Is This The End of the American Century?

This site features updates, analysis, discussion and comments related to the theme of my book published by Rowman & Littlefield in 2008 (hardbound) and 2009 (paperbound).

The Book

The End of the American Century documents the interrelated dimensions of American social, economic, political and international decline, marking the end of a period of economic affluence and world dominance that began with World War II. The war on terror and the Iraq War exacerbated American domestic weakness and malaise, and its image and stature in the world community. Dynamic economic and political powers like China and the European Union are steadily challenging and eroding US global influence. This global shift will require substantial adjustments for U.S. citizens and leaders alike.

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Showing posts with label financial collapse. Show all posts
Showing posts with label financial collapse. Show all posts

Monday, October 24, 2011

"Occupy Wall Street" Interpreted for China

Today's issue of Wen Hui Daily in Shanghai includes a long interview with me on the Occupy Wall Street movement. The editors approached me on this topic because of the Chinese publication of my book The End of the American Century. The interview is interesting as much for the nature of their questions as for my own responses (though the latter did tie in very closely to important themes in my book).

Almost all of my responses seem to have been translated verbatim. However, the editors did exclude two items:

1) My reference (in answer "A3") to the 1980 Solidarity movement and the overthrow of the communist government in Poland.

2) The last question (16) and answer, which addressed Obama's commitment to social justice and a reference to Martin Luther King's statement that “the arc of the moral universe is long, but it bends towards justice.”

A link to the original Chinese publication is here.

My original English language responses to their questions appears below.

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Q1:The Occupy Wall Street movement is an event of global political life and social life. How to define this campaign? Is it a carnival, as Zizek worried about? or a media show? or a social movement to fight against financial oligopolies and to protest injustice?

A1. Occupy Wall Street is difficult to define because at this stage it is so amorphous, decentralized, and unfocussed. I would say it is an incipient social movement that captures a widespread sentiment in the United States against inequality and corporate greed, excess and corruption. Like many social movements, it has started out small, but has grown quickly, in terms of number, diversity of participants, and geographic scope. What started in New York has now spread to many US cities, and even to other countries.

But it would be a mistake to view these protests as a major political force, at least at this point. The protestors in New York number only about 1000 on any given day. On most days the Wall Street protests do not even make the front page of the daily newspaper in my city of Indianapolis.

You asked about Slavoj Zizek—the Slovenian Marxist philosopher who joined the protesters this week. But he is almost completely unknown in the United States, except perhaps by a relatively few intellectuals. His appearance at the Wall Street protests was not mentioned in most American news reports.

Nevertheless, I do believe that Occupy Wall Street is potentially very important in the U.S. It is focusing attention on inequality—a problem that has gotten very little attention in this country, but is, in my mind, at the heart of the serious economic, social and political problems the U.S. is now encountering. Wealth and income inequality in the U.S. are at the highest levels in 70 years—since the Great Depression—and are higher than in any other industrialized democratic state.

Q2. Some people think that liberalism in the pursuit of efficiency and profit has dominated the world for more than half a century, and the hands of the history should go to the side of fairness and justice. Do you agree with this? Will this movement really bring new social imagination to the world?

A2. I agree that neo-liberalism has dominated the world for more than half a century, but this is because the United States has been the dominant global power in that period, and the U.S. has demonstrated, exhibited and promoted this model of economic and political development. And it cannot be denied that the American model of capitalism and democracy has been both broadly appealing around the world, and highly successful in many parts of it. The fifty years following World War II were ones of unprecedented growth in global wealth and welfare—much of that fueled by the astounding growth of the economy, consumption, and prosperity in the United States.

But there was a dark underside to that economic growth, which became increasingly evident and problematic in the 1970s, and has accelerated since then. Increasing prosperity in the United States camouflaged a widening rich-poor gap in this country, and globally. Excessive consumption led to a proliferation of debt, both by governments and households. In the pursuit of profits and consumer goods, we increasingly neglected social goods: education, health care, infrastructure, and the environment. All of these are in serious difficulties now.

So in a sense, it is now time to right the balance, and to put more emphasis on fairness, justice and equality. These have always been central to the American ideal, and the American Dream, but have taken a back seat in recent years. I believe this is one of the principal concerns animating the Occupy Wall Street Movement.

Q3. We noticed that many people compare this movement to the events of 1968. But obviously, the Occupy Wall Street movement lacks clear leadership, lacks clear political pursuit, and also lacks a schedule, and a particular solution. Will all of these weaken its real strength?

A3. There are some similarities of the current movement with those of 1968 which, like the Wall Street protest, began mostly with young people. Comparisons could also be made to the recent Tahrir Square protests in Egypt; civil rights protests in the American South in the 1950s and 1960s; and the “velvet revolutions” in Eastern Europe in 1989. I think there are also intriguing similarities to the 1980 strikes in Poland, which quickly mushroomed into the “Solidarity” movement which came to topple the communist government in that country in 1989. (One of my own research specialties is Poland, where I spent much time in the 1980s).

