If you think our current economic difficulties are all about subprime mortgages, securitization, the drying up of credit, falling house prices and the like, think again. That’s not how the rest of the world sees it.
Yes, all of these problems are on the list. But more important, foreigners see this as the end of what Henry Luce memorably called the American century. America caused the world’s economic problems; America will pay a terrible price.
“The origin and center of gravity of the problem is clearly in the USA,” German Finance Minister Peer Steinbrück pronounced. He is not alone.
British Prime Minister Gordon Brown says that his nation’s economic problems were imported from America, a view shared by the leader of the Tory opposition.
Name an economic problem, and its origin is George Bush’s USA and the radical deregulation policies of the neoconservatives. That gets the local politicians off the hook.
There is worse. The failure of America’s politicians to agree on a $700 billion bailout package last week shows that its squabbling politicians are irresponsible, interested only in getting re-elected.
The French want a coordinated Euro-wide bailout; the Germans fear that will end up as a raid on their treasury; the British worry that Ireland’s guarantee of all bank deposits is draining funds from the U.K., and anyhow took longer to decide what to do about a single bust bank (Northern Rock) than our politicians took to decide on an industry-wide, massive bank-rescue effort.
Gleeful European leaders are agreeing with French President Nicolas Sarkozy that the failure of the American model shows that the “idea of an all-powerful market without any rules and any political intervention is mad … [and that] self-regulation is finished. Laissez faire is finished. The all-powerful market which is always right is finished.”
That no American politician or policymaker ever proposed that the financial system operate “without any rules” matters not to America’s critics. Or that these same critics have just spent years criticizing Sarbanes-Oxley as an example of American over-regulation.
The important thing is that the American model is dead. Or so they think — hope, to be precise. No longer can America recommend its version of capitalism to the developing world, or turn its collective nose up at the alternative models of authoritarian capitalism offered by China and Russia.
Or at France’s protection of vital infrastructure companies, which group includes Danone, maker of the yogurt that adorns the shelves of the world’s supermarkets.
There’s more. The burgeoning federal deficit marks the end of the dollar as a reserve currency. And good riddance to it.
Its status as a reserve currency only served to shore up America’s prestige and allow it to borrow to support military expenditures and unwise adventures such as those in which America is now bogged down in Iraq and Afghanistan.
I’m not making this up. As an American here in London who happens to be an economist, and who is known as a conservative believer in democratic capitalism, I seem to be the guest of choice on television programs hunting desperately for someone willing to support the American system.
The critics to whom I find myself responding range from left to right, from politicians on the left who are delighted that capitalism has run into difficulties, to those on the right who blame the loss of their friends’ jobs in the City — London’s financial district — on American policies.
Some complain that by bailing out Bear Stearns we are loosening the force of moral hazard on the world, encouraging sinners to sin again without consequence.
Others complain that by failing to bail out Lehman Brothers, we have cost thousands of well-paid Brits their jobs.
Some complain that the Paulson rescue plan rewards the greedy bankers who unleashed the American disease on Europe; others complain that by not passing the Paulson plan on the first try we have exacerbated the problems of European financial institutions.
Clearly, the best response is simply to ignore all of the caviling and caterwauling. Foreigners won’t love us again unless we elect Barack Obama.
Let’s just remember the critics when foreign banks try to deal themselves in on our rescue plan.
Examiner Columnist Irwin Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Studies.
