Is debt downgrade an alarm bell for a great nation in decline?
By Joel Achenbach,
This is not, technically, an existential crisis. No foreign army is about to invade the United States. The Soviets are 20 years gone, and Russian ICBMs are now aimed at open ocean. The nation isn’t in a depression. There’s been no run on the banks, no Hooverville sprouting on the Mall.
And yet this is a low moment. America is in a funk that’s being felt around the world.
“Downgrade” is the verb of the week. Our debt is now second-rate if you believe the ratings agency Standard & Poor’s. The country is mired in a seemingly endless financial crisis. It has an economy that doesn’t want to get out of bed in the morning. The two major political parties seem to inhabit different, non-intersecting dimensions of reality.
The whole world is watching, and it is rather appalled.
“We have been for decades now the number one global economic power. But an increasing question mark is whether we are going to remain one,” said Zbigniew Brzezinski, who served as national security adviser to President Jimmy Carter — a president who famously spoke of a national “crisis of confidence” in what would turn out to be his only term in the White House.
“Our friends are worried about us because their future depends on us. Our less-friendly neighbors abroad are probably snickering and enjoying this a little bit but also worried,” Brzezinski said.
Some foreign critics have seen openings for roundhouse blows. Russian Prime Minister Vladimir Putin said Americans have been “living like parasites off the global economy.” A state-run Chinese news agency editorialized about the United States’ “dangerously irresponsible” debt load.
The downgrading of U.S. debt may be more symbolic than empirically significant, but it gives one small data point to those who argue that America isn’t what it used to be, that it is an empire in twilight.
It was 70 years ago that Time magazine founder Henry Luce introduced the concept of “The American Century.” The term was ideologically loaded and did not wear well with those who feared, rather than celebrated, American hegemony. The naming rights to the new century seem to be up for grabs. Today, there are a slew of books that ponder a “post-American” epoch.
There is also a rash of books from Republican politicians that include attacks on President Obama, accusing him of not believing in “American exceptionalism, ” the idea that the United States is destined, either through constitutional genius, geography, culture, divine providence or some combination thereof, to play a unique and outsized role in human civilization.
In his book “No Apology: Believe in America,” GOP presidential hopeful Mitt Romney writes that Obama believes American decline is inevitable and “sees his task as somehow managing that decline, making the transition to post-superpower status as smooth as possible, helping Americans understand and adjust to their new circumstances.”
When asked during a trip abroad in 2009 whether he believed in American exceptionalism, Obama said, “I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.” This only drew more criticism from Republicans.
Since then, Obama has been more emphatic in speaking about America’s special role in the world. In his most recent State of the Union address, he spoke of the need to “sustain the leadership that has made America not just a place on a map, but the light to the world.” He went on to skewer “all the naysayers predicting our decline.”
On Monday, in a hastily scheduled speech, Obama tried to reassure the country that the downgrading of U.S. debt did not connote second-rate status.
“No matter what some agency may say, we’ve always been and always will be a AAA country,” Obama said as the markets continued to drop. “For all of the challenges we face, we continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on Earth.”
His words did not halt Monday’s market slide, and political opponents mocked his speech. “The Not So AAA president,” jeered a Republican National Committee e-mail Tuesday morning.
But the free market, which operates according to a kind of collective logic, endorsed Obama’s rating, snapping up that very same, no-longer-AAA debt at historically low interest rates.
Buying America’s debt, however, isn’t the same thing as applauding the United States’ current political system. A nation’s assets include more than the numbers that appear on balance sheets. The United States has not only been the richest country in the world for a long time, it has been the most influential in putting together international economic systems.
Allan Meltzer, a professor of economics at Carnegie Mellon University, fears that kind of U.S. influence has been seriously compromised in recent years. He bemoans the passing of the era when the United States could cobble together coalitions of nations to pass free-trade agreements.
“How can you lead the rest of the people and tell them what they should do when you can’t do the right things yourself? You can’t,” Meltzer said. “Your leadership is gone.”
Felix Rohatyn, the legendary investment banker who helped rescue New York City in 1975 when it teetered on the brink of bankruptcy, has been hearing from his friends overseas a great deal of dismay about America’s recent political and economic troubles.
“People are just aghast at what they see,” Rohatyn said. “They’re just flabbergasted by what happened with the debt limit.”
It’s never obvious, when it comes to the fate of nations and the rise and fall of civilizations, what’s a turning point and what’s merely a stumble. The case can be made that America’s financial problems are to some degree exaggerated by political dysfunction and a screaming media.
Sometimes lost in this conversation is the continued size of the U.S. economy, not to mention its military and geopolitical might. The U.S. economy is still nearly three times the size of China’s. And the United States is still the only nation that can project military force in every sea and on every continent.
The United States owes several trillion dollars to foreign investors, but it is hardly down to its last nickel. The Federal Reserve estimates that as of the most recent accounting, American households and nonprofit institutions had a collective net worth of $58 trillion.
Joseph S. Nye Jr., a Harvard scholar and author of “The Future of Power,” cautions against precipitous conclusions about the decline of America.
“We have been through fads like this before,” Nye said. “After Sputnik, the Soviets were 10 feet tall. In the ’80s, the Japanese were 10 feet tall. Today, it is China.”