It is true that the lack of leadership, focus and specific demands of the Wall Street movement diminishes its potential impact and power. Maybe these will cause it to collapse. But many of these other social movements mentioned above were also essentially leaderless, at least at first. The demands of some of them—including the student movements of the 1960s, and the Tahrir Square demonstrations—were quite diffuse and general. But all of those earlier movements, like this one, touched a nerve in the broader society, and in the end made significant, even revolutionary, changes in society.

Q4. The two political parties hold different attitudes towards the movement. On the Democratic side many people have shown understanding and sympathy towards the movement. The Republicans are opposite, saying the demonstration was "a battle with the wrong goal". So will these different attitudes lead the protests to be used by different political forces in different ways?

A4. It is true that the Wall Street Movement has been embraced by most Democratic politicians and pundits, and rejected or ridiculed by most Republican ones. However, I do believe the Occupy Wall Street movement has the potential to attract supporters across the political spectrum, from left to right. Let me offer two explanations for this reasoning.

First, public opinion surveys show a substantial majority of Americans have a favorable view of the Wall Street protests. A Time Magazine poll this week shows 54% viewing the protests favorably, and only 23% unfavorably. In contrast, only 27% still have a favorable view of the Tea Party movement. Another poll by NBC and the Wall Street Journal found that 37% of the respondents “tend to support” the Wall Street movement, while only 18% “tend to oppose” it. As I mentioned earlier, I think the Wall Street movement has touched a nerve in American society, and therefore has the potential to become much bigger.

Second, I would argue that there is actually a good deal of common ground and overlap between Occupy Wall Street and the Tea Party. While they are rooted in different segments of the population, and have different agendas, both movements are populist and anti-establishment, and both are reacting against the concentration and abuse of power, and the perceived neglect of average Americans. While I am sure many Tea Partiers are skeptical, and even hostile, toward the “hippies” protesting on Wall Street, I suspect that many of them would agree with the Wall Street Occupation complaints about government policies that favor the rich, the government’s bank bailouts, and the influence of money in the political system.

Q5. Protesting the greedy of Wall Street appears to be the most direct appeal of this campaign. But wasn't it Wall Street financial innovations that brought the United States to gain the leading position in nearly 20 years of global technological and financial competition?

A5. In my view, “financial innovation” contributed almost nothing to the growth of the U.S. economy in recent years. In fact, quite the opposite is true. The awe-inspiring postwar growth of the American economy, and of U.S. global power and influence, was rooted in a combination of explosive manufacturing growth, technological innovation, rapid growth in the standard of living and consumption, rapid increases in productivity, and the expansion of global trade. Banks and financial institutions were important tools in all of this, but it was their security and stability that was most important for these developments, rather than any financial innovations.

Indeed, the rapid growth of the financial services sector of the American economy in the last twenty years is a principal cause of our current economic crisis, and of America’s domestic and international decline. Over the last two decades, manufacturing has steadily declined as a share of the American economy, while financial services have steadily increased. But financial services, per se, contribute almost nothing to the economy. They just move money around. They are based on, and primarily depend on, the accumulation of debt. Banks and mortgage companies encouraged American consumers to take out loans, even when it was unwise for them to do so, because those institutions made money on such transactions.

In 2008, it suddenly became clear that this large sector of our economy was essentially a hollow shell. But because it was so large, the biggest financial institutions—like AIG, Citigroup, and Bank of America—could not be allowed to fail, for fear that the whole economy would collapse. Thus the government bailouts.

Yet now, just a few years later, many of these institutions are thriving again, and their CEOs are receiving compensation packages worth tens of millions of dollars. Meanwhile, unemployment remains mired at 9%, and the average worker in the U.S. is earning no more, in real [i.e. adjusted for inflation] terms, than he or she was twenty years ago.

This is one of the main grievances of the Wall Street Occupiers. Indeed, it angers most Americans.

Q6. After the outbreak of financial crisis, the appeal to reform the financial industry is very high, Obama also argued for increased financial control to win the election, but after he came into power why is it so hard for him to put into practice the regulation of the financial industry?

A6. President Obama did manage to steer through Congress a major reform of the financial regulatory system, the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” in the summer of 2010. This act included the creation of a Consumer Financial Protection Bureau, which eliminates many of the worst practices of banks and credit card companies, which had helped drive so many consumers into debt. The Dodd-Frank bill was passed when the Democrats controlled both houses of Congress. Since the 2010 Congressional elections, which gave the Republicans control of the House of Representatives, any new initiatives in this direction have been defeated by Republicans, who oppose almost any efforts to strengthen the role of government.

Q7. The financial system has become the solid structure of modern society. Many economists think the campaign should not alter this basic framework. Is it because of this that global politicians and thinkers have not been able to put forward an effective alternative when confronting the real world?

