Running on Empty
U.S. Jeremiad (Part 1)
by Edward Jayne / September 5th, 2009
The advance of civilization has been relatively slow over the past six thousand years. However, European tradition since ancient Greece has accelerated this pace with a quickening intermittent progress among as many as nine periods of high achievement. For each of these periods, one or two dominant nations enjoyed obvious hegemonic advantage as well as unusual collective affluence, but only to lapse into decline after a relatively brief duration of success. Most often this interlude completed itself within between a hundred and hundred fifty years, its subsequent collapse resulting as much from internal contradictions as external threat. If anything, warfare with a foreign enemy was useful in initiating the period of high achievement, and difficulties began once this enemy was defeated, at last culminating in conflict with a new and entirely different enemy. Athens, for example, defeated the Persians led by Xerxes only to fall victim to the Peloponnesian League; Rome defeated Carthage only to fall victim much later to hostile barbarian armies; and England’s defeat of Napoleon made possible the emergence of Germany just sixty years later, culminating in World War I. Rome thrived until 180 A.D. and prolonged its hegemonic duration for another three centuries, but ancient Athens, France and England were limited to the time span described here. German and Russian periods of hegemonic advantage were brought to a close by military losses well short of a full century, and Russian “wealth” was unique in having been limited to its productive capacity that kept it in competition with Germany and then the United States over a period of fifty years.
Today, American civilization enjoys uncontested hegemonic advantage, yet seems to be falling into post-hegemonic decline with almost precipitous extravagance as the tenth and latest epochal stage in the progressive historic sequence described here. Specifically, I suggest the full span of this cycle as a process of growth and decline will have taken place from the creation of the Federal Reserve Board just preceding the First World War to the outcome of our nation’s current economic crisis within the next couple of years. U.S. dominance in economic and foreign policy rapidly enlarged after World War II to attain what seemed unassailable once the Soviet Union collapsed two decades ago. As a result we now lead the entire world in military, economic, technological, and cultural matters, the latter at least in the realm of popular culture. But there is every sign that our nation’s hegemonic momentum has just about reached its tipping point and can be expected to fall into decline relatively soon. Here I will summarize the rise and fall of our nine historic predecessors, then submit to analysis in greater detail the symptoms of imminent downfall for the United States. Unless very basic changes can be effected soon, we can anticipate in the near future a reduced economy, an inferior standard of living, and much less international power.
1. Previous Hegemonic Societies
Ancient civilizations in the western tradition were agrarian, located on fertile terrain adjacent to large rivers, and their population primarily consisted of agricultural workers who could be recruited when needed for warfare. Kings ruled in successive dynasties, and spiritual needs were met by an influential caste of priests dedicated to fertility cults that linked agricultural production with the seasons and various astronomical occurrences. The structure and social hierarchy of these civilizations was relatively simple, and they probably survived for many centuries because of this. Both Egyptian and Sumerian-Babylonian societies, for example, lasted from close to 4,000 B.C. to their conquest by Alexander the Great in the late fourth century, B.C., more than three thousand years later.
Ancient Greek civilization was a recent addition in the Eastern Mediterranean region, and it came into existence despite rugged terrain with sparse agricultural productivity as well as a coastline so jagged that piracy seemed its most lucrative source of income for a couple of centuries. Nevertheless, its possession of numerous harbors provided it with excellent maritime access to distant regions with high levels of agricultural productivity. Greece accordingly developed in the sixth century B.C. a mercantile economy anticipated by what the Phoenicians achieved a couple centuries earlier but with significant improvements. Crucial to Greek success was the previous invention of money in the inland Turkish nation of Lydia. Phoenicians persisted in limiting their trade to the barter system, giving Greeks the edge once they became accustomed to the use of money, especially with the creation of banks, loans, bonds, interest rates, and other such innovations that facilitated mercantile trade. Greek ships obtained grain from agrarian economies stretching from the shores of the Black Sea to Sicily, Italy, and well beyond Marseilles on the Mediterranean coastline.
