November 16, 2010

The Age of Austerity

The current issue of Foreign Affairs has a remarkably sobering article by Roger Altman and Richard Haass entitled "American Profligacy and American Power" that seems, if I read it correctly, to spell out the death knell of the United States. In a word, they argue that we are going broke. The Bush tax cuts of 2001 and 2003, they point out, will reduce federal revenue by more than $2 trillion over ten years. This, and federal spending, make the Bush years the period of "the largest fiscal erosion in American history." (Note that Haass, who is President of the Council on Foreign Relations, was Director of Policy Planning at the State Dept. during 2001-3.)

It gets worse. The deficit for fiscal year 2009 was $1.6 trillion, or nearly 12% of the GDP--the largest in US history. The federal debt itself went from 35% of the GDP in 2000 to 62% of it in 2010. Given the corresponding rise in interest rates on all this, annual interest expense will begin to dwarf all domestic discretionary spending (including infrastructure, education, energy, and agriculture), requiring the Treasury to borrow $5 trillion annually to finance it. "Yet the real outlook for deficits and debt," the authors write, "is much worse than these forecasts." In fact, "The post-2020 fiscal outlook is downright apocalyptic." The Congressional Budget Office projects that official federal debt, excluding government-sponsored enterprises, could hit 110% of the GDP by 2025 and 180% by 2035. China is the biggest lender--i.e. purchaser of our debt--but it and the other lenders "have no strategic reason to continue holding US dollars." True, they would suffer losses if the dollar fell, but the consequences would be much worse for us.

The authors make it clear that US politicians have the choice of being proactive, moving to soften this scary trajectory to the extent that they can; or--more likely--fail to act, in which case the solution to the US out of control will be "a solution imposed on the United States by global capital markets." Things may be calm today (really?! I had the opposite impression), write Altman and Haass, but this "will not last in the face of the United States' disastrous financial outlook." Whether we act or don't act, in other words, there is no escaping a rather bleak fate. The only issue is the intensity of that fate, its degree of darkness. Either we attempt to manage our "transition into austerity," they say, or we don't; but either way, austerity is our future. We can expect smaller budgets, with major cuts in entitlements and domestic discretionary spending. The American citizen is going to suffer, and in a major way.

So far, so good; I mean, bad. But in terms of really understanding what has happened to us, it's at this point that the authors drift into a kind of doublespeak, while being oblivious to it. Consider the following two paragraphs:

"A related cost of the United States' debt has even greater consequences [than the transition to austerity]: the diminished appeal of the American model of market-based capitalism. Foreign policy is carried out as much by a country's image as it is by its deeds. And the example of a thriving economy and high living standards based on such capitalism was a powerful instrument of American power, especially during the Cold War, when the American model was competing with Soviet-style communism around the world.

"Now, however, the competition comes from Chinese-style authoritarianism: a top-heavy political system married to a directed and hybrid form of capitalism. The recent stellar performance of China's economy in the midst of Western economic troubles has enhanced the appeal of its system. Reinforcing this trend is the reality that the US approach (one associated with a system of little oversight and regulation) is widely seen as risk-prone and discredited after the recent financial crisis. If the United States is unable to address its own debt crisis and a solution is forced on it, then the appeal of democracy and market-based capitalism will take a further blow."

So the authors don't say that there is something fundamentally wrong with our (sham) democracy and market-based capitalism, of which our massive debt crisis is the proof. No, it's rather, in their eyes, that the fact that we somehow went off the rails will tarnish the reputation of this way of life. There is a failure to grasp that the American Way of Life, the dream of unlimited economic expansion, was a mistake and an illusion even in the heyday of its supposed success. We were never living in reality; we thought infinity was a reasonable goal. We also defined the good life purely in terms of money, of material accumulation--really, our only value--and this, more than any other single factor (in my view), has brought us to our knees.

And of course, the American public went along with all this, and with the notion that any form of socialism was evil. Indeed, it regarded any kind of social safety net as equivalent to communism, and regarded those who saw it differently as traitors. But in fact, the Soviet Union was hardly the only alternative model around; and here the authors make their second big mistake, for they put Europe into the same category as the US, and say that America's fate will be Europe's as well. But as Steven Hill shows in his book Europe's Promise, the European socioeconomic model--Scandanavia's in particular--is very different from America's, and Europe is doing fairly well with it. Thus the authors fail to connect the disintegration of our way of life with the inherent nature of that way of life, and in classic Cold War style, seem to believe it's either us or the Reds. As I have said over and over again on this blog, it's not just the man in the street who has been brainwashed. The "best and the brightest," to borrow an old phrase from David Halberstam, don't really understand the base-line problem of America, what America finally is, and that it did itself in by being precisely what it is. ("Character is destiny"--Heraclitus) The brightest, in short, are not really very bright at all (an argument most recently made, for US foreign policy, at least, by Derek Leebaert in Magic and Mayhem).

In a word, the authors seem to be blaming Bush Jr. for our no-exit situation, when the groundwork was laid with James Madison ("Extend the sphere," he wrote, and "you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens." In other words, any demands for a more equitable type of economy could be defused by opening up "surplus social space.") Historian Walter McDougall (Freedom Just Around the Corner) locates it nearly 200 years earlier, describing a commercial hustling mentality on the American continent that can be dated to the late sixteenth century. And because Altman and Haass have no understanding of the dialectical nature of history, and seem to believe that "a system of little oversight and regulation" is a recent phenomenon, they treat our current economic failure--basically, our collapse as a nation--not as the consequence of our very "success" (which turned around and bit us in the ass), but as something that descended accidentally, as it were--practically came out of nowhere; as a big surprise. The point, as the historian William Appleman Williams repeatedly made, is that we could have had a different type of nation, a social democratic one; but we made choices early on that precluded that, and then sit around wondering why we're screwed.

But we can nevertheless give credit where credit is due. Altman and Haass make no attempt to pull a rabbit out of a hat at the eleventh hour, as so many other pundits do; to paint a rosy picture that the American public is always so desperate to have. No: it's pretty obvious we are doomed, on a downhill slide of increasing suffering and austerity with only some type of "crisis management" possibly acting as a modifying influence. Nor do they think that we shall act in a proactive, intelligent way. Rather, circumstances will force us into austerity against our will, they suggest, and it will not be a pretty picture.

Kurt Vonnegut summed it up pretty well, some years ago: "There's a shit storm coming." Get out your umbrella.