A7. As I mentioned before, I disagree with this characterization of the financial system being the core of the modern economy. Banks and financial institutions are an essential tool for the development of modern economies. But their primary role is to provide stability and security so economic transactions and trade can operate smoothly.

The problem is that the financial services sector became a major independent actor in generating wealth based on moving money around, often through complex and obtuse financial instruments like hedge funds and credit default swaps. Many financial institutions became so wrapped up in this money-making sideshow that they undermined their primary purpose of providing stability and security to consumers, investors, producers, and governments.

Q8. People may feel that the government has been hijacked by entrenched politicians and financial oligarchs and increasingly polarized by the two parties. Even President Obama has said that he would rather the country lose than his rivals win [sic?]. For this, will the "occupation Wall Street" movement become helpless in facing this "institutional predicament"?

A8. It is true that money plays a huge and detrimental role in the American political system. Lobbies and moneyed interests play a disproportionate role in elections and policy-making, to the detriment of ordinary citizens. This is one of the complaints of Occupy Wall Street—though it is also of concern to populists on the right, like the Tea Party.

The polarization of politics, and the unwillingness of politicians to compromise, is also hurting the country, and inhibiting efforts to deal with the huge problems we are confronting. I think, though, that the poisoned political atmosphere, as well as the emergence of radical populist movements on both the right and the left, are a predictable response to the protracted economic crisis that we find ourselves in. People’s jobs, homes, standard of living, and economic security are all in jeopardy, and this causes fear and anxiety. Normal politics, and political compromise, are hard to come by in such an atmosphere.

Q9. In the end of the American century, you said, "American exceptionalism" makes Americans believe that poverty and wealth are due to the individual’s faults or achievements, and has nothing to do with the system. Will the campaign lead people’s thinking to the level of the system?

A9. In a big international public opinion survey that I directed some years ago, we found that Americans, more than any other country that we sampled, were more likely to believe that an individual’s wealth or poverty was due largely to his/her own talents or work, rather than to the economic or social system. Americans tend to believe that if a person works hard, he or she will succeed, and that anyone can become rich and successful, even those from disadvantaged backgrounds.

But in fact, there is less social and economic mobility in the U.S. than there was a generation ago. Increases in poverty and inequality over the last several decades are both a cause and a result of this. Children in poor neighborhoods (especially in cities) often go to poor schools, and are more likely to be exposed to drugs and violence. This poses enormous obstacles to achieving a good education, which is essential for success in the work force.

As I mentioned before, I think the major accomplishment of the Occupy Wall Street movement, so far, has been to focus attention on and raise awareness of the issues of economic and social inequality in the United States. As people confront this issue, they will begin to learn more about the systemic aspects of inequality. Mainstream news sources like Time Magazine and The New York Times are increasingly addressing issues of poverty, wealth and inequality. At least in part this is a response to the Occupy Wall Street movement.

Q10. Many young people participate in the "occupation" movement, and US young people have always been defined by their "generation:" the youth after the first world war was called the "lost generation;" and after the second world war was called the collapse generation. Will this one be called the awakening generation because of the "occupation" movement ?

A10. While the Wall Street movement began mostly with young people, it has now spread and grown and become more diverse. The issues that they raise affect almost everyone: witness the growing popularity of the slogan “We are the 99%.” So I do not think that this is primarily a generational revolution, like the ones of 1968. In the U.S. the richest 1% receive about 20% of the country’s income, and control about a third of its wealth--more than the amount possessed by the "bottom" 90% of the population.

Q11. The new media, which takes Wall Street financial innovation as its driving force to develop, such as FACEBOOK, TWITTER, has played an important role in the campaign,. Is this a great irony?

A11. I do not see it so much as an irony, as a function of modern society. Social movements and revolutions have speeded up, like everything else in modern life. Social media and electronic communications facilitated this in Tunisia and Cairo, and are doing so now in the U.S. and elsewhere.

Q12. the participants of this movement also wrote many slogan in Chinese. Is this behavior art of consumerism, or does it show that China provides some dimensions of their thinking?

A12. There are many signs, posters and slogans carried by the protesters, and a very few of these are in Chinese, which has received much coverage in the Chinese media. But I do not think that there is much, if any, Chinese connection

Q13. Winter is coming, so what do you see as the outcome of this movement? What’s the best situation or the worst case outcome?

A13. Bad weather is likely to put a damper on the movement, or at least the most visible manifestation of it—the actual “occupation” of Liberty Square in New York City. But we have already seen the expansion of the movement to many other cities and countries, so it seems to me that the movement has gained some traction, and I doubt that it will disappear anytime soon. If it is to develop as a true social movement, it will need some organizational structure to carry it over. This will be one of the early tests of its staying power. There were some indications of this potential this weekend, when it was reported that Occupy Wall Street has collected some $300,000 through fundraising.

Q14. In "The End of the American Century, you expressed some pessimism about the future of the US. But we also see that American technology, military and finance are still in leading positions globally. For example, the annual global university rankings show that American universities still leads the way in the world. This is one important symbol showing continuing US competitive advantage in comprehensive national strength. So is the view, perhaps, not so pessimistic?