Quickly Greek cities such as Athens, Aegina, and Corinth as well as the colonial cities they established abroad became wealthy, permitting the emergence of a leisure class inclusive of philosophers who sought to explain the material universe independent of the whim of the gods. Beginning with Solon’s liberal reforms in 594 B.C., Athens made democracy available to all free male citizens. Additional to skeptical philosophy, such innovations as tragedy, comedy, history, sculpture, architecture, rhetoric and medicine flourished at the height of the Age of Pericles between 445 and 429 B.C. Soon afterwards came Plato and Aristotle followed by a Hellenistic philosophical tradition whose influence endured well beyond the Age of Pericles. For just a few generations the city was the first and perhaps most remarkable cultural epicenter in the entire history of western civilization.
Athens first took on full hegemonic status when its fleet led the victory against the Persian fleet at Salamis in 480 B.C. Not only were Xerxes’ forces repelled, but most of their fleet destroyed by the Athenians belonged to Phoenicians competitive with Greek merchants, thus doubling the spoils of victory for Athens. Unfortunately, Athens thereupon overextended itself during the reign of Pericles as the dominant hegemonic power in the region supported by the Delian League of subservient port cities. Other Greek cities joined in the Peloponnesian League to challenge Athenian hegemony. The Peloponnesian War began in 432 B.C. and ended with the total defeat of Athens in 404 B.C. Sparta thereupon ruled for thirty years until it was defeated by Thebes and its allies, and the history of Greece thereupon declined into relentless conflict among the city states. Athens and Greece as a whole did benefit later from their special status granted by Rome, but they no longer enjoyed their earlier advantage as an independent civilization.
Rome assumed unchallenged hegemonic authority throughout the Mediterranean region beginning with its decisive victory in the third Punic War in 146 B.C. and it played a dominant role throughout Europe until a sequence of invasions beginning with that of Alaric I in 410 A.D. At its peak, Rome’s authority extended from Spain as far east as Parthia (later Persia) and as far north as Hadrian’s Wall at the border of Scotland. The city of Rome’s population is estimated to have been in the range of a million inhabitants. Its ultimate failure can be attributed to extreme decadence as well as an unending succession of corrupt and incompetent emperors and the chaotic mixture of cultures and languages in Rome itself. Also responsible were the overextension of Roman conquests, the need to appease pagan legions used to defend these conquests, and, toward the end as insisted by Edward Gibbon, author of The Decline and Fall of the Roman Empire, the oppressive leadership of such Christian emperors as Constantine and Theodosius in the fourth century, A.D. Contrary to the religious tolerance of the many pagan religions practiced in Rome, Christianity outlawed its competitors and abolished philosophy and educational standards that might have encouraged comparative inquiry. It was no accident that the Christian emperor Theodosius ordered the destruction of the Alexandrian library in 391 A.D. and that the Christian emperor Justinian outlawed philosophy in 528 A.D.
The next great civilization was Islamic, roughly lasting a period of 450 years from 750 to 1200 A.D. There was much conflict among various factions but also genuine high civilization in such cities as Cordoba and Damascus. Inspired by Aristotle and Alexandrian science from the Hellenistic period, Arab scientists produced advances in such fields as chemistry and astronomy, and Arab scholars served well in preserving the ancient writings that fell into their hands. The fall of Islamic civilization resulted from the angry reaction of Arab fundamentalists to secular trends, probably in response to the foreign threat of Mongol armies from the east and Christian crusaders from the north.
Next came the Italian Renaissance, the first of the modern European societies sufficiently advanced to be described as having been a civilization. Its epicenter was once again the city of Rome, but city-states almost as important included Florence, Venice, Naples, Milan, Mantua and Ferrara, among many others. The ascent of Italy as a whole to full hegemonic status can be attributed to the rapid emergence of these city-states during the fourteenth century as well as the return of the Vatican from Avignon to Rome in 1378. In turn the decline of the Italian Renaissance can be linked with the invasion of Rome by Charles V in 1527 and Spain’s dominant role in Italian politics afterwards.
