Bush fiddles with economy while Baghdad
/bigger>/bigger>/bigger>/bigger>/fontfamily>Could a faltering dollar and global
rebellion against its values presage the decline, and eventual fall, of the
American empire, asks Mark Tran
/bigger>/bigger>/fontfamily>Wednesday March 26, 2003
/fontfamily>The war in Iraq is not going as smoothly as the
Bush administration would like and the conflict is looking less and less like a
walkover by the day.
Yet there can be little doubt that the US, backed by
Britain, its loyal junior ally, will eventually prevail. The conflict will bring
the US little glory, pitting the world's most powerful military machine against
a dilapidated army, but when American and British troops enter Baghdad, the US
will surely cement its status as a hyperpower.
But does the US colossus
have feet of clay? It takes a brave soul to argue that America, the world's
largest economy and by far its most potent military power, is about to go into
decline, when it is widely perceived as a hyperpower. But Independent Strategy,
a financial research company for institutional investors, has made the case in a
paper that is making the rounds of big investment banks such as Goldman
Independent Strategy believes that the US shows many symptoms of
an empire that is cresting. First, it sees deepening mistrust of the US and
predicts a rise in terrorism in reaction to US unilateralism.
certainly the case with the Bush administration, which has made a habit of
tearing up international treaties from Kyoto to the anti-ballistic missile
treaty. Iraq is the culmination of the Bush administration's unilateralist
streak, as the White House plunges into an unpopular war in disregard of the UN
Second, Independent Strategy sees trouble ahead for US
economic policy. It notes that Mr Bush has boosted discretionary government
spending more than at any time since the Vietnam war. Inheriting big budgetary
surpluses from the Clinton administration, the Bush White House is heading for
True, budget deficits were probably unavoidable as a
10-year economic expansion ran out of steam. But Mr Bush is not helping matters
with a $726bn (#462bn) tax cut that, even though reduced by the senate to
$350bn, benefits mostly the rich and a war that will add at least $74bn to the
books, and probably considerably more.
Third, what was known as the
Washington consensus - free market economics and deregulation - has broken down.
As Bob McKee, chief economist with Independent Strategy, notes, a populist
reaction has taken hold in Latin America, while in Asia, Malaysia has gone its
own way economically. Moreover, South Korea and Taiwan never really bought into
supply side reform.
"Empires work best when they project power through
the successful export of a social model or ideology," argues Independent
Strategy. "The rot started when the US failed to project its economic ideology
and social model globally. Japan and Europe have long rejected both, at least
implicitly, as inimical to their culture and alien to their social
Independent Strategy sees the weakening dollar as the fourth
strand in the decline of empire.
"The dollar will go on down because the
good empire has the same faultlines as many other empires: unsustainable living
standards at the core depend on flows of wealth from the periphery," says
Independent Strategy in terms that would not be out of a place in a Marxist
textbook. "The US no longer earns the return needed to sustain these flows. The
costs of war and unilateralism will increase the thirst for capital, but reduce
the return earned by it."
In plain English, America relies on the rest of
the world to finance its deficits. The rest of the world was happy to do so when
the US economy was strong and returns were high, but investors will put their
cash elsewhere if America looks weak economically. America borrows hundreds of
millions of dollars from the rest of the world each day to cover its savings gap
and, under George Bush, US dependence on foreign capital is set to
The decline of empire thesis is not exactly new. Paul Kennedy,
the British historian, wrote the best-selling The Rise and Fall of the Great
Powers back in 1988, where he coined the phrase "imperial overstretch". It was a
great read, but then the US embarked on a record-breaking expansion that lasted
10 years and saw Wall Street shoot up to over 11,000 points.
great economic expansion turned out not to be so great after all, culminating in
a wave of financial misreporting and outright fraud at Enron and WorldCom. The
twilight of empires can last a long time, but judging from his reckless
unilateralism and his economic vandalism, George Bush seems to be determined to
do his level best to hasten that decline.
7 Mark Tran is business
editor of Guardian Unlimited