A14. In my book, I argued that the United States has lost its leading or dominant position in almost every area: social, economic, political and international. I present data showing this decline, both compared to our own past, and compared to other countries. I argued that the exploding growth of debt was particularly problematic for the United States, and that the country was destined for a sustained and deep economic downturn. It will no longer be the dominant economic, military and global power that it was in the fifty years following World War II.

At the same time, this does not mean that the U.S. is disappearing as a rich and powerful country. Even if we returned to the standard of living we had in the 1970s, we would still be one of the most prosperous nations on earth. The U.S. model of democracy, and its ideals of liberty, equality and justice, have sustained the country through many crises, and remain a source of inspiration for people all over the globe.

What this means for the U.S., in my view, is that the country will have to adjust to a different global environment—one requiring cooperation rather than dominance—and to an era of reduced growth, reduced spending, and reduced expectations. This is a psychological adjustment, more than anything else, but for that reason all the more difficult to achieve! So far, we have not met that challenge very well.

Q15. You would be on the left flank of United States intellectuals. Be are intellectuals like you the majority or minority in mainstream American society?

A15. The sorts of things I write and say—in particular the notion that the U.S. is no longer #1 in many areas, is threatening to many people. Americans are generally optimistic, proud, and upbeat, and they do not like to hear, and often refuse to hear, messages that are less positive. But I think more and more “intellectuals” are beginning to recognize that the U.S. is in serious trouble, and this is trickling out to the general public. Occupy Wall Street is one manifestation of this.

Q16. Could you introduce an international justice plan under your leadership?

A16. It would be nice, but I am not in a position to do so! I believe that the election of Barack Obama was the best we could do in striving to achieve more justice, both domestic and international. Unfortunately, he was elected in the midst of an economic crisis that will not soon disappear. But I often take heart from the frequently repeated words of Martin Luther King: “the arc of the moral universe is long, but it bends towards justice.”

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Thursday, September 10, 2009

The Bankruptcy of American Economics


It is not just the American economy that is bankrupt, but the profession of economics as well. It is partly the interaction of these two that has led to the collapse of the American economy and the huge economic hole we find ourselves in.


Paul Krugman provides a devastating critique of his own profession in the Sept. 6 New York Times Magazine , in an essay entitled “How Did Economists Get it So Wrong?” Krugman, a Princeton economist, New York Times columnist and Nobel prize winner, believes that

American economics, as a field “got in trouble because economists were seduced by the vision of a perfect, frictionless market system.”
The profession was blind to the possibility of catastrophic failures in a market economy, he asserts.

In a June lecture at the London School of Economics, Krugman argued that most
macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst.”

Others besides Krugman are dissecting the economics field, and finding serious problems with it. Britain’s influential Economist magazine had a cover story (7/18) on “Modern Economic Theory: Where it Went wrong—and how the crisis is changing it.” They quote the LSE’s Willem Buiter saying that a training in modern macroeconomics was “a severe handicap” at the onset of the financial crisis. The main problem was that in many macroeconomic models, insolvencies simply cannot occur.
So much for those models.

The problem of economics is even worse, I think, because the discipline has been so intolerant of dissenting views. Modern economic theory is as much an ideology as anything else, with a faith in the market that ignores both reality and those who challenge the dominant paradigm. As the New York Times put it in a story last March:

“For years, economists who have challenged free market theory have been the Rodney Dangerfields of the profession. Often ignored or belittled because they questioned the orthodoxy, they say, they have been shut out of many economics departments and the most prestigious economics journals. They got no respect.”
I saw this firsthand at my university a decade ago, when we were attempting to create a department of economics within the college of liberal arts and sciences. I was on the search committee to hire an economics professor to begin building that program. But it soon became clear that there was a basic inconsistency between the goals of the liberal arts curriculum—free inquiry, critical thinking, competing ideas—and that of the economics profession. The candidates we considered most interesting , with provocative ideas and wide-ranging interests, were largely outcasts in their own discipline, which favored narrow specialties, and strict adherence to the free market ideology. “They got no respect” from the economics discipline, so didn’t have the necessary credentials, and couldn’t be hired. Eventually, the university gave up on trying to create an economics department in the liberal arts college.

Not only is the narrow ideology of modern American economics inconsistent with the traditions of critical thinking, it has proved totally incompetent at predicting the crisis, or figuring out how to get out of it. There are a few exceptions, like Paul Krugman, Yale’s Robert Schiller, and Columbia’s Joseph Stiglitz—all Nobel laureates—and some economics writers like the New York Times’ David Leonhardt. But until now, most of them have been voices in the wilderness, trying unsuccessfully to point out the problems of mounting debt, growing inequality, and neglect of economic and social infrastructure.

President Obama , I believe, recognizes the problems and is trying to remedy them, but he is caught in a vise between huge accumulated needs of the U.S.—for example in health care and education—and the unprecedented level of government and consumer debt.

