The United States was once the Julius Caesar of the world's economies. Like Caesar in his Rome, what America said and did became the standard and the rule for the non-Stalinist nations who emulated everything in their effort to be as prosperous as we became. As for the Stalinist nations, they were undermined as much by Levi's jeans and rock'n'roll as they were by the huge and very hostile American military presense, which by design surrounded them in ways for which Hitler would have sold his sorry soul many times over.
But as the Stalinist nations collapsed, and Glasnost and Perestroika replaced "global revolution" and "the dictatorship of the proletariat", there was no longer any opponent to use to motivate the capitalist working class to strive for efficiency and greater productivity. Those potential rivals since held up to replace Stalinism — Muslim extremists and Mexican immigrants — have neither wealth, power, nor any great economic output useful for frightful comparison. Without any such rival, the forces which feed on unbridaled competition required a focus, and it was upon its own that these forces were directed.
America entered this period of economic dominance due to the ravages of war unleashed upon all of the other major industrial nations. The growth of American economic power was an opportunity of historic proportions. But to maintain that power, it was required that no other economy be allowed to achieve parity. One way to block this development would have been to go to war to destroy any nascent rival, as has been done repeatedly throughout written history, and very likely before. But the destruction committed during WWII by all sides demonstrated that the potential to end human life on this planet existed, and atomic weaponry was not the only reason this could occur. Thus following this path was not encouraged.
The other way to prevent rivalries from developing is to subvert them as they grow. After WWII, the world was in perfect condition for the only undamaged industrial economy to direct and control the restoration of the rest of the world so that no such contest could develop. The Marshall Plan — while it did a lot of good for the average European — was the means by which American firms could gain control of ravaged rivals, and which would then be in position to "influence" local governments to see things in certain ways critical to American hegemony. It also helped that their militaries were largely ceremonial, with the heavy defensive lifting being performed by American forces, which still remain in de facto occupation of the former Axis nations today.
This plan worked as long as those who greatly benefitted from this system continued to reinvest in the American worker who made all of this possible. But once it was clear that Stalinism was too stressed to survive much longer, and that there was no convenient enemy waiting on the sidelines, one had to be created. That enemy was the very workforce which created the prosperity enjoyed by the entire nation. Our usefulness to the elites had come to an end, and to protect their blood-stained profits, we had to go.
Article comments
1 - Dave Nalle
Of course, the real problem here is the gross inefficiency of the administration's approach to stimulus. Spending money to stimulate the economy is an indirect approach which wastes more money than it puts to good use. By taking this approach you have to spend literally 10 times as much or more than you would if you implemented your stimulus through substantial tax cuts, especially ones directed at the middle and working class.
The reason Romer's demands were unacceptable is that they were based on this false assumption that government spending is a sensible way to stimulate the economy. What her situation revealed is that the law of diminishing returns makes that kind of stimulus more and more inefficient the more you spend.
They need to rethink the whole approach they are taking, but as you point out, with Summers behind the wheel and ideologues at the helm they are never going to get outside of their big government box.
Dave
2 - jeannie danna
Tax cuts for the middle class will not matter here, since it's not our economy that they want to stimulate.
using foreign aid money to specifically help private corporations "take advantage of low labor costs" in the developing world - that's absolutely grotesque.
so, why only blame Obama?
: ) Hi Realist! Long time no see.
3 - handyguy
Dave, your ideological view of economic stimulus is not shared by a lot of economists. Some, but certainly not universally.
4 - Ruvy
So, Realist is finally waking up! Man, it took a long time!
5 - handyguy
This article is massively over the top [as usual]. Just one example: Obama has been "BP's lackey"??!! Ludicrous.
The size of the Feb 2009 stimulus bill was determined largely by the political ability to push it through Congress. It was derided by the right as huge and wasteful, and by the left [i.e. Krugman] as a good start but not big enough given the size of the hole.
[By the way, about a third of it consisted of tax cuts aimed at middle class families and small businesses. Over $250 billion!]
The recent Alan Blinder/Mark Zandi evaluation of the success of TARP and the 2009 stimulus was pretty convincing: Those actions prevented a 10% unemployment rate from becoming a 15% or 20% one, and kept a scary Wall St economic meltdown from spiraling all the way down the drain.
Don't you think that if there were a "magic bullet" solution to unemployment, the president would go for it? He's hardly unaware of that 9.5% jobless rate's effect on his poll numbers.
Companies are sitting on cash reserves and not hiring. That's the key to the eventual solution.
But even recent small-bore attempts to get small-business tax breaks and a small-business loan fund through Congress have been made hostage to election-year partisan hostilities.
Mr. Obama ain't perfect. But this piling on from left and right accomplishes nothing.
6 - John Wilson
Phelps article is bad economics. I suspect it reflects his political views.
All these ideas to help businesses are misdirected: the USA is WAAYYY over capacity already. We have a capacity glut. No amount of money given to suppliers and builders will cure our unemployment problem for the simple reason that there is no market for products.
It's the endpoint of 'supply side' economics, which should only be used as a monor correction to demand-side econ, which is what powers our economy. Suppliers are camp-followers: they go where there is business, but markets are set by consumers.
It is useless to pump more resource into the producer side. Unless, of course, you wish to subsidize export of US business to foreign lands to save them, which will be done at the expense of US citizens and workers.
It is worse than useless, it is a negative because it takes money and attention away from where it is really needed: at the low end of the earning scale where big consumerism thrives.
7 - handyguy
I didn't read Phelps's piece that way, John. He says there is insufficient venture capital because there is insufficient innovation, and vice versa. A vicious cycle.
He also says companies are thinking short-term when they should focus on the long haul. And for public companies, the stock price is the reason for the short term-itis.
He suggests tax breaks especially aimed at lower-paying jobs. That doesn't sound right wing or supply side to me.
8 - jeannie danna
President Obama is not perfect, but he is a hell of a lot better than the last guy!
9 - jeannie danna
John,
It is useless to pump more resource into the producer side. Unless, of course, you wish to subsidize export of US business to foreign lands to save them, which will be done at the expense of US citizens and workers.
Hasn't that already been done?
10 - Chlotilde
Of course there's a market for products. We could be selling all those consumer goods which were selling 5 years ago and are not selling now.
11 - Ludwik Kowalski
You wrote: "But as the Stalinist nations collapsed, and Glasnost and Perestroika replaced 'global revolution' and 'the dictatorship of the proletariat', there was no longer any opponent to use to motivate the capitalist working class to strive for efficiency and greater productivity...."
Glasnost and Perestroika also did not happen without reason. They demonstrated the faulty nature of Marx's idea proletarian dictatorship.
Ludwik Kowalski, the author of two books:
1) "Hell on Earth: Brutality and violence under the Stalinist regime"
2) Another short book, also free for on-line readers, is “Diary of a Former Communist: Thoughts, Feelings, Reality.”
12 - handyguy
Excellent and entertaining conversation from an unexpected source:
Former Treasury Secretaries Paul O'Neill and Robert Rubin on Fareed Zakaria's show today on CNN. O'Neill is often hilarious, and both men have a lot of common sense wisdom on the current economic situation. Good stuff [even those who enjoy sliming Rubin may find themselves impressed].
[I just watched it live on cable; the clip may not be posted on the web yet.]