How America’s Superpower Status is Slipping Away

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After finishing Anatole Kaletsky’s excellent op-ed ( I wondered why I had not seen an article like this until now. Finally someone is writing about palpable changes in global finance philosophy brought on by the collapse of Lehman Brothers and the housing bubble. Sure I’ve read many books detailing the actual crisis such as John Cassidy’s How Markets Fail and Michael Lewis’s The Big Short. But I had not seen any definitive articles discussing how the rest of the world has reacted to the fiasco.

Kaletsky, “the chief economist of a Hong Kong-based investment advisory firm” and “author of ‘Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis’” according to the Times, explains that the problem of China’s persistence in manipulating its currency has much bigger and more symbolic implications for America than just the loss of jobs and sales (for those unfamiliar, China artificially maintains a devalued currency so it can export products more cheaply, and this makes it almost impossible for America to compete with China’s prices: that’s why almost everything we buy has a “made in China” label). It is now evident that other Asian countries are following China’s lead rather than America’s.

Japan, for example, recently opted to manipulate its currency rather than leave it to the whims of the free market. This decision arose from a fear of losing market share to China and also to Taiwan, Korea and Singapore, all of whom control their exchange rates to enhance exports. America’s role in the global economy has apparently had little influence over Japan’s choice.

This outcome, argues Kaletsky, illustrates “a growing belief among Asian leaders that the era of United States hegemony will soon be over.” The housing bubble, in others words, has proved that unfettered capitalism cannot work: if it can’t carry out the basic function of financing mortgages there is little reason to suppose that market forces alone can attain favorable employment levels, meet the challenges of transcending fossil fuel based economies, close the gap between wealthy and poor, etc.

The rest of the world, it appears, comprehends this obvious notion. But in America, the source of the housing crisis, we ironically still can’t make up our minds about whether we should revert to the previous economic paradigm, the one that got us into this mess, or shift towards a more realistic and practical approach. The rise of the Tea Party movement, for example, is stunning in this context. As Kaletsky remarks, “the market fundamentalism now represented by the Tea Party based on instinctive aversion to government and faith that ‘the market is always right,’ is a global laughing stock.”

Kaletsky ultimately argues that if America doesn’t absorb the lesson of Lehman’s demise that the rest of the world has learned, its place as the prime fiscal superpower will fade. The trend in Asia evinces that this is already occurring. As such, America must confront the reality that other countries will now rely on a combination of capitalism and market manipulation, and the sooner America starts to lead in this “new economy” the better chance it will have to maintain its global supremacy.

But what’s most interesting to me is why many Americans are ignorant. Our country has become so polarized that we can’t even agree on who our enemies are or identify our gravest national security threats. Theoretically we should all recognize that terrorism, climate change and financial crises brought about by deregulation-induced bank runs are obvious and palpable threats of the 21st century. We’ve already seen the damaging effects of the big three and therefore should rally around our leaders to respond intelligently.

But the majority of Americans can’t agree on anything. Bush’s war in Iraq distracted us from combating actual terrorists bent on waging global jihad against America, and now most Americans resist supporting Obama’s campaign to destroy the Taliban and Al-Qaeda. Only half the population thinks global warming is man-made. And many people believe that the financial crisis was caused by too much government regulation. My father, for example, a radical conservative who relies on FOX News and Rush Limbaugh for his information, insisted as the banking system was on the verge of collapse in late 2008 that the government “has to just get out of the way” and the market will correct itself. He even went so far as to claim then that if only the government would have not interfered the market would have “recovered already.” The scary thing is that millions of Americans perceive the situation this way. At the time I was amazed by such fundamentalism: what would it take to prove that markets are inefficient? Obviously nothing.

But now it seems we’re already experiencing the consequences of our collective foolishness and orthodoxy, as Kaletsky’s article attests. If we allow the Republicans to take power in November it will prove a triumph for the forces of disinformation, and our country will likely at best stagnate and at worst sink further under the stewardship of radical ideologues who have learned either nothing or have drawn the wrong lessons from recent history.

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A recent graduate of NYU’s Gallatin School of Individualized Study, I consider myself a student of Melville and Shakespeare. Particularly, my fascination with Moby Dick has sparked a broader interest in many fields such as politics, history, science, economics, etc, since that novel deals with disparate disciplines and issues in an encyclopedic, yet accessible manner.

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