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By John Samuel
At 12.7%, the US poverty rate is the highest in the developed world. Inequality is on the rise. Neoconservative politics and the dependence on unilateral military might are undermining American’s multiculturalism, goodwill and economy
The American dream -- the idea of the US as the land of opportunity, education, technology and freedom, the cultural melting pot -- is at risk of fading away. The American boom was, to a large extent, driven by the American dream which attracted some of the most motivated people, with ambition as well as talent, from across the world. This helped the US to emerge as a global powerhouse, at the forefront of ideas, education, science, technology and communication, with a vibrant market and a booming economy.
But the rise of neoconservative politics and the overwhelming dependence on unilateral military might as the primary source of American power now undermine the American dream, its multiculturalism, its goodwill and economy. US foreign policy is fast losing its ability to create consensus or peace and is increasingly defined by its capacity to create confrontation, violence and war. The ongoing tendency to lead more by muscle and less by contemplative mind will create greater security paranoia among different sections of people within the US. Consequently, there is a possibility that the USA will be less and less of a global destination for the brave new generation. And this could have challenging economic consequences.
The forthcoming US Congressional elections in November may indicate the shape of things to come. The US is one of the most significant trading partners of many other economic powers, including India and China. The global economy depends to a large extent on demand in the USA. In a globalised world, there is a very strong link between economic/political policies in one country and their impact on other parts of the world.
Recently George Bush boasted that the US “economy is powerful, productive and prosperous”. But then remember that on December 4, 1928, President Calvin Coolidge said to Congress: “Enlarging production is consumed by an increasing demand at home and expanding commerce abroad. The country can regard the present with satisfaction and anticipate the future with optimism.” Less than a year after that statement, on October 29, 1929, the New York Stock Exchange crashed, and its impact was felt worldwide. It was arguably the most traumatic experience in the history of capitalism. The near-universality of this economic crisis and its political implications are not easy to forget.
While Bush is busy fighting a shadow war in Iraq and the ‘war on terror’ globally, the American economy is far from healthy. With an estimated growth of 3.5% this year, unemployment low at 4.6% and fat profits, the economy looks robust. However, if we look at other key indicators, there is less cause for optimism.
The US trade deficit, both in absolute size and as a percentage of GDP, is unprecedented. It reached $ 800 billion (almost 7% of GDP) in 2005 and accumulated $ 4.5 trillion since 1990. Scrap metal and waste paper are two of the biggest export items. Former Federal Reserve Chairman Paul Volcker predicts a 75% chance of a major financial crisis within four years.
The biggest buyer in the global economy is the USA. Other key players such as Japan, EU and China are net sellers. A clear indicator of credit-based consumerism is household spending. The USA as a nation consumed about $ 800 billion (around 7% of GDP) more than it produced and households spent $ 500 billion more than they earned. The USA has negative savings and a low rate of investment and a substantial amount of the savings and investment of the global economy is in Asia. As a result, the net borrowing of the US every day, from the rest of the world, is a whopping $ 3 billion, largely by selling US treasury bonds. So buying and borrowing keep the economy of the US apparently robust.
There is a large chunk of US dollars outside the US. While Japan has around $ 1 trillion, China and Saudi Arabia are not far behind. To manage its increasing debt, there is an increasing chance that the US will trigger dollar devaluation, along with raising interest rates in the US. This can have a major impact on the global economy.
The ever-increasing expenses to meet the war in Iraq, along with the cost of the war on terror, would mean there will be less money for social sector spending. There have already been consistent cuts in social sector expenditure, including for education and healthcare. John F Kennedy’s adage that “a rising tide lifts all boats” is not working any more. When Hurricane Katrina ripped through New Orleans it also ripped through the myth of the American dream. The rising tide of economic growth has failed to lift the boats of the poor. There are an estimated 37 million poor (with an income of less than $14,680 for a family of three) in a nation of 300 million. The poverty rate of 12.7% is the highest in the developed world. Poverty in the US has both colour and gender dimensions. The majority of the poor are people of colour -- African Americans, American Indians and Hispanics form the vast majority. Soon after Katrina, Senator Barak Omana said on the floor of the Senate: “They were abandoned long ago -- to murder and mayhem in the streets, to substandard schools, to dilapidated housing, to inadequate healthcare, to a pervasive sense of hopelessness.”
While the poor, with an identity of colour, get further alienated from mainstream economic and political processes, inequality is on the rise. The Gini index (measure of income inequality on a scale of 0 to 100) of the US is 41, the highest in the developed world. A study by Emmanuel Saez shows that the share of aggregate income going to the highest-earning 1% of Americans had doubled from 8% in 1980 to 16% in 2004. Now an American chief executive earns 300 times the average wage, ten times more than in 1970. Though unemployment is relatively low at this point, other indicators such as the proportion of people working, stagnation of income levels of the middle class etc point towards vulnerability. A possible hike in oil prices may exacerbate the condition of the economy.
The skyrocketing budget deficit, trade deficit, increase of poverty and inequality are not good omens. As a recent survey has pointed out, more than six out of ten Americans are sceptical about free trade. The survey by Foreign Affairs pointed out that nine out of ten Americans worry about their jobs going offshore. But the fact of the matter is the number of jobs that have shifted offshore is not more than 1 million. However, such perceptions, coupled with an increasing sense of paranoia and insecurity, may signal the fading of the American dream and the seductive capacity of the land of opportunity.
The US is witnessing the rise of neoconservative politics, neo-liberal economic policies, and an over-dependence on unilateral military might. The alternative is an America that promotes equitable democracy and socio- economic justice, real human rights and multilateral internationalism based on negotiated diplomacy -- an enabling and supporting America which will create less wars and more goodwill. The American dream is at the crossroads.
InfoChange News & Features, October 2006
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