Spanish civilization’s hegemonic advantage in European politics may be arbitrarily asserted to have begun in 1492 with Columbus’ “discovery” of the “New World,” providing an enormous gold supply that could be used by the Spanish-Hapsburg empire to promote its dominance across Europe. Spain’s long and bloodthirsty campaign in the Netherlands turned out to be disastrous, and it came out on the wrong end of the Thirty Years’ War. Finally defeated by France in 1659, it rapidly declined as a major power in Europe. Spain’s collapse resulted from having squandered its wealth obtained from South America as well as having provoked international opposition because of its excessive violence as illustrated by the Inquisition and the measures taken to suppress opposition in the Netherlands. In the final analysis Spain’s contribution to civilization was modest except for the extraordinary wealth it brought to Europe for perhaps a hundred fifty years.
France’s hegemonic advantage as Europe’s most powerful nation began with the the reign of Louis XIV, and it ended with Napoleon’s defeat at Waterloo in 1815, a little more than a hundred fifty years later. The French Enlightenment, equivalent of the Age of Pericles and the Italian Renaissance, lasted from 1750 to the inception of the French Revolution in 1789. France’s dominance was brought to a close by the 1794 Reign of Terror and Napoleon’s military leadership that led to the disastrous invasion of Russia followed by defeat at Waterloo. If Napoleon had not sustained such losses in Russia, his army would undoubtedly have prevailed against the English troops led by Wellington and supported by the Prussian armies led by Blücher.
England’s civilization might seem to have begun in the sixteenth century, perhaps with the defeat of the Spanish Armada in 1588. However, English power was, at that time, behind Spain and France, so Spain’s defeat only served to catapult England into second place unto France. Competition intensified between France and England over the next two centuries until England finally prevailed at the Battle of Waterloo, whereupon it was finally able to assume uncontested worldwide hegemonic advantage guaranteed by its navy. Useful to this singular status was its eighteenth century breakthrough in industrialization which compounded the wealth it confiscated from India. The end of the British Empire began with the quickening of industrial competition from both Germany and the United States that culminated in World War I against Germany, a “conflict of “choice” for both England and Germany. Kaiser Wilhelm of Germany being Queen Victoria’s favorite grandson was grounds enough for obtaining some kind of an accommodation short of warfare. As to be expected, England and its allies won with the help of Americans, but Hitler, a German foot soldier exposed to heavy combat during the war, assumed power in Germany in 1933 and effectively avenged its defeat by waging World War II. This war ruined England’s economy at the same time as the allies destroyed Germany, leaving the United States and Russia dominant in world politics.
The advent of Germany as a full-fledged nation in the mid-nineteenth century followed rapiply after more than two centuries of coexistence among a independent petty states led by Prussia. With the defeat of Austria in the Austro-Prussian War of 1866 and the defeat of France in the 1870-71 Franco-Prussian War, Bismarck was able unite these petty states, almost immediately giving the unified nation of Germany an international role second to England, eventually becoming as much a continental threat to England as Napoleon had been fifty years earlier. Germany’s nineteenth century achievements in science, philosophy, and scholarship were remarkable. Unfortunately, its undue military aggressiveness helped to bring about the two World Wars, and its total defeat in the second of these wars, compounded by its disgraceful Holocaust, reduced it to a secondary role in world politics just seventy years after its inception under Bismarck. Soon enough it recovered its industrial capacity, but it has been occupied since World War II and poses no military threat to others.
One of the unexpected byproducts of World War I was the sudden emergence of the Bolshevik movement in Russia based on Marxist teachings as interpreted by Lenin. Identified as the Soviet Union, Russia began with all the aspirations of a truly egalitarian social order, but after its ruinous Civil War it lapsed into a totalitarian dictatorship.. All property was confiscated by the state to guarantee strict nationalization under government bureaucracy. Despite its ruthless totalitarian policies, the Soviet Union benefited from the worldwide economic depression of the twenties and thirties because of its obvious identity as the most aggressive alternative to capitalism.
