The Crisis of US Global Leadership

It’s Labor Day weekend in the US. Here in Milwaukee, at a large union rally sponsored by nearly every American labor organization, the special guest speaker will be the President of the United States, Barack H. Obama. Although the weather report calls for intense rain showers, I am certain that when the president speaks to his labor supporters, his message will be sunny and upbeat. However, the juxtaposition of the actual weather with the president’s prospective commentary would be a more apt description of the true nature of the American predicament.
American global leadership is at the crossroads, because the US runs a trade deficit of nearly half a trillion dollars. You read that correctly. In fact, the US has been running similar trade deficits for the past three decades. You read that correctly, too.

How does America get away with it? Only because Washington prints the world’s trading and reserve currency, the US dollar. The US is the only nation on the planet that pays its debts in its own currency. Therefore, in order to pay its creditors the US simply prints money. All other countries have to earn dollars through the export of commodities or manufactured goods in order to pay their debts.

This special privilege was assigned to the US by the anarchy of international relations — in other words, through its victory in WWII. As the only nation not physically devastated during the war, in 1945 the US found itself to be not only the world’s supreme creditor, but also the only nation with its industrial capability intact. Thereafter the US dollar became king of the world. At first, at least for the decades of the fifties and the sixties, the American working class benefited. Wages were high, and pensions were generous. In those workplaces where union membership didn’t exist, healthy government subsidies and direct payments sufficed to make for a truly sunny picture. During those years, American manufacturing reigned supreme.

But the geopolitical experience of the US (WWI and WWII) had so effected the American political and military establishment that, in order to deter any prospective enemy, a Euro-Asian hegemony was deemed necessary. This hegemony was inclusive of the Middle East as well. From NATO to Iran and Saudi Arabia and on to Japan, American military power spanned two continents and three theaters. US spending on military and domestic programs (guns and butter) dwarfed all other nations of the world. However, over time, there was a hidden catch. In order to organize such a pro-American world, the US not only became the lender of last resort (through the IMF and the World Bank) but also slowly became the consumer of last resort. US companies faced stiff competition from foreign friends and allies. However, dollar supremacy held no particular advantage for US workers and their specific local and regional business/community networks. A world based on free and open trade might make America safe from a Germany or a Russia or a Japan, but it did little for the economic health of the cities and states of the union.

Slowly but surely the US competitive monopoly failed, as the overpriced dollar made American exports expensive. While this dollar arrangement worked for the US government and its military overseas hegemony, over the course of decades US-made products became priced out of global markets. This also became glaringly clear right here in the US. In the last three decades, as the trade deficit has risen and plateaued, both well-paid union jobs and US manufactured goods have fallen to all-time lows. Not surprisingly, working class paychecks have stagnated, while the once healthy relationship between small Main St. shops and local manufacturing has also faltered. With the advent of foreign competition, US business became global in design. Mega-consumer corporations arose and bought in volume from cheap overseas producers and manufacturers. The local and regional network was replaced by cheap labor from overseas and international networks. As Wall St. finance prospered from the globalized international markets, Main St. America — the political backbone of the Republican and Democratic parties — declined.

But even with localized decline, the American dollar’s supremacy allowed the country to continue to borrow (and pay back in dollars) as both its trade and budget deficits ballooned. This has happened slowly over long periods of time. To maintain the economy and its consumer function, the American worker and small-business person went further and further into debt. Instead of being the world’s leading manufacturer, the US economy slowly transformed into a service economy, specializing in personal debt, real estate and international finance. Within the same time frame, US workers and families needed two jobs and a number of credit cards in order to survive. Finally in the late summer of 2008, the speculative excesses (created by the enormous debt load of both the government and the individual American worker) exploded. The ensuing financial shock waves were felt around the world and, for the most part, they still are.

As the president speaks here in Milwaukee this weekend, I’m certain that the labor leaders and labor press gathered in this proud city (once called “the machine shop to the world”) will severely question the US role as the “policeman of the world”. But the president can’t have it both ways. Either it’s raining, or it’s sunny. Either the US is the world’s policeman, or it’s not. Either the working people of America and their Main St. businesses are healthy, or they are impoverished. Perhaps in the final analysis this is not President Obama’s decision. He will never run for another election. He is most likely, by the standard of US global leadership, a lame duck. The American people will probably decide in the next two presidential election cycles (2016 and 2020), if they might want to continue on the current path.

For many small countries that depend on the US for global leadership (like Israel), this crisis is hardly reassuring. But it is reality. And unless the president can enunciate an entirely new global strategy and doctrine, along with a different economic policy, events themselves (or perhaps the next election) will determine in which direction the geopolitics of the world turn. If the polls are to be believed, the only issue that now connects both Republican and Democratic voters is the desire to withdraw from US global supremacy.

The American people have become insular. The Middle East, Asia and even Europe seem more and more distant as paychecks and good jobs are spread thinner. There is even talk of rebellion (independent third-party rebellion) in the air. The American isolationist impulse is on the rise. So too are whispers of trade barriers and tariffs. America has become a nation of vast inequality. There are even serious op/ed pieces calling for the end of US dollar supremacy. Only seven percent of the people believe that Congress is doing a good job. There’s a distinct undercurrent of grumbling and dissatisfaction. Americans (unlike Israelis) face no existential threats from their neighbors, so the necessity to play the role of global policeman is increasingly being questioned. In fact, other than their own economic contradictions, Americans appear worlds away from the daily traumas of the Middle East. However, these economic contradictions are what Americans fear the most. Because nearly everyone in the US, across the entire political spectrum, understands that a poor economy erodes the very foundations of a free and equal society.

Happy Labor Day, Mr. President — Welcome to Milwaukee, the ex-machine shop to the world. Could you please explain (to us blue-collar local yokels) how a guns and butter economy with a half trillion dollar trade deficit works to our benefit? With factories closing everywhere, we are getting tired of automatically voting (like robots) for a Democratic party that seems incapable of bringing those overseas jobs home. Oh, and by the way — in the past, nearly every US president went to Detroit (auto capital of the world) on Labor Day. But that’s another story, or is it, Mr. President?

About the Author
Steven Horowitz has been a farmer, journalist and teacher spanning the last 45 years. He resides in Milwaukee, Wisconsin, USA. During the 1970's, he lived on kibbutz in Israel, where he worked as a shepherd and construction worker. In 1985, he was the winner of the Christian Science Monitor's Peace 2010 international essay contest. He was a contributing author to the book "How Peace came to the World" (MIT Press).
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