- By Clyde Prestowitz
Clyde Prestowitz is the founder and president of the Economic Strategy Institute (ESI), where he has become one of the world's leading writers and strategists on globalization and competitiveness, and an influential advisor to the U.S. and other governments. He has also advised a number of global corporations such as Intel, FormFactor, and Fedex and serves on the advisory board of Indonesia's Center for International and Strategic Studies.
The George Soros-backed Institute for New Economic Thinking‘s just-concluded Bretton Woods weekend conference of leading economists didn’t actually focus on America’s future, but the sum of the discussions produced a pretty grim outlook.
The current political and cultural polarization of the country was seen as probably worse today than at any time since the outbreak of the Civil War exactly 150 years ago. The geography of this polarization is also similar to that of the Civil War period and the issue of a powerful federal government versus states’ rights remains pretty much the same.
The polarization today is being propagated by wealthy and powerful elements on Wall Street and elsewhere that fund bitter, attack dog politics and sharply polarized media commentary.
The power of big financial and corporate lobbies is such that they overwhelm reform efforts with huge lobbying campaigns. The effort to regulate the banks and establish accountability for them has failed to a large extent. The Dodd/Frank law that is supposed to re-regulate the banks fails badly because the reform of the banks to date has involved actually making them bigger and fewer. The biggest 50-odd institutions are being designated as too big too fail, but are not being subjected to any rigorous or vigorous oversight and regulation.
By dint of being understood to be too big to fail these banks are effectively in a position to "short" the government, meaning that they can essentially force the government to subsidize them by pursuing risky investment policies that the government must then support. The cost of capital of the big boys is lower than that of the medium and smaller fry by reason of the "too big to fail" designation. Thus, they will eventually squeeze the other banks out of the game. So bye bye community banking and ever getting to a real person at the end of the endless telephone menus.
But it gets worse. Americans are far too indebted and are trying to repair their personal balance sheets and cutting consumption to pay down debt. But this is retarding recovery and forcing the government to spend more in order to keep some kind of growth going and unemployment falling. To avoid falling back into recession, the government spending will have to continue for quite some time. But this will exacerbate the U.S. trade and current account deficits and increase overseas dollar holdings.
The rest of the world is pretty strongly dedicated to export-led growth. The Germans are forcing the rest of Europe to deflate and the only way for Europe to get any growth is through exports. China says it wants to rebalance its trade and focus more on domestic consumption led growth. It’s nice that China wants to do this, but it will be extremely difficult if not impossible in practice for China actually to reverse its export led policies.
The result is likely to be a continued shift of the production of tradable goods and the provision of tradable services outside of the United States to off-shore locations.
These trends will see a continued erosion of America’s ability to provide a good, middle class standard of living at home and to extend security abroad.
The really smart people have already put their wealth in gold bars and moved to New Zealand.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a senior editor at The National Interest. Prior to Fletcher, he taught at the University of Chicago and the University of Colorado at Boulder. Drezner has received fellowships from the German Marshall Fund of the United States, the Council on Foreign Relations, and Harvard University. He has previously held positions with Civic Education Project, the RAND Corporation, and the Treasury Department.| Daniel W. Drezner |
Marc Lynch is associate professor of political science and international affairs at George Washington University, where he is the director of the Institute for Middle East Studies and of the Project on Middle East Political Science. He is also a non-resident senior fellow at the Center for a New American Security. He is the author of The Arab Uprising (March 2012, PublicAffairs).
He publishes frequently on the politics of the Middle East, with a particular focus on the Arab media and information technology, Iraq, Jordan, Egypt, and Islamist movements.| Marc Lynch |