Who Rules the World? (10 page)

The deficit crisis has largely been manufactured as a weapon to destroy hated social programs on which a large part of the population relies. The highly respected economics correspondent Martin Wolf, of the
Financial Times
, writes, “It is not that tackling the US fiscal position is urgent.… The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 per cent, as the few non-hysterics predicted. The fiscal challenge is long term, not immediate.” Significantly, he adds: “The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 per cent of GDP in 2011, far below their postwar average of close to 18 per cent. Individual income tax is forecast to be a mere 6.3 per cent of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2 per cent of GDP. Tax revenue has to rise substantially if the deficit is to close.” Astonishing indeed, but deficit reduction is the demand of the financial institutions and the superrich, and in a rapidly declining democracy, that’s what counts.
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Though the deficit crisis has been manufactured for reasons of savage class war, the long-term debt crisis is serious, and has been ever since Ronald Reagan’s fiscal irresponsibility turned the United States from the world’s leading creditor to the world’s leading debtor, tripling the national debt and raising threats to the economy that were rapidly escalated by George W. Bush. For now, however, it is the crisis of unemployment that is the gravest concern.

The final “compromise” on the crisis—or, more accurately, the capitulation to the far right—was the opposite of what the public wanted. Few serious economists would disagree with Harvard economist Lawrence Summers that “America’s current problem is much more a jobs and growth deficit than an excessive budget deficit,” and that the deal reached in Washington to raise the debt limit, though preferable to a (highly unlikely) default, is likely to cause further harm to a deteriorating economy.
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Not even mentioned is the possibility, discussed by economist Dean Baker, that the deficit might be eliminated if the dysfunctional privatized health care system were replaced by one similar to those in other industrial societies, which have half the per capita costs and at least comparable health outcomes.
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The financial institutions and the pharmaceutical industry, however, are far too powerful for such options even to be considered, though the thought seems hardly Utopian. Off the agenda for similar reasons are other economically sensible options, such as a small financial transactions tax.

Meanwhile, new gifts are regularly lavished on Wall Street. The House Committee on Appropriations cut the budget request for the Securities and Exchange Commission, the prime barrier against financial fraud, and Congress wields other weapons in its battle against future generations. In the face of Republican opposition to environmental protection, “a major American utility is shelving the nation’s most prominent effort to capture carbon dioxide from an existing coal-burning power plant, dealing a severe blow to efforts to rein in emissions responsible for global warming,” the
New York Times
reports.
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Such self-inflicted blows, while increasingly powerful, are not a recent innovation. They trace back to the 1970s, when the national political economy underwent major transformations, bringing to an end what is commonly called “the golden age of [state] capitalism.” Two major elements of this shift were financialization and the offshoring of production, both related to the decline in the rate of profit in manufacturing and the dismantling of the postwar Bretton Woods system of capital controls and regulated currencies. The ideological triumph of “free market doctrines,” highly selective as always, administered further blows as these doctrines were translated into deregulation, rules of corporate governance linking huge CEO rewards to short-term profits, and other such policy decisions. The resulting concentration of wealth yielded greater political power, accelerating a vicious cycle that has led to extraordinary wealth for a tiny minority while for the large majority real incomes have virtually stagnated.

At the same time, the cost of elections skyrocketed, driving both parties ever deeper into corporate pockets. What remains of political democracy has been further undermined as both parties turned to auctioning off congressional leadership positions. Political economist Thomas Ferguson observes that “uniquely among legislatures in the developed world, US congressional parties now post prices for key slots in the lawmaking process.” The legislators who fund the party get the posts, virtually compelling them to become servants of private capital even beyond the norm. The result, Ferguson adds, is that debates “rely heavily on the endless repetition of a handful of slogans that have been battle tested for their appeal to national investor blocs and interest groups that the leadership relies on for resources.”
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The post–golden age economy is enacting a nightmare envisaged by the classical economists Adam Smith and David Ricardo. In the past thirty years, the “masters of mankind,” as Smith called them, have abandoned any sentimental concern for the welfare of their own society. They have instead concentrated on short-term gain and huge bonuses, the country be damned.

A graphic illustration is on the front page of the
New York Times
as I write. Two major stories appear side by side. One discusses how Republicans fervently oppose any deal “that involves increased revenues”—a euphemism for taxes on the rich.
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The other is headlined “Even Marked Up, Luxury Goods Fly Off Shelves.”
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This developing picture is aptly described in a brochure for investors produced by Citigroup, the huge bank that is once again feeding at the public trough, as it has done regularly for thirty years in a cycle of risky loans, huge profits, crashes, and bailouts. The bank’s analysts describe a world that is dividing into two blocs, the plutonomy and the rest, creating a global society in which growth is powered by the wealthy few and largely consumed by them. Left out of the gains of the plutonomy are the “non-rich,” the vast majority, now sometimes called the “global precariat,” the workforce living an unstable and increasingly penurious existence. In the United States, they are subject to “growing worker insecurity,” the basis for a healthy economy, as Federal Reserve chair Alan Greenspan explained to Congress while lauding his own skills in economic management.
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This is the real shift of power in global society.

