Justin Fox had an interesting item the other day about the larger, global economic circumstances, and the end of American economic exceptionalism. (thanks to reader G.S. for the tip)
[T]he U.S. political system at some point has to adjust to the reality that we are just one more country trying to make it in a big, bad global economy and probably ought to stop shooting ourselves in the foot on a regular basis. The debt ceiling debate was one example of this; the seeming inability to get a handle on increasing health care costs (or to talk rationally about it in the political arena) has been another. This was the most convincing justification the S&P gave for its downgrade, and while I’m enough of a Pollyanna to believe we’ll eventually get our act together, I don’t see any short-term fix.
The other, scarier, problem is that, without the U.S. in the dominant role, the world needs to figure out a new approach to global economic governance. No other nation or group of nations is even remotely ready to step into the role of economic rulemaker. The European Union? Yeah, right. China? For all the harrumphing that Chinese officialdom and the Chinese media have been doing lately about U.S. irresponsibility, the Chinese still appear to be decades away from the political and economic maturity required to step into the role that the U.S. played from the 1940s through today. Which leaves us with … [the International Monetary Fund’s] Christine Lagarde. Go get ’em, Madame Managing Director!
It’s this apparent rudderlessness that may be the most convincing explanation for financial markets’ global swoon. Nobody’s in charge. It turns out investors don’t like that.
This is all very compelling. Indeed, while there are a variety of factors contributing to the Wall Street sell-off and global anxiety, I agree with Ezra Klein’s recent analysis: “The right question is simple enough to pose: Where will the recovery come from? The problem is that no one has an answer. And as one hopeful hypothesis after another is dashed, the markets are beginning to panic.”
Ezra wrote that six days ago. The panic has intensified since.
From a purely political perspective, it’s worth emphasizing the fact that American economic exceptionalism remains an option — at least in theory. U.S. officials could take all kinds of steps to bolster demand, inject additional capital into the system, boost confidence, create jobs, etc. Those steps would very likely succeed, if only we could take them.
The reason these steps aren’t happening — the only practical reason — is that Republicans won’t let them. They see American economic exceptionalism slipping away, they see the world losing confidence in American economic leadership, they see the recovery faltering, and GOP officials are content to do literally nothing.
Actually, that’s not quite accurate. We would be lucky if they wanted to do nothing — what they actually want to do is weaken demand, take money out of the economy, worsen unemployment, and spend a few months telling the world the United States of America considers paying its bills optional.
The world may very well want to look to Washington as the center of economic leadership, but Republicans actively prefer that the opposite. The world instead sees a dysfunctional mess, led by a rabid group of right-wing officials who appear to lack the knowledge, and some days even desire, to keep America on top.
“This apparent rudderlessness” is a choice. It can be avoided. It’s not a matter of resources or wisdom; it’s a matter of political will. And for now, one of the nation’s major parties is content to watch us economic might falter.