From an outsider’s perspective—that of a non-economist—it seems to me that the problem is pretty obvious and simple, and the solution is equally obvious and simple, but horribly painful. The problem is that for a generation, American government and citizens have both been living well beyond their means, borrowing to pay for the plethora of consumer goods most of us enjoy. But in the meantime, we have neglected the poor, the schools, the health care system, infrastructure, the environment, and most of the rest of the world. We have lots of goodies, but the society is ailing, and we have passed the buck to the next generation.

The painful solution is that Americans will have to spend and consume less, pay more in taxes, and be prepared for a long-term contraction in the economy. There is evidence of this already, with people finally beginning to save, and to practice “consumer thrift.” But more saving and less spending simply contributes to a contraction of the economy. Banks, retailers, the service and entertainment industry have all depended on people borrowing to spend. As this changes, all these industries will decline, and the economy will decline.

Most American economists, including those with the President, are predicting an imminent end to the recession, and a relatively quick economic recovery. So far, virtually all such predictions have proved overly optimistic and wrong. I think those predictions are based on flawed economic models, and do not account for the depths of the hole we have dug ourselves into. We are in for a very long slog.

While I agree with President Obama and Professor Krugman on most things, I disagree with them that the solution is more spending, by government and consumers, to prime the economy. What we need now is belt-tightening, and a return to a more modest standard of living—perhaps comparable to what we had in the 1970s. This will entail a continuing and severe contraction of the U.S. economy, to return to equilibrium. In the long run, though, it will be best for both the U.S. and the rest of the world.

But you won’t hear this from many economists

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Friday, June 19, 2009

Why is "The End of the American Century" Important to China?

Professor Ni Lexiong, who was the lead translator for The End of the American Century, has written this note, in Chinese, on how he came to know about the book and why he thought it should be translated and published in Chinese. The financial crisis, he writes, makes it even more urgent that people in China read the book.

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《美国世纪的终结》译后记


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2009-4-20 12:55:34 倪乐雄   来源:易文网

2008年11月中旬,上海大学历史系徐有威教授告知,他的朋友、美国巴特勒大学政治系韩孝荣教授向他推荐了梅森教授最新出版的《美国世纪的终结》,我很快与梅森先生取得了联系,得知这本书刚出版几个星期,在美国已产生一定影响。书中一些观点虽然也在各种文章中能够见到,但如此全面、深入、系统地探讨美国的衰落,并且观点十分鲜明的专著却鲜有见到,梅森教授的著作可谓弥补了这一缺憾。
在这本书里,梅森教授从一个宏观的视野描绘了美国正在历史性地衰退的图景。其理论依据是保罗·肯尼迪关于“帝国过度扩张导致衰退”的观点,这种观点提供的历史模式是:一个帝国为扩张和维持自己的势力范围,必然会把国力消耗在巨大的军事投入上,从而使国家首先陷入经济衰退,继而不可避免地导致政治和军事上的衰退。肯尼迪认为任何历史上的大国都无法回避这一模式,包括美国。梅森教授所做的工作就是试图证明今天的美国已经进入“帝国衰退的历史模式”,他的研究思路是沿着“国防开支——赤字”和“债务——经济危机——社会全面危机和衰退”这样走下来的。
美国“次贷危机”迅速引发了世界经济大危机,对目前和未来将产生重大影响,在这种时刻将此书译成中文,介绍给国内读者很有必要。因为今天的中国和美国似乎都已不由自主地来到了历史转折点上,秉性刚直的梅森教授非常了解自己的国家,并有独到的细致观察和慎密分析。他判定美国的历史性衰退已经不可避免地来到了,而且就是现在,美国政府和人民必须做好调整心态和姿态的准备。这一预言家式的断言,无论将来能否验证,都值得我们关注。
此书的翻译得到上海辞书出版社上官消波副总编和吴雅仙女士的鼎力支持,在征得梅森教授意见和上海辞书出版社同意后,立即开始了本书的翻译工作。具体分工是:倪乐雄序言、中文版序、导言、第1章,孙运峰第2章、第3章,南琳第4章,陈道银第5章,赵雅丹第6章、第10章,熊曙光第7章,王立中第8章,周晓华第9章。孙运峰负责全书的统稿和部分校对,吴雅仙女士负责本书译稿的校订和编辑工作。
此书的出版也得到渥太华中国事务研究院(The China Research Institute of Ottawa)和姜留义女士的支持,在此表示感谢。

倪乐雄
2009年2月18日于上海寓中

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Thursday, March 19, 2009

Leonhardt rebuts Sorkin on AIG Pay

As an addendum to my previous post, the day after Andrew Sorkin's New York Times column defending executive bonuses ("The Case for Bonuses"), the much more astute and sensible NYT economics columnist, David Leonhardt, published a piece entitled "Paying Workers More To Fix Their Own Mess." While Leonhardt did not specifically mention Sorkin's column, he did quote from it, and it is clearly a response and counterpoint to Sorkin's nonsensical defense of big bonuses for incompetent executives. As I have suggested before, Leonhardt is one of the few economics writers who seems to understand the depth and breadth of the current economic crisis.