Advocates of free enterprise considered communism a major threat, and many turned to fascism and even the Nazi cause to combat it (the most obvious example having been Henry Ford’s financial contributions to help launch Hitler’s political movement). When Hitler failed in his effort to defeat Russia, having lost as many as 850,000 of his best troops at the Battle of Stalingrad, Germany’s defeat by the allies was guaranteed, thus shifting the task of eradicating the Soviet Union as the bastion of communism to the United States once World War II was brought to an end. Just a year or two later, the U.S.S.R., one of our nation’s principal allies in the war against Hitler, became a new enemy presumably no less “evil” than Germany had been. A Cold War ensued that necessitated enormous defense expenditures on both sides, at last undermining the Russian economy so completely that its government simply collapsed. Quickly, Russia’s East European satellite nations rejected their subservient relationship with Russia, and a half dozen peripheral republics seceded from the union. Today Russia (no longer identified as the Soviet Union) is much smaller and less formidable, but with ample oil reserves that continue to keep its economy afloat.
All these nations and city-state societies listed here over the past twenty-five centuries enjoyed obvious hegemonic status or were in direct competition with others that did. They were all in possession of major urban epicenters, a distinctive culture of their own, and–with the exception of Italy during the Renaissance–the military capacity to expand their authority well beyond their borders in order to obtain favorable markets and adequate resources from abroad. Moreover, as in the case of Rome described by Gibbon, they were all susceptible to decline, and their collapse resulted more from reckless expansionism than the success of their enemies. In historical terms it can be blamed as much as anything on their bad judgment, their mistaken policies, and, most of all, their obsessive commitment to military and financial aggrandizement. Again with the exception of renaissance Italy, all of them ceased being hegemonic states when their enlargement could no longer feed on itself.
2. American Civilization
This brings us to the United States, the latest hegemonic society in the history of Western Civilization. We became a nation during the Revolutionary War by defeating Cornwallis at Yorktown in 1781. Before Yorktown, British troops were more than holding their own; afterward they ceased to be much of a military threat. At the time, however, we were hardly a world power, and in fact our decisive victory at Yorktown was planned, financed, and mostly carried out by the French. The 1787 Constitution was also largely inspired by the French Enlightenment, and several of our top leadership–Franklin, Adams, Jefferson, and Monroe, among others–spent a lot of time in France. Moreover, the 1803 Louisiana Purchase was essentially a gift from Napoleon. In effect our nation was a byproduct of the French effort to defeat England in the New World, thereby contributing to its defeat in Europe. The French failed in their effort, but the U.S. carried on as a relic of their effort in the western hemisphere.
Our primary collective task over most of the rest of the nineteenth century was the forcible transfer of Indian lands to the possession of settlers from Europe. This effort began as early as King Philip’s War in 1675-76, when most of the Indians in New England were killed, driven away, or sold into slavery. But it went into high gear during Jackson’s presidency and persisted throughout the nineteenth century. The Mexican War [more accurately: war against Mexico] was obviously a “grab” of territory from Mexico. The Civil War intervened as a regional war in which slavery provided the excuse for giving northern financial interests dominant economic power at the expense of southern plantations dependent on slave labor. This was followed by the Spanish-American War, which was no less a “grab” than the Mexican War, this time with the capture of the Philippines setting the stage for a more “ambitious” policy with China, Japan, and other Asiatic states.
It was the First World War that first gave our nation its hegemonic advantage on a truly international scale. The creation of the Federal Reserve Board in 1913-14 under the ownership of New York banks (and thus of those who owned the banks) effectively centralized our nation’s collective financial wealth, among other things providing the funds sufficient for American allies to conduct massive warfare in Europe during World War I. It was the belated involvement of U.S. troops starting in 1917 that tipped war’s balance to the allies. As a result of the war, European nations inclusive of Germany became heavily indebted to American banks, giving our nation de facto control of the world’s economy. This reality was confirmed by negotiations at Bretton Woods in 1944, just before victory in World War II, when the International Monetary Fund (IMF) was created and the dollar became the world’s reserve currency.
Hitler’s most useful discovery during the thirties was the value of military expenditures in helping to buttress aggregate demand sufficient to keep factories running, thereby preventing a full-scale depression. Demand levels had plummeted below productive capacity, so military expenditures were used to augment demand as justified by the supposed threat of enemies abroad. This so-called military Keynesian expedient also helped the United States during World War II, and it helped carry on what seemed an endless Cold War against the Soviet Union. The beauty of this strategy was that Russians impoverished by combat with Germany were unable to restore their non-military industries because of the heavy military production needed to match American production committed to the struggle against them. In effect, the United States was suffering from severe over-production and the Soviet Union from severe under-production, so we doubled our advantage by using relentless military competition to augment our economic growth while hurting theirs. As a result our society thrived, theirs suffered. Two costly “wars of choice” can also be mentioned, in Korea and Vietnam, as well as the U.S. subsidization of the Afghan rebellion against the Soviet Union before its tattered economy finally collapsed in the late eighties because of its inability to match the latest U.S. escalation with a star wars strategy devised under President Reagan.
