Self-doubt tarnishes Brand America

©AFP Flagging: a US sailor stands on the flight deck of the aircraft carrier USS George Washington

If a week is a long time in politics, a decade is starting to look like an age in geopolitics. Comparing the America that began the 21st century with the America of today is to witness a country that has in some ways quite radically altered its view of itself and its relationship to the world.

In short, the metallic rust of decline has crept into the American soul. “You could argue that the first decade of the 21st century was the last decade of the American century,” says David Rothkopf, a former Clinton administration official and student of US foreign policy. “We are now entering the multipolar century.”

That change in perception is not readily backed up by statistics. With a rough 22 per cent share of global income, the US weighting in the global economy has barely shifted since 1975 when it hit its post-war nadir. Nor is it expressed in terms of declining US military power – quite the opposite: the Pentagon’s budget remains larger than the next seven powers combined.

Indeed, by any static measure of power Barack Obama’s America should be as predominant as the America Bill Clinton bequeathed to George W. Bush. “The US is the only power in the world that has the capability to launch a military venture anywhere in the world at any time,” says Richard Clarke, a former senior counter-terrorism adviser to Mr Clinton and Mr Bush. “And that is likely to remain the case for at least another 25 years.”

What then has caused this shift in perception over the last decade? The best way of encapsulating it is to contrast the high noon of globalisation during Mr Clinton’s 1990s – what Republican critics liked to call the “holiday from history” – with the highly-indebted America Mr Obama inherited from Mr Bush.

Led by Robert Rubin and Lawrence Summers, Mr Clinton’s economic team spent the decade adding heft to the International Monetary Fund’s often intrusive attempts to restructure exposed economies – from Mexico in 1994 to the victims of the “Asian flu” crisis in 1997. These countries had strayed from the orthodoxies of the Washington consensus and were required to don the hairshirt in recompense. Even Japan, which had no need of the IMF but which was still suffering from the collapse of its asset price bubble, was treated to high-handed lectures by visiting US officials.

“I remember during the South Korea negotiations we had the IMF in one room and the South Koreans in another, but Larry Summers was the guy dictating the conditions from a third,” says Simon Johnson, a former IMF chief economist. “This was the peak of American economic hubris.”

Today the US is cleaning up the mess from the largest financial collapse in history – one that originated in the US and was caused by the actions of American public and private sector players. Perhaps the best way of expressing how much has changed is to recall the reaction of Chinese students in Beijing this year when Tim Geithner, the US Treasury secretary, assured them that China’s dollar assets were in safe hands. His reassurances provoked laughter.

The biggest difference, therefore, is in America’s declining intellectual hegemony. In the 1990s the US was the model to which to aspire. It was Gordon Brown, the UK prime minister, and an erstwhile cheerleader for the American model of capitalism, who pronounced the death of the Washington consensus at the G20 summit in London last April.

Nor is that disrepair confined to the US economic model. During the 1990s Francis Fukuyama’s The End of History and the Last Man was required reading. It spelled out how the collapse of the Soviet Union had removed the last ideological competitor to the system of democratic capitalism best exemplified by the US. Nowadays, people talk about the “rise of the rest” in full awareness that many of the world’s rising powers – most notably China – are no closer to democracy than they were during the Clinton years.

Mr Obama’s election in November 2008 did a great deal to revivify the much-tarnished Brand America. Indeed, according to the Pew survey, almost all of the negative views of the US from the Bush years were wiped out by Mr Obama’s victory. But the euphoria of “Obamamania” could not erase the consequences of an administration that had left the US with a chronic fiscal deficit and a military that was badly over-extended and which had been partly humiliated in the twin wars of Iraq and Afghanistan.

“It reminds me of that old joke when you ask someone for directions and he replies: “Well you wouldn’t want to start from here”,’ says an outside adviser to Mr Obama on Afpak, as the related crises in Afghanistan and Pakistan are known. “The conditions that helped get Obama elected were the same ones that made it such a tough legacy to inherit.”

Even if Mr Obama managed to break through the classic Washington gridlock and impose an IMF-style fiscal regime on the US economy, it would take many years to get back on to an even footing. In the meantime, most economists expect US growth rates to be lower, and unemployment to be higher, than they were before the crisis began.

Furthermore, many believe that the US will remain vulnerable to doubts about its sovereign creditworthiness, particularly given the high proportion of US debt instruments held overseas – China alone accounts for 13 per cent of US Treasury bonds.

Over the next decade US publicly held debt is forecast to more than double to 85 per cent of gross domestic product – the highest rate since the second world war. And that is without including the intragovernment debt in Social Security and Medicare, the government health scheme for the elderly, which would push US indebtedness well above 100 per cent of GDP during Mr Obama’s second term. Hegemons cannot for long survive such rising indebtedness.

Then there are the caveats. In the late 1980s Paul Kennedy’s The Rise and Fall of Great Powers predicted that an America suffering from imperial overstretch would be overtaken by countries such as Japan. Who is to say that today’s angst about America’s expected decline will not prove as laughable in retrospect as the “Japanic” that gripped the US in the late 1980s?

China could implode, India could stall and the European Union could continue to convert itself into a giant version of Switzerland. More to the point, the US, with its capacity to move through cycles of creative destruction, could unleash the next technological revolution.

Given the sclerotic condition of America’s political system, the smart money is on decline. Uncharacteristically for a country built on optimism, most Americans believe their country is on the wrong track. An even higher number believe their children will be worse off than them. Until Americans reacquire their optimism, observers will keep remarking on that rust in their soul.