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Monday, January 26, 2009

Merrill Lynch's John Thain: Poster Boy for Greed and Incompetence

Last week, John Thain, the former CEO of Merrill Lynch was sacked by the CEO of Bank of America, which recently absorbed the bankrupt brokerage firm. Thain is a prime example of the mind-boggling greed, incompetence and cluelessness of the captains of the U.S. financial services sector. I called attention to Thain in my September blog on CEO pay, where I noted that Thain was the highest paid CEO in 2007, with compensation exceeding $83 million. This was a year in which Merrill Lynch lost $7.8 billion, mind you. Granted, Thain didn’t take over Merrill until November of 2007. But 2008 was even worse. Merrill’s losses of $27 billion last year was what led to its absorption by Bank of America.

But Thain’s greed and arrogance gets even worse. He apparently demanded a bonus of $30-40 million for 2008, the year he presided over the company’s bankruptcy and collapse. This was after Merrill had already received some $10 billion from U.S. taxpayers as part of the federal government’s financial bailout. Furthermore, according to a story in the Financial Times, Merrill granted some $4 billion in bonuses to other executives in the company, just before the Bank of America takeover was finalized. As the Financial Times observers, “this was money that appeared to come directly from US government funds.”

A New York Times story says that Thain spent $1.2 million to redecorate his Merrill Lynch office last year, including an $87,000 rug and a $68,000 credenza.


John Thain stands out as the worst abuser of corporate and government funds. But the problem is much wider than John Thain or Merrill Lynch, and extends across the entire corporate landscape. In my earlier post on CEO pay (and in my book), I point out that these huge CEO compensations in the U.S. are horribly inflated, both by historical standards and in comparison to other capitalist countries. In the 1980s, average CEO pay in the U.S. was about 50 times that of average worker pay. In Germany, Canada, and Japan, the ratio is less than 25 to 1. In the United States in recent years, on the other hand, that ratio has approached 500 to 1.

Thain is out, thank goodness. New York Attorney General Andrew Cuomo is investigating the bonus payments in Merrill Lynch. There is some accountability there, at least. U.S. representatives and taxpayers should make sure, though, that U.S. citizens do not subsidize the lavish lifestyles and obscene salaries of executives in companies that are receiving taxpayer money. Most of them are multimillionaires already. If they truly want to help the economy and the country (as most of them say they do), let them live on an average worker’s salary for a few years.

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Friday, November 14, 2008

David Mason Interview on Canadian Television

Television interview about The End of the American Century and the global financial crisis; Thursday on Canada's CTV Newsnet television, viewable here.

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Saturday, October 18, 2008

BBC wonders if this is The End of "The American Century"

BBC "Newsnight" recently had a 10 minute segment entitled "The End of the American Century?" inadvertently (I think) employing the title of my book. The segment begins with a reference (as my book does) to Henry Luce's 1941 "American Century" essay. The opening segment, by Paul Mason (no relation), wonders if the recent financial crisis is "the start of a wider American decline." The broadcast includes commentary by economists Joseph Stiglitz (winner of the 2001 Nobel prize) and Irwin Stelzer, and Gillian Tett of London's Financial Times. The link here is to the youtube posting of the BBC segment, in two parts.

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Thursday, October 16, 2008

Facing Reality

Rosa Brooks, columnist for the Los Angeles Times, sees the U.S. economy in the same situation as The Titanic bearing down on the iceberg (Obama's, and Our, Iceberg). She faults both McCain and Obama for underestimating the seriousness of the economic situation and the long term prospects for recovery from the crisis. Addressing the October 7 debate, she writes:

And when asked by Brokaw if the economy will get "much worse before it gets better," Obama's response was quick: "No. I'm confident about the American economy."

Really? I'm not.


The main problem, as I see it, is the inability or refusal of our political leaders to recognize what all this means for the United States and for its citizens. We have reached the end of a long period of prosperity--but it was a prosperity built on debt. The current crisis signals the end of the line. As Rosa Brooks astutely points out, nobody "yet" knows how to solve these problems. But the first step in solving a problem is recognizing it. Only then can we begin to fix it.

(Thanks to Vivian Deno for sending this column to me).

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A Power That May Not Stay So Super

New York Times economist David Leonhardt, who is one of the few economists to raise alarms about the long-term structural problems of the U.S. economy, had a column on Oct. 11 that compares the decline of the British empire to the current situation of the U.S. His story raises many of the issues I address in The End of the American Century, including the long-term growth of deficits, debts and excessive consumption, as well as the pressing needs for spending on infrastructure, health, Social Security and Medicare.

