For decades after 1945, and especially after 1991, the United States was a role model for the world. Not only was its economy the world’s strongest and most prosperous, but its economic management, while falling short of true capitalism, represented an attainable model both for sluggish European nations and for fast-growing emerging markets. Its diplomats and consultants jetted around the world offering advice to poorer countries, in the solid knowledge that the advice was good and the recipient country would probably take most of it – I should know; I was such a consultant for the U.S. Treasury in Croatia in the mid-1990s.
The Biden administration may not have noticed, but this is no longer the case. U.S. consultants still patrol the world, but they are mostly laughed at. The U.S. budget is in worse shape than most other countries, and its public debt is higher than any other rich country save Italy and Japan. Nostrums that were imposed upon the emerging markets world in the 1990s, such as the central bank not funding the government directly, have been torn up by the United States itself in the last decade of monetary madness. The United States no longer has the world’s highest living standards; its purchasing power GDP per capita is only two thirds that of Singapore, an island state with no significant natural resources that most Americans could not find on a map. So, what happened, and is this malaise permanent?
The economic dominance that the United States enjoyed in the 1950s was never going to last. Europe and Japan had been devastated by war, and most emerging markets were only just emerging from colonialism, while India was sinking into socialism and China into the unutterable hell of Mao Zedong’s Great Leap Forward. Consequently, the United States enjoyed an economic dominance even greater than that of Britain in Lord Liverpool’s 1820s. With it, that dominance brought some lazy habits, not least a union-driven bloating of wages and benefits in large companies that was bound to cause their decline when the global economy once again became fully competitive.
Washington’s dominance, sliding in the 1970s, was reinvigorated by the Reagan boom of the 1980s and above all by the collapse of the Soviet Empire. As of 1991, the United States appeared to be alone on its peak of power and influence, and its success against the Soviet Union, together with the emergence of several weak successor states, brought a massive worldwide demand for U.S. wisdom and culture – it appeared then that even China would eventually succumb.
In retrospect, one factor in the decline of U.S. influence was the version of American success that its bureaucrats and consultants chose to propagate around the world. The “Washington Consensus” first propounded by a well-meaning British economist John Williamson in 1989 did not reflect the entrepreneurial vibrancy of the U.S. economy, but was a statist social democrat version thereof, with benign bureaucrats in government “building better institutions” and steering their domestic economies. To most Eastern Europeans, this was merely a more sophisticated, softer version of the “GOSPLAN” central planning system from which they had just thankfully emerged. When combined with the Soros Foundation’s financial and organizational assistance to those communists clever enough to rebrand themselves as social democrats, it significantly delayed the Eastern European move to capitalism, and prevented it altogether in several former Republics of the Soviet Union such as Belarus, several of the “stans” and to a large extent Ukraine.
After 2000, a series of truly abysmal administrations in Washington combined through their economic and foreign policies to accelerate the decline of U.S. influence and cause the world’s opinion of the United States to turn from admiration to disgust. In foreign policy, the George W. Bush and Barack Obama administrations involved themselves in a series of military adventures in the Middle East, each one less successful and more damaging to the target than the last. The most expensive, the Iraq war, appeared dubious at the time, and in retrospect has left the country far worse off than under Saddam Hussain, at a cost of at least $1 trillion, many American lives and even more Iraqi lives. The one modest gain of the Iraq war, an agreement by Libya’s long-term leader Muammar Gaddafi to abandon his nuclear weapons program and turn towards Western engagement, was destroyed by the utterly disgraceful decision in 2011 to intervene to overthrow Gaddafi. This not only left Libya in a state of anarchy but meant that no other warlord would ever again abandon a nuclear weapons program at America’s behest, for fear of sharing Gaddafi’s fate. This point was emphasized by the odious John Bolton to North Korea in 2018, thus scuppering the promising negotiations which had been opened up by his subtle and thoughtful boss President Donald Trump.
Misguided foreign policy was not the only factor sapping U.S. influence in the world after 2000 – after all, there is always the hope of a change in administration which will restore common sense, as indeed happened for an all-too-brief period under Trump. The main factor causing the U.S. economy to become a global problem rather than a global example lay in economic policy, equally turned towards self-destruction after 2000. The Bush administration abandoned the Herculean and successful labor by the Bill Clinton administration and House Speaker Newt Gingrich to balance the Federal budget, something that had not been achieved since 1969 and currently looks likely never to be achieved again. Gingrich was defenestrated at the end of 1998 by a House Republican majority grown weary of his inventiveness and competence and replaced by the ex-wrestling coach and pedophile Dennis Hastert.
Hastert lasted eight years as Speaker, twice as long as Gingrich; during his term the annual U.S. budget averaged $40 billion larger when it left the House than when it had been submitted by the President, whereas under Gingrich the Budget had been slimmed down by an average $25 billion on its way through the House. Naturally, the opportunities for logrolling and pork-barrel spending were much juicier in an expanding Federal budget than in a contracting one; hence the idle and corrupt Republican House members enjoyed the Hastert term of office, and were surprised when in 2006 the electorate threw them out, albeit only to replace Hastert with the poisonous hard-left Nancy Pelosi.
By 2007-08, even before the recession, the Budget was far out of balance; the 2008 financial crash for the first time took the annual deficit over $1 trillion, where it has remained for almost all subsequent years, even as the economy has returned to what appeared to the simple-minded to be rude health, with unemployment at record lows. Fiscally, the United States is now a dreadful warning to other countries, of what can happen when fiscal discipline is thrown overboard and pointless Federal spending allowed to run riot.
It is however in monetary policy that the United States has given an example of almost Argentine profligacy and destruction to the world. Ben Bernanke began his career by persuading Japan in 1998 that the cure for her malaise was to hold interest rates at zero, a policy the country has pursued with fanaticism for a quarter of a century, deadening what had been the world’s most vibrant economy. Score one for ignoring and avoiding U.S. advice! Then he promulgated his “helicopter money” nonsense on the United States, imposing a blight on the economy that has still not lifted. The massive holdings of Fed paper by the banking behemoths, produced by Bernanke’s crackpot “quantitative easing” earn the behemoths excellent money at an interest rate now above 5%, but leave them entirely unwilling to undertake the market risk and intellectual effort of lending to small businesses. Hampered both by the residue of Bernankeism and the inept hyper-regulation of the Biden administration, U.S. productivity growth has now turned firmly negative, as the Industrial Revolution goes into reverse. Far from an example to the world, the United States now provides a dreadful warning for other countries to avoid its growth-deadening economic follies.
Culturally, U.S. influence is also turning negative. An increasing number of countries are beginning to resist the U.S. promotion of transgenderism and woke ideology, so prevalent through its ubiquitous cultural output. The vast majority of the world is very “old-fashioned” by U.S. standards and wishes to remain that way —and U.S. indignation against countries such as Uganda following their own cultural norms rather than Hollywood’s further lessens the country’s appeal and influence.
The true level of U.S. influence today is indicated by climate envoy John Kerry’s three-day visit to China to preach the “climate change” gospel, which has resulted in absolutely no agreement by China not to continue its rapid and aggressive deployment of coal-fired power stations. In area after area, it is no longer intellectually possible to claim that U.S. advice and influence is good; it is thus unsurprising that it is increasingly largely ignored.
(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)