With Russia no longer a military threat, some kind of an alternative was needed to supplant the Cold War in stretching aggregate demand. The first President Bush rose to the challenge by conducting limited wars of choice against both Panama and Iraq in the Persian Gulf, but these ventures were insufficient to prevent a recession just preceding the 1992 election. Bush’s successor, President Clinton, limited military conflict to relatively modest operations in Afghanistan, Iraq, Yugoslavia, Somalia and Sudan. His principal effort, however, was to sustain our economy by means of economic globalization under the International Monetary Fund (IMF), the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA) and other such trade organizations that would presumably benefit both advanced and developing nations on a win-win basis. U.S. corporate profits would increase resulting from the export of production (in effect factories) to such countries as Mexico and China in order to benefit from their reduced labor costs and environmental constraints, and no less profitable would be the opportunity for U.S. investors to extract natural resources in other non-western nations restricted by treaty from imposing heavy taxes and export duties. Meanwhile, non-western nations would benefit from sufficient growth subsidized by western investment to provide “takeoff” into truly competitive economies as had been proposed several decades earlier by the American economist Walt Rostow.
However, it soon became obvious that globalization was far more lucrative for Wall Street investors than for the indigenous population of non-western states, and moreover that the pursuit of economic ties in and of itself was insufficient to prevent a major depression in the near future in the United States. At this point deregulation must have seemed a perfectly reasonable means of augmenting our nation’s GDP. Burdened with the threat of impeachment, President Clinton cooperated with Republicans and Wall Street in deregulating the financial markets first with the 1999 Financial Services Act and then the 2000 Commodity Futures Modernization Act, effectively rescinding the 1933 Glass-Steagall Act for bringing Wall Street financial markets under control. As a neo-liberal, Clinton was willing to loosen up the markets, but not to the extent that was permitted by this legislation. If he had more time to study it in depth, he would undoubtedly have tightened its application.
A depression nevertheless began to gather momentum soon after the second (and less talented) President Bush came to office. As to be expected, he resorted to every possible expedient that might help in diminishing its impact. His effort included going to war in both Afghanistan and Iraq as justified by the 9-11 attack on the World Trade Center (one excuse sufficing to justify two wars), along with a sharp reduction in taxation, especially for the wealthiest Americans. This was the very first time in U.S. history that full-scale military Keynesianism and large tax reductions were combined to stimulate our economy. For good measure, Bush also helped to pump up the economy by letting the housing and oil bubbles supplant the defunct dot-com bubble, and he encouraged the further deregulation of industry, banks, and Wall Street speculation. Not surprisingly, the 2001 depression soon abated, and an artificial surge of prosperity followed until mid-September, 2008, just two months before the election and four months before Bush’s departure from office. This was when Wall Street imploded and Bush’s desperate economic legerdemain was finally over. Extravagant funding provided by the federal bailout legislation saved the biggest Wall Street banks and brokerages, leaving the rest of our nation to cope what now amounts to a serious depression whose effects can be expected to persist for at least another couple of years.