The Citigroup analysts advise investors to focus on the very rich, where the action is. Their “Plutonomy Stock Basket,” as they call it, has far outperformed the world index of developed markets since 1985, when the Reagan-Thatcher economic programs for enriching the very wealthy were really taking off.
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Before the 2008 crash for which they were largely responsible, the new post–golden age financial institutions had gained startling economic power, more than tripling their share of corporate profits. After the crash, a number of economists began to inquire into their function in purely economic terms. Nobel laureate in economics Robert Solow concludes that their general impact is likely to be negative, because “the successes probably add little or nothing to the efficiency of the real economy, while the disasters transfer wealth from taxpayers to financiers.”
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By shredding the remnants of political democracy, these financial institutions lay the basis for carrying the lethal process forward—as long as their victims are willing to suffer in silence.

Returning to the “common theme” that the United States “is in decline, ominously facing the prospect of its final decay,” while the laments are considerably exaggerated, they contain elements of truth. American power in the world is, indeed, continuing its decline from its early post–World War II peak. While the United States remains the most powerful state in the world, nevertheless, global power is continuing to diversify, and the United States is increasingly unable to impose its will. But decline has many dimensions and complexities. The domestic society is also in decline in significant ways, and what is decline for some may be unimaginable wealth and privilege for others. For the plutonomy—more narrowly, a tiny fraction of it at the upper extreme—privilege and wealth abound, while for the great majority prospects are often gloomy, and many even face problems of survival in a country with unparalleled advantages.

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Is America Over?

Some significant anniversaries are solemnly commemorated—Japan’s attack on the U.S. naval base at Pearl Harbor, for example. Others are ignored, and we can often learn valuable lessons from them about what is likely to lie ahead.

There was no commemoration of the fiftieth anniversary of President John F. Kennedy’s decision to launch the most destructive and murderous act of aggression of the post–World War II period: the invasion of South Vietnam, and later all of Indochina, leaving millions dead and four countries devastated, with casualties still mounting from the long-term effects of drenching South Vietnam with some of the most lethal carcinogens known, undertaken to destroy ground cover and food crops.

The prime target was South Vietnam. The aggression later spread to North Vietnam, then to the remote peasant society of northern Laos, and finally to rural Cambodia, which was bombed at a stunning level, equivalent to all Allied air operations in the Pacific region during World War II, including the two atom bombs dropped on Hiroshima and Nagasaki. In this case, National Security Advisor Henry Kissinger’s orders were being carried out—“anything that flies on anything that moves,” an open call for genocide that is rare in the historical record.
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Little of this is remembered. Most was scarcely known beyond narrow circles of activists.

When the invasion was launched fifty years ago, concern was so slight that there were few efforts at justification, hardly more than the president’s impassioned plea that “we are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence,” and if that conspiracy achieved its ends in Laos and Vietnam, “the gates will be opened wide.”
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Elsewhere, he warned further that “the complacent, the self-indulgent, the soft societies are about to be swept away with the debris of history [and] only the strong … can possibly survive,” in this case reflecting on the failure of U.S. aggression and terror to crush Cuban independence.
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By the time protest began to mount half a dozen years later, the respected Vietnam specialist and military historian Bernard Fall, no dove, forecast that “Vietnam as a cultural and historic entity … is threatened with extinction [as] the countryside literally dies under the blows of the largest military machine ever unleashed on an area of this size.”
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He was again referring to South Vietnam.

When the war ended, eight horrendous years later, mainstream opinion was divided between those who described the war as a “noble cause” that could have been won with more dedication and, at the opposite extreme, the critics, for whom it was “a mistake” that proved too costly. By 1977, President Carter aroused little notice when he explained that we owe Vietnam “no debt” because “the destruction was mutual.”
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There are important lessons in all this for today, even apart from another reminder that only the weak and defeated are called to account for their crimes. One lesson is that to understand what is happening we should attend not only to critical events of the real world, often dismissed from history, but also to what leaders and elite opinion believe, however tinged with fantasy. Another lesson is that alongside the flights of fancy concocted to terrify and mobilize the public (and perhaps believed by some who are trapped in their own rhetoric), there is also geostrategic planning based on principles that are rational and stable over long periods because they are rooted in stable institutions and their concerns. I will return to that point, only stressing here that the persistent factors in state action are generally well concealed.

The Iraq war is an instructive case. It was marketed to a terrified public on the usual grounds of self-defense against an awesome threat to survival: the “single question,” George W. Bush and Tony Blair declared, was whether Saddam Hussein would end his programs of developing weapons of mass destruction. When the single question received the wrong answer, government rhetoric shifted effortlessly to our “yearning for democracy,” and educated opinion duly followed course.

Later, as the scale of the U.S. defeat in Iraq was becoming difficult to suppress, the government quietly conceded what had been clear all along. In 2007, the administration officially announced that a final settlement must grant the U.S. military bases and the right of combat operations, and must privilege U.S. investors in the country’s rich energy system—demands only reluctantly abandoned in the face of Iraqi resistance, and all kept well hidden from the general population.
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GAUGING AMERICAN DECLINE

With such lessons in mind, it is useful to look at what is highlighted in the major journals of policy and opinion. Let us keep to the most prestigious of the establishment journals,
Foreign Affairs
. The headline on the cover of the November/December 2011 issue reads in boldface: “Is America Over?”

The essay motivating this headline calls for a “retrenchment” in the “humanitarian missions” abroad that are consuming the country’s wealth, so as to arrest the American decline that is a major theme of international affairs discourse, usually accompanied by the corollary that power is shifting to the East, to China and (maybe) India.
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