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Monday, October 6, 2008

America Loses Global Economic Leadership

Over the last decade, the U.S. has lost political, military and international influence in the world; now it has lost its economic clout as well. The collapse of the financial system in the United States, the very linchpin of both the American and global economies, has evoked comments of gleeful retribution from some countries, and worrisome concern from others. But everywhere, now, there is a recognition that the U.S. economy is weak and vulnerable, and hardly a model for emulation by others. The collapse of this final pillar of U.S. global leadership is also encouraging other countries to assume a more assertive role.

Some of the sharpest criticism, and even sarcasm, came from the usual suspects. Venezuela’s Hugo Chavez mocked Lehman Brothers

“They were always producing negative reports about Venezuela. . . .They forgot about themselves ... and 'boom!' they were bankrupt." (Toronto Star, 9/16/08)
and then skipped the opening of the UN General Assembly to visit China instead, saying that Beijing was now much more relevant than New York.

At a meeting of the Nonaligned Movement in Tehran, Iranian President Mahmoud Ahmadinejad proclaimed that
“the big powers are going down. . . .They have come to the end of their power, and the world is on the verge of entering a new promising era.” (NYT 7/30/08).


But even more moderate leaders have echoed such sentiments. The president of Argentina, Christina Fernandez de Kirchner declared that
“We are witnessing the First World, which at one point had been painted as a mecca we should strive to reach, popping like a bubble.” (NYT 10/3/08)
In Latin America, according to the New York Times (10/3/08), governments “have been working for the past decade to reduce their dependence on the American economy,” have “diversified trade with the rest of the world,” and have set aside funds “for times when international conditions turn sour.”

In Moscow, both former President (now Premier) Putin and his successor, Dmitri Medvedev, have been flexing Russia’s diplomatic and military muscles for several years. The Kremlin has repeatedly rejected U.S. global dominance in a “unipolar” world, and with its landmark conflict with Georgia in August, asserted its own “privileged” sphere of influence in the world, “just like other countries in the world.”(NYT 8/31/08). With the U.S. economic crisis, Medvedev, like Kirchner, has called into question even U.S. economic leadership. He asserted last week that U.S. global economic leadership was drawing to a close. “The times when one economy and one country dominated are gone for good.” (NYT 10/3/08).

While the U.S. financial crisis has accelerated these moves away from the U.S. economy, the trend had begun years before, and is an integral part of the decline of U.S global influence more generally. Surveys in recent years by the Pew Global Attitudes Project found surprisingly little support in other countries for “the American ways of doing business.” Antipathy to the U.S. business model is particularly widespread and strong in Latin America and western Europe. In the 2007 Pew survey, in only a third of the 46 countries surveyed did a majority of respondents like the American ways of doing business. Most of those were in Africa.

For most of the postwar era, the United States has been both a political and economic model for countries and peoples around the world. This began to wane in recent years, especially in the face of the belligerent and unilateralist policies of the Bush administration. The financial collapse of the U.S. is one more nail in the coffin of U.S. supremacy and global dominance.

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Friday, September 26, 2008

This Sucker Could Go Down

"This sucker could go down,” declared President Bush, after the White House leadership summit failed to reach agreement on a bailout plan for the financial services sector. The President is one of the last to recognize how bad the economic situation really is. But the U.S. economy has been tiptoeing on quicksand for years, and the current problems will not be solved quickly, even with an infusion of $700 billion, as the President proposes.



The root of the problem is this: the U.S. has been living on borrowed money for an entire generation; this debt has been serviced internally by a mushrooming but shaky financial services sector, and externally by foreign governments (especially the Chinese); and now both of these sources are evaporating. Whether or not the bailout package is approved, the U.S. economy and American consumers are going to take a bit hit.

First--the borrowed money. Both government and consumers have been spending beyond their means, almost continuously, for two decades. The federal government has had huge budget deficits every year since 1980, except for a few years during the Clinton presidency. The deficits have built the federal debt up to some $10 trillion, accounting for two-thirds of GDP, compared to only one-third in the 1970s. Next year’s budget deficit will add almost $500 billion to that debt. The bailout package will probably add another trillion dollars. Just the interest on the federal debt is one of the largest items in the federal budget, draining over $400 billion annually.



Government profligacy is matched by consumers: the household savings rate in the U.S. has been declining for two decades, is the lowest among all developed countries, and in 2005 fell below zero for the first time ever. Credit card and mortgage debt are both at record levels, as are bankruptcies and mortgage foreclosures. Most Americans, even those near retirement age, have almost no retirement savings. The Social Security and Medicare “trust funds” are actually unfunded, to the tune of some $41 trillion. The government is unlikely to find resources to meet these liabilities, which will put further strains on seniors.



Consumer spending now accounts for two-thirds of all economic activity in the U.S. This growth in spending has been possible only by borrowing. The consumer spending and borrowing binge has been fueled by the growth of the financial services industry, which has increasingly replaced manufacturing as the mainstay of the U.S. economy. Banks, mortgage companies, loan agencies and credit card companies make their money by making loans, and they are constantly seeking new customers and encouraging existing ones to borrow more. It is this symbiotic relationship between binging consumers and profit seeking financial companies that has created the piles of consumer debt and subprime mortgages.

