. But as a member of one of America’s allied nations (Australia) that gets the pleasure of trundling off to war whenever the US does, I’d not really thought in those terms at all. But a significant number of Americans apparently do. (Might be better if Australia grew up and bought our own firepower – Rather than relying on America’s – But deep down I suspect the status quo suits both countries a lot.)

    Another one I personally found quaint – I looked up the saying “Yankee go home” on Wikipedia – And was informed it was regarded as anti-American! That seemed a bit precious to me? (A bit like a girl telling a boy to clear off because she wasn’t interested – And the rejected suitor handling the rebuff badly – And saying she hates me!!!) Whereas I would have really thought it was more along the lines of We resent American intrusion in our lives – Leave us alone! And Yes, I do understand that the term “Yankee” could well be seen as disrespectful? But the people who are saying such things might feel to express a bit of disrespect for America in that they feel America has not been too respectful of them either?

    Now for a bit or real “heresy” – I am not an advocate of democracy – Not saying there is a better system??? But being aware of what would seem to be some pretty serious shortcomings in that system, I’m just in no rush at all to recommend to others that they throw out their existing systems and pop in bright shiney new democracies!

    An aside on that – I could have sworn that I’d read a quote on the www supposedly attributed to one of America’s founding fathers (forget who) that went along the lines of This democracy stuff may serve us pretty well for a couple of hundred years or so, but at some point we’ll probably have to come up with something better – Is anyone aware of anything like that??? (I’ve never been able to find it again!)

    And another even greater heresy perhaps – All this Women’s Lib stuff – Seems to me a lot of the Western implementations of it have at least significantly contributed to some drastic and fundamental changes that have impacted our societies in ways that we have not handled very well. No answers from me in that regard – But a bit of reason to consider caution before embarking on any crusades to effect societal change in others perhaps?

    It also seems to me that the developed (and developing) world is hooked on hydrocarbons (especially oil) and until that addiction is resolved one way or another, we are going to have problems in relation to it. Might find time to read the “peak oil debunked” link later today – I look forward to it!

    So I question the manifest joys of nationhood, democracy and feminism – Or at least our current implementations of same. And worry a bit about where our oil addictions could lead us all – Maybe I should see if I can find myself an unclaimed deserted island to live on!

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