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Monday, Nov. 1, 2010

U.S. voters set to jump from frying pan to the fire


Special to The Japan Times

HONG KONG — Is the United States heading for disaster when the country goes to the polls Tuesday to elect all 435 members of the House of Representatives and a third of the Senate?

Sadly, it looks as if the country may take a giant stride toward the loss of its superpower status, especially if, as opinion polls predict, Republicans take control of the House and win enough seats to deny President Barack Obama effective control of the Senate.

The image of Nero fiddling as Rome burned comes to mind when seeing the bitter partisan political infighting while the U.S. faces immense international challenges, some of its own making, to its political domination, while its economy teeters on the edge of a double-dip recession and financial ruin.

It is true, as Joseph Nye asserts in the upcoming issue of Foreign Affairs, that the end of U.S. domination is not quite nigh. America is still by far the most powerful country in the world, and countries are not like human beings with predictable life spans. Rome, as Nye points out, remained the dominant power for three centuries after it had passed its peak.

He also correctly points out that the rise of China to world dominance may not be as effortless as some supporters of Beijing imagine and will certainly not come as soon as 2027 when China, Goldman Sachs predicts, takes over from the U.S. as the world's biggest economy.

As an influential American academic and thinker, Nye makes telling points in his essay, one of a valuable and thought-provoking series looking at "The World Ahead," in the last issue of Foreign Affairs edited by James Hoge.

In a separate article, U.S. Secretary of State Hillary Rodham Clinton makes the case for continued American global leadership: "Global problems, from violent extremism to worldwide recession to climate change to poverty, demand collective solutions, even as power in the world becomes more diffuse. They require effective international cooperation, even as that becomes harder to achieve. And they cannot be solved unless a nation is willing to accept the responsibility of mobilizing action. The United States is that nation."

Two major roadblocks stand in the way of Clinton's aspirations and the fulfillment of the more optimistic of Nye's scenarios.

One is the manifest weakness of the U.S. economy. Nye points out that Rome declined not because of imperial overstretch but because it rotted from within. He contends that the U.S. is internally strong, that civil society is robust and today's cultural battles are smaller than past divisive struggles over slavery, temperance, McCarthyism and civil rights. The U.S., he adds, has not lost its competitive edge, ranking fourth after Switzerland, Sweden and Singapore in the latest World Economic Forum listing.

As for looming and growing deficits, he cites The Economist magazine that the U.S. has two unique weapons in its armory — "possessing both the world's reserve currency and its most liquid market, in Treasury bonds."

Nye and Americans should not be so complacent. What should worry Washington and Poughkeepsie and Peoria, and allies in London and Tokyo, is not merely the exploding size of the deficits, but that America continues riding rapidly along the road to ruin.

In another stimulating essay in Foreign Affairs, former Deputy Treasury Secretary Roger Altman and Richard Haas, president of the Council on Foreign Relations, warn that if the U.S. does not end its addiction to debt soon, "the global capital markets will do so for them, forcing a sharp and punitive adjustment in fiscal policy."

All the economic projections are for prolonged U.S. indebtedness. The presidency of George W. Bush saw a massive deterioration in America's accounts. Revenues averaged 20 percent of GDP in the 1990s, but fell to 15 percent in 2009 while spending rose to 25 percent. U.S. federal debt has almost tripled in a decade, from $3.5 trillion in 2000 or 35 percent of GDP to $9 trillion or 62 percent of GDP in 2010.

The Congressional Budget Office forecasts $9.5 trillion of cumulative deficits until 2020. Interest payments on the debt are growing; Altman and Haas see annual interest expense rising from 1 to 4 percent of GDP or $5 trillion a year. Federal debts understate America's burden: There is another $8 trillion owed by government-sponsored agencies plus $3 trillion owed by state and local governments.

The midterm elections are the other half of the double whammy smashing the U.S. Polls predict the Democrats are going to lose heavily. Obama has lost many of the supporters who brought him and his party to power just two years ago, especially women, Roman Catholics, less affluent Americans and independents.

To an outsider from Europe or Asia this may seem unfair. After all, Obama saved more than 3 million jobs with his stimulus and dragged America back from the brink of another depression, as well as saving leading carmakers from the scrap heap and giving financial institutions another chance. Why would anyone want to go back to the party that landed America in the mess in the first place?

It is a good question that has a ready answer: Obama promised change and he did not deliver. Unemployment continues to be high, growth is slow, the fat cats of the financial world are fattening themselves again. Obama, who was so ubiquitous on the campaign trail, has vanished inside the White House. He probably does not like the mauling he gets at the hands of the rightwing media.

I get at least one e-mail a day from the White House plus others from David Axelrod — "Ask Axe"— or other senior staff members, sometimes from Michelle Obama or even Obama himself. They are useful and informative, but often Yahoo dumps them into the "junk" folder. This may be an appropriate punishment for a president who believes that he can communicate through messages that have the appearance of junk rather than in the flesh or through television or newspapers.

But Americans, it seems, are going to vote themselves from the frying pan directly into the fire. One must have sympathy for Obama, whose more radical measures have been frustrated at every turn by baying Republicans in Congress, assisted by scared blue-dog Democrats. Did I say radical? Obama's proposals were mere milk and water compared to the welfare and other protections Europeans are used to.

The Republican dogs scent victory. Lobbyists are holding fundraisers for key Republicans who will hold power in the new House. The rightwing tea party wants to "take our country back." But to what?

The other depressing fact about America is the massive shift of wealth to the rich: In the last three decades, the richest 1 percent of Americans have increased their share from 9 percent to 23 percent of income, while the income going to the bottom 90 percent has fallen from 65 percent to 52 percent. Someone will have to pay for the profligacy.

Will a Republican Congress dare put the financial house in order before it is too late?

Kevin Rafferty, formerly in charge of the Financial Times' coverage of Asia, is editor in chief of PlainWords Media.


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