All of this is starting to unravel now. People borrowed more than they could afford; the mortgage crisis undercut their ability to repay loans and mortgages; the banks and loan agencies faced mounting defaults and declining profits and stock prices. Banks are increasingly unable or unwilling to extend loans to businesses or individuals, which will crimp both consumer spending and economic growth, accelerating the economic downturn.

The U.S. government is not really in a position to rescue bankrupt companies, because it is itself bankrupt. And just as the financial industry has been an enabler of consumer deficit spending, foreign governments have enabled the U.S. government to spend more than it brings in, by buying up U.S. debt. Over half of U.S. debt is now owned by foreigners—compared to just 5 percent that was owned by foreigners twenty years ago. The biggest outside holder of U.S. debt is the government of China. Holding such debt only makes sense if you are sure you can redeem the funds when you need to. As you can imagine, foreign governments and banks are increasingly worried about this, and have already started shifting such investments to other countries, and other currencies, especially the euro. This is one of the reasons for the sharp drop in the value of the dollar, to record low levels against the euro and other currencies.



So this $700 billion bailout, as large as it is, will only scratch the surface of these multiple dimensions of debt and economic weakness. We cannot continue to grow, based on borrowing against the future. The domestic financial pot is empty, and our foreign enablers are wising up. The economy will contract, our standard of living will decline, and more people will join the ranks of the poor and unemployed. This sucker could go down. The U.S. is in for tough times.

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Wednesday, September 17, 2008

The Unraveling of the U.S. Economy

Since I posted “Bankrupt America” here ten days ago, major pillars of America’s financial edifice have come crashing down. First, the federal government had to take control of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies. Then the prominent securities firm Lehman Brothers declared bankruptcy, and the even more venerable Wall Street firm, Merrill Lynch avoided the same by selling itself to Bank of America. Today the Federal Reserve announced that it was taking over the insurance giant, A.I.G., in a bailout that will cost taxpayers $85 billion.

These are all huge companies—mainstays of the U.S. economy. It is difficult to make much sense of Senator John McCain’s assertion that “the fundamentals of our economy are strong.” These companies were the fundamentals, and they are all bankrupt. Most people, even most financial analysts, I think, do not quite grasp how elemental these developments are. They signal a shift that is as fundamental for the United States as global warming is for the planet.

The collapse of these financial institutions are part of the bigger picture of economic weakness that I describe in The End of the American Century. The United States has been overspending and under saving for a generation or more, and this has led to borrowing, deficit spending, and debt inside and outside the government. As I write near the end of Chapter One of the book, “where the U.S. once drove the world economy through economic growth, invention, and productivity, now it is doing so almost entirely by consumption but at levels it cannot pay for.”

The consumer spending and borrowing binge has been fueled by the growth of the financial services industry, which has increasingly replaced manufacturing as the mainstay of the U.S. economy. The shrinking manufacturing sector now accounts for only about 10 percent of corporate profits in the U.S., compared to 44% of such profits from the financial sector. Banks, mortgage companies, loan agencies and credit card companies make their money by making loans, and they are constantly seeking new customers and encouraging existing ones to borrow more.

It is this symbiotic relationship between binging consumers and profit seeking financial companies that has created the piles of consumer debt—the largest in U.S. history. All of this is starting to unravel now. People borrowed more than they could afford; the mortgage crisis undercut their ability to repay loans and mortgages; the banks and loan agencies faced mounting defaults and declining profits and stock prices. And as goes the financial sector, so goes the rest of the economy.

This is not some episodic financial downturn. The chickens are coming home to roost, and they have nowhere to land. The U.S. government has record budget deficits and is deeply in debt; Social Security is unfunded; households have zero savings (literally); the dollar is at record lows; energy at record highs; and now the stock market is taking a bashing. Former Fed chief Alan Greenspan told ABC that this is a “once-in-a-century type of event.” And former Commerce Secretary Peter Peterson, who I invoke in my “Bankrupt America” post, admitted that “these are the most extraordinary events I’ve ever seen.” (NYT 9/15/08).

In The End of the American Century, first written a year ago, and appearing next month, I wrote this at the conclusion of my Chapter One on “Imperial Overstretch and Economic Decline”:

A serious recession, perhaps even a depression, is the probable outcome. Such a recession will actually be necessary, however, for the long-term viability of the American economy. It will cause unemployment in the short run and declining wages and incomes in the long run, but this is inevitable if balance is to be restored. The U.S. economy will shrink, as will the country’s standard of living. This will simply reflect the actual economic situation in the U.S., which for so many years has been obscured by mortgaging the future with deficits and debt. The U.S. will no longer be the dominant economic power in the world, and with economic decline will come military, diplomatic, and political decline.”

What does all this mean for us? Stay tuned. (And your comments and thoughts are welcomed).

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