Barack Obama was elected president mostly because of the economic crisis, but as far as can be determined at this point, his measures for dealing with this crisis will probably be insufficient as predicted by the Nobel prize-winning economists Joseph Stiglitz and Paul Krugman. Obama has also retained an essentially conservative staff to deal with both the domestic economy and U.S. military policy in Asia. Unfortunately, too many key figures he has brought into his administration are either what might be described as constituency choices or seasoned experts who had themselves played major roles in creating the problems we now confront. Apropos of talented but relatively ineffectual constituency choices would be the selection of Kathleen Sebelius instead of Howard Dean as the Secretary of Health and Human Services despite Dean’s superior qualifications as a doctor, author, politician and the former governor of Vermont who led the effort to initiate its successful health care program for children and pregnant women. One suspects the principal reason for Dean’s rejection was his hostile relationship with Rahm Emanuel, Obama’s Chief of Staff regarding campaign funding, Dean having emphasized a 50-state strategy as opposed to Emanuel’s effort to target the swing states. However, if true, this feud is insufficient reason for rejecting Dean’s appointment. One of Obama’s most appealing promises during his campaign was his intention to bring individuals who aggressively disagree with each other into his inner circle in order to benefit from their dialogue. Having been deprived of Kennedy in the current health reform struggle, it would be a pity if Obama falls short of his goal in health care reform because of the absence of Dean as well from his inner circle.
Apropos of the economic crisis, Larry Summers, Tim Geithner, and Ben Bernanke` played central roles in events leading up to the September crash, yet they have been put in charge of the current recovery effort. As in the case of Dean, it seems unfortunate that Obama skipped over both Joseph Stiglitz and Paul Krugman from his inner team for dealing with the current economic crisis, apparently because Summers has taken a dislike to them, especially Stiglitz. The collapse of our nation’s economy has been severe enough that all of these economists should be able and willing to work together in the interactive manner earlier suggested by Obama.
And finally, apropos of the transfer of combat from Iraq to Afghanistan, Henry Gates and the two Generals Petraeus and McChrystal played central roles in the misbegotten occupation of Iraq, yet have been put in charge of operations in Afghanistan. True, they can be identified with the apparently successful “surge,” but it remains to be seen if it was truly a success. What seems most needed in Afghanistan right now is an effective occupation force rather than combat troops, and McChrystal in particular seems a dubious choice for this task. His leadership of the Pentagon’s Joint Special Operations Command (JSOC) in Iraq from 2003 to 2008 featured heavy combat, excessive interrogation techniques, and other such dubious responsibilities that necessarily antagonize the host population under occupation.
It can also be mentioned that Obama has gone along with too many precedents established by Bush. For example, he has continued Bush’s practice of adding his own “signing statements” to legislation passed by Congress, if not to the same extent, and his first official act as president was to issue an Executive order banning the release of presidential records just as Cheney had done eight years ago to prevent the disclosure of oil corporation executives with whom he had negotiated an energy policy in Iraq. Obama’s cap and trade legislation also seems as much as anything a capitulation to Republican lobbyists. And why can’t Obama nudge public radio’s Democracy Now into at least balanced reportage if not a liberal bias equivalent to its pro-administration bias during Bush’s term in office. And why can’t Obama put a stop to the incessant airport orange alerts that blare over the loudspeaker every half hour or so, apparently intended as much as anything to keep air travelers scared, therefore more willing to acquiesce to personal searches. And why is Obama willing to retain too many of Bush’s oppressive policies, especially in homeland security and the imprisonment and mistreatment of prisoners labeled as terrorists into the indefinite future. Despite his election promises, the Guantanamo prison camp continues to hold prisoners who die under suspicious circumstances, for example the individual al-Hashani as reported by Naomi Klein after her recent visit there. All of this should be stopped.
Admittedly, the multiple tasks that now confront Obama’s administration seem almost insurmountable after the collapse of an economic policy equivalent to the use of steroids for almost seventy years now. Severe deterioration set in well before Obama’s presidency, and he is stuck with cleaning up the mess, so he can and should be given slack in performing his mission. But when does slack become free rein to abandon most of his campaign promises? For the current situation requires the best effort from the very best experts and leaders in dealing with it. It also requires genuine integrity on the part of these individuals rather than the greed and power-hungry gamesmanship that have dominated Washington politics for too many decades now. Everything is beginning to fall apart, and the question remains whether it is possible to obtain some kind of a “soft landing” least harmful to the American people.
