The US paradox: a warmongering superpower full of debts (II)
After the Second World War, the US imposed itself because of its quantitatively superior domestic agricultural and manufacturing base. As the world’s currency of choice, the dollar now can boost the economy only through consumption with the risk of insolvency looming on the horizons. Only the war industry is working. America’s current crisis manifests has hit its people and educational institutions. Our expert in political economy offers the second of his four-part analysis.
Milan (AsiaNews) – Speaking about the US paradox requires more than a few words. Its once powerful productive base that came out of World War Two unscathed is now (intentionally) delocalised to the point that 70 per cent of America’s GDP is consumption thanks to the power to issue dollars at will. And there lies the paradox.
The United States won two world wars as well as the confrontation with the communist bloc, not because it was technologically, militarily or ideologically superior. German industrial patents and war industry undoubtedly led the way in both the First and Second World Wars. Except for Patton, US generals, officers and troops were little more than mediocre. The Communist parties had an unequalled grip on civil society all over the world whilst the Soviet system imploded because of the huge flaws in its productive system. In fact, the United States imposed itself as a military power thanks to the quantitative superiority of its agricultural and manufacturing output and its domestic energy and mineral resources. This generated a positive synergy. Its economic and military supremacy made America the leader of the world, although initially that was limited to the West.
The dollar as the world currency
This enabled the US dollar to become the reference currency in western markets, even though it is no longer convertible into gold since 1971. Later, particularly after the collapse of the Soviet Union, the US, the only remaining world superpower, also achieved global monetary and financial dominance. In fact, such was and is US power that gold, the basis of international payments for thousands of years, ended up marginalised as a currency instrument, pushed out by the dollar.
This is how the US has come to benefit from an historically unprecedent rent. Since the dollar is the US national currency and the universally accepted currency, the US can obtain real goods and services from the rest of the world simply by issuing its own currency without having to give anything else in return. Thus, when the rest of the world continues to use dollars and buy US Treasury bonds – using US federal government debt instead of gold or another currency to settle mutual payments – the persistent US trade deficit with foreign countries it is no longer a problem – it is irrelevant. To devalue the dollar to make it cheaper to produce at home to export more abroad – which is what other countries do to balance their trade balance – is thus unnecessary for the US. This removes the risk or rather the certainty of domestic inflation through currency devaluation. Now, however, we have reached a turning point, the rubber band has been stretched too far and for far too long, so that a downward spiral is in the offing.
Globalisation has literally wiped out America’s productive base. The only manufacturing still done on American soil (for national security reasons) is that of the industrial military complex.[1] However, this means that the bases of American supremacy have also disappeared as did those for the dollar and the rent that comes with it. This is the American paradox and it is not clear why the US should continue to benefit from such a rent, why Americans should still be able to consume without producing, and why they should consume so much in relation to the GDP, like very poor countries that survive largely thanks to humanitarian aid?
The world’s policeman?
The only reason that could possibly explain the American paradox is that the rest of the world implicitly acknowledges the US as the world’s policeman because of their own internal structural weaknesses. The currency rent, a sort of global seigniorage, is payment for the US role of as the world’s cop. But Is that so? Perhaps, but nothing suggests that everyone has given their explicit agreement to it. At the same time, even assuming for a moment that it is so, keeping a dominant military presence all over the world comes with a hefty price tag.
As mentioned, the United States can’t produce enough domestically. For this reason, they cannot meet the maintenance costs of this ever-growing "Imperium". We must therefore expect ever growing US trade deficits. For how long will the rest of the world accept that before we reach the break point, that of insolvency? If the cop asks for a raise who decides his salary?
Putting this aside for a moment, if globalisation is certainly the preferred choice of the US government apparatus, the "deep state", by picking Trump and protectionism, American voters have opted for completely different path. Is this the solution to the paradox? Can America be re-industrialised? First of all, let us note that American neo-protectionism is not an external constraint but a choice determined by domestic electoral politics and perhaps strategic-military needs. It is a way to limit the rent, but one that does not deal with the premises on which the paradox is based, namely the dollar’s dual role as national and an international currency.
Secondly, putting aside the problem of retaliation, a tariff war to repatriate manufacturing jobs may be productive on the long run, but without other elements, it could turn out to be late and impractical. The country has in fact already lost its industrial culture and base and seems oriented only towards finance (and playing the stock market does not mean engaging in financial activities). However, the main problem is the lack of a qualified workforce. There are a number of reasons for this, starting with poor primary and (especially) secondary school education, the opioid crisis (caused by easily and senselessly prescribed painkillers), social crisis (broken families), widespread obesity[2], eating disorders, teenage pregnancies, and widespread dependency on pornography.[3]
Even universities, once the driving force of innovation and the pride of American excellence, are involved in a sort of civil war, low intensity for now, as some demand safe spaces, areas ruled by politically correct discourses with matching ideological controls. The quality of a university education, which is expensive, is less and less qualifying, with a major impact on the number of high-level graduates. Thus, rebuilding America’s domestic industrial base will be neither easy nor quick. Whatever the outcome of the game played in Washington between protectionism and globalism, it is clear that the structural imbalances that underpin the American paradox – an "Imperium" without a production base and an economy based on consumption – will continue in the short run, and in fact get worse.
(Second of four parts.) For the first part, click here.
[1] A lot could be said about the quality and efficiency of the American industrial military complex, which is burdened by corruption, waste and inefficiency, typical of sectors that rely on government contracts and enjoy a quasi-monopoly.
[2] About 40 per cent all American adults are classified as obese with a body mass index of over 30. See Craig M. Hales, MD1; Cheryl D. Fryar, MSPH1; Margaret D. Carroll, MSPH1; et al, “Trends in Obesity and Severe Obesity Prevalence in US Youth and Adults by Sex and Age, 2007-2008 to 2015-2016”, Journal of the American Medical Association (JAMA), 23 March 2018, https://jamanetwork.com/journals/jama/fullarticle/2676543, (accessed 10 April 2018).
[3] Two other important emergencies facing the Unites States are health care and retiring baby boomers. First, the cost of medical care in the United States (in relation to GDP) is very high and qualitatively mediocre when compared to the standards of other advanced countries. Related to this are health insurance costs, a situation that explains Obamacare’s failure. Second, the costs of retirement are a very serious issue since over the long haul the country’s pension system cannot cover all the liabilities and meet all legal commitments. This is a ticking bomb shared by all advanced nations. Both of these factors have an indirect impact on any rebuilding of America’s industrial base.
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09/04/2018 21:57
