We Did It Before ...
Americans eagerly await another “morning in America” moment.
12:00 AM, Aug 21, 2010 • By IRWIN M. STELZER
If it were ever true that we Americans are provincial -- the charge made by European elites and pundits -- it no longer is. True, only about one-in-three American adults have passports, but then Europeans can drop in on neighboring countries by hopping on a train, whereas Americans face a longer, more expensive trip from a country large enough to accommodate a great deal of wanderlust.
If the current recession taught Americans, and especially those of our policymakers capable of absorbing new facts, anything, it taught that events in “ a far away country … [with] people of whom we know nothing,” to borrow from Neville Chamberlain’s description of Czechoslovakia, matter here at home. Guerrillas in Niger disrupt oil production and American drivers pay more for gasoline; Greece teeters on the brink of bankruptcy, and U.S. bankers nervously reexamine their exposure to sovereign debt and European holders of those IOUs; China manipulates its currency and the undervalued yuan sucks jobs across the Pacific; floods in Afghanistan and drought in Russia cut those countries’ cotton production and American farmers benefit from the consequent rise in prices.
In short, our two oceans are less relevant than they once were, in part because of the globalization of financial markets, in part because the cost of communication has plummeted with the rise of the Internet, in part because new techniques of warfare allow resident Islamic jihadists to reach targets old-fashioned enemy bombers could not. That’s part of the reason the G-20 has finally found a raison d’être beyond creating photo ops for politicians.
This new interdependence, or at least the policy-making and political aspect of it, was highlighted at a recent meeting in Washington between UK prime minister David Cameron and a group of pundits and policymakers. As Bill Kristol, editor of this magazine, put it in a recent issue of Britain’s Prospect magazine, when the presidential election rolls around at the end of 2011, Britain will have had over two years’ experience with “a government that came to power running against big government, [and] welfare-statism…. If Cameron is able to and chooses to pursue a bold reform agenda … it would be important and helpful to US conservatism and the US in general if he succeeds.” So the special relationship takes on a new aspect: American conservatives are looking to their UK counterparts as potential role models.
And not only in the re-scaling of government and re-defining the welfare state. American policymakers are divided over the question of how to handle our deficit, now in double digits as a percent of GDP. President Obama’s team and many mainstream economists believe it is too soon to cut spending lest the current slowdown become the dreaded double-dip; Republicans generally believe that until the deficit is brought under control by a cut in spending, the private sector will remain on the sidelines, husbanding its $2 trillion cash hoard. Democrats are willing to attack the deficit by raising taxes on “the rich” and perhaps instituting a VAT-style national sales tax; Republicans believe such measures will kill the fragile green shoots that are struggling to grow into a full-fledged recovery.
Meanwhile, the presidential deficit reduction commission, scheduled to report after the November congressional elections, is looking at, among other things, the Cameron-Osborne (the latter is Tory chancellor of the Exchequer) formula of a combination of £4 of spending cuts for every £1 of tax increases, and especially at the consequences of raising the marginal tax rate on high-earners -- as offensive an idea to many U.S. conservatives, with the notable exception of former Federal Reserve Board chairman Alan Greenspan, as it is to Tories unconvinced that their government’s plan to leave in place Labour’s increase of the top marginal rate to 50 percent will produce much cash for her majesty's treasury.