3. The American Economy
Numbers alone are daunting as an indication of our current financial crisis. Our total Gross Domestic Product (GDP), including all goods and services produced in a single year, is now $14 trillion, almost exactly a quarter of the world’s total GDP. However, our government’s annual deficit this year will be in the range of $1.75 trillion, having exceeded more than a trillion dollars for the first time; our gross national debt (specifically the total debt of our government alone) is now somewhere between $9 and $12 trillion; and our nation’s total debt including all household, business, financial, and government debt is now in the range of $57 trillion, about a trillion dollars more than the world’s total GDP inclusive of our own. As estimated by our nation’s Troubled Asset Relief Program (TARP), $2 trillion is now in the process of being spent to cover the cost of our present economic crisis, and it is estimated that the total cost will eventually amount to $23 trillion. Incredibly, the total debt of derivatives traded on Wall Street before the September crash was between $600 and $650 trillion dollars–well beyond anybody’s ability to pay. Moreover, our nation now owes at least a trillion dollars apiece to China and Japan as well as many hundreds of billion dollars to the sovereign wealth funds (SWF) for such nations as Saudi Arabia, Kuwait, Singapore, Abu Dhabi, and Russia.
Whether intended or not, the dollar has dropped 40 percent of its value compared to the euro over the past five years, effectively reducing our national debt to foreign borrowers by means of inflation just as happened with the collapse of the German mark during the twenties. This likelihood can only be intensified by the Federal Reserve Board having circulated more than a trillion dollars in order to maximize “liquidity” in order to combat depression. The dollar can accordingly be expected to continue its decline, probably setting the stage for its wholesale abandonment as the world’s reserve currency in the relatively near future. This in turn would result in further and more dramatic losses for our economy as a whole.
Meanwhile, our nation’s unemployment rate is 9.4 percent pushing 10 percent, underemployment is 16 percent, and the country has lost 6.7 million jobs since December, 2007, many of which will probably not be restored by “improved” productivity levels as well as a permanent decline in our nation’s affluence. Not surprisingly, income disparities have considerably widened between the rich and the poor. In 2006, two years before the current depression, the top one percent of U.S. households received 22.9 percent of all pre-tax income, more than double the ratio in the 1970s and by far the biggest concentration of wealth among the most prosperous Americans since 1928. As reported recently by the Wall Street Journal, corporate executives now account for more than one-third of all salary compensation earned in the U.S. On the other hand, there was only a 24 percent pay increase for the average worker from 2002 to 2007, less than 5 percent per annum, half of the 48 percent increase for highly paid individuals and less than double the official rate of inflation. In sum, the income gap has steadily widened between the wealthiest Americans and average and poor Americans, and this is not a healthy trend for the nation as a whole. For this kind of plutocracy does not work in the long run. Such an imbalance is like being fifty pounds overweight with a pulse of 120, a blood pressure of 180-125, a 300 mg/dL cholesterol level, a PSA of 12 going on 15, and a robust 9 on the Gleason cancer scale. These might seem impressive numbers, but they are anything but healthy.
It should also be of major concern, as explained by Kevin Phillips in his 2008 book, Bad Money, published before September’s financial meltdown, that our economy has shifted in emphasis over the past century from agriculture to manufacturing and to the financial sector led by Wall Street. Farm production has been brought almost entirely under corporate control, and far too many of our factories have been exported to non-western nations in order to minimize both wages and environmental costs. Just as junk has become the Port of New York’s principal export, debt as wealth owed by one party to another has become our nation’s principal commodity. According to Phillips, the so-called credit market debt roughly quadrupled from nearly $11 trillion to $48 trillion between 1987 and 2007 (p viii). As a result, financial services amounted to 20 percent of the GDP in 2005, as compared to manufacturing’s 12 percent of the GDP (Phillips, p. 5). In effect, the two-to-one ratio favorable to manufacturing as our nation’s principal source of income just three decades ago has almost completely reversed itself. It should therefore be no surprise that our major banks now wield extraordinary influence unprecedented in the previous history of our nation. As Senator Durbin of Illinois recently explained, banks currently “own” Washington, and this is not a healthy development. According to Phillips, this shift in power from manufacturing to the banking sector often sets the stage for the collapse of modern hegemonic powers just as happened for Spain and England when they ceased to play a dominant role (p. 36).
As to be expected, our current depression resulted from a major breakdown on Wall Street. Virtually all its major investment banks went bankrupt simultaneously last September. They were only saved by an enormous federal bailout effort that entailed $700 billion in promised loans by the federal government. Of the funds received so far, the top nine of these banks have as yet paid back only $50 billion while awarding their top executives almost $33 billion in bonuses for the year 2009. It seems they are confident that the crisis has been eliminated and our economy is on the brink of recovery as indicated by several variables. The Index of Leading Indicators, for example, has risen for the third month in a row with seven of the ten leading indicators having risen in June. Bank and corporate stocks have improved, and the stock market has shot up, surging 725 points or 8.6% in July. Even the oil bubble is beginning to expand once again, suggesting that oil speculation has resumed on Wall Street. On August 22 at Jackson Hole Wyoming, Bernanke has boasted, “The prospects for a return to growth in the near term appear good,” as demonstrated by a 7.2 percent jump in home sales in July and a stock market leap of 156 points the same day (perhaps in part because of his announcement). But he conceded that “cautious confidence” is still appropriate, given unexpectedly weak sales last week, increased unemployment claims, and the likelihood that hundreds more American banks would fail in the next year. And indeed there are many additional problems preventing full recovery in the near future. In fact, it still seems probable that our nation will undergo what has been described as a “double dip” depression (what might also be described as a “W” depression rather than a “V” or “L” depression).
As explained by Jack Rasmus in his informative article, “Green Shoots or Stinkweeds?” published in the July 2009 issue of Z Magazine, economic dislocations have been too pronounced for anybody to be too hopeful about an economic reversal. The job market is worse than it has been in decades, and with every possibility that as many as 22 million workers will go jobless before economic recovery fully happens. Even then, however, it seems unemployment could remain high because of improved productivity levels as well as the transfer of labor costs abroad. Similarly, the foreclosure rate on homes can be expected to rise to 8 million and housing prices to fall another 20 percent in the near future. Pension plans have already dropped a third and will continue to fall, and the simmering credit card crisis will expand even further than the $406 billion losses incurred so far in 2009. Similarly, auto and student loans are likely to crash the same way sub-prime loans did. Business expenditures can also be expected to drop at least a quarter more in the near future, and global exports that have fallen by 50 percent in early 2009 cannot be expected to recover soon. Likewise, state and local budgets deprived of adequate revenue sharing in the May omnibus package will also reach crisis proportions. Last but not least, the 27 percent increase in corporate bankruptcies in 2008 can be expected to be exceeded by the end of 2009 by as much as 35 percent. Many of these statistics can be reversed with a general rise in the economy, but it is difficult to believe that all of them will, and any three or four in combination just might be sufficient to produce the double-dip depression that worries Obama’s chief economists right now.
Nor can much help be expected toward an effective solution from our government in Washington, D.C. Congressmen, for example, are almost entirely in the pockets of industries opposed to economic reform that might bear a negative impact on their profits. These elected officials are amazingly unprincipled in their acceptance of hefty campaign contributions in exchange for services rendered, and indeed big business, big banks, big agriculture, big labor, and inclusively anything “big” engages in the practice of paying them off. The amount of these contributions might seem large, but it turns out to be nominal compared to the yield, often more than 100-1 in federal subsidies obtained through earmark legislation and comparable services provided by these congressmen. The few Congressmen unwilling to go along with this arrangement quickly disappear from politics because of inadequate campaign funding. When others more willing to depend on corporate donations finally retire, most find the means to transfer their remaining campaign funds to their own bank accounts and often join the ranks of lobbyists who, like themselves, had first learned the ropes as congressmen. The situation is strictly plutocratic verging on klepto-plutocracy when the law is broken to make it happen. Meanwhile, ordinary citizens have little if any influence except to the extent that they belong to issues-related public constituencies represented by their own variety of lobbyists.
Next U.S. Jeremiad (Part 2)
Edward Jayne is a retired English professor with experience as a '60s activist. He can be contacted at: email@example.com. Visit his website at: www.edwardjayne.com. Copyright © 2008 by Edward Jayne Read other articles by Edward, or visit Edward's website.
This article was posted on Saturday, September 5th, 2009 at 8:59am and is filed under Economy/Economics, Empire, Europe, France, General, Germany, History, Imperialism, Military/Militarism, Russia, Spain, United Kingdom.
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