9/11 Was Big. This Is Bigger.
Two September shocks will define the presidency of George W. Bush. Stunningly enough, it already seems clear that the second -- the financial crisis that has only begun to unfold -- may well have far greater and more lasting ramifications than the terrorist attacks of Sept. 11, 2001.
That's because while 9/11 changed the way we view the world, the current financial crisis has changed the way the world views us. And it will also change, in some very fundamental ways, the way the world works.
Of course, the Sept. 11 attacks left a deep scar on the soul of the country and caused immense tragedy. Beyond human losses, they also revealed that being the sole superpower did not make us safe. But the attacks themselves were not, in a real sense, as significant a turning point in world history as they may have seemed at the time. (Remember, it was actually Bush's father who had first been put in charge of an American "war on terror" during the 1980s when he was Ronald Reagan's vice president.)
The current economic debacle is far more likely to be seen by historians as a true global watershed: the end of one period and the beginning of another. The financial chaos has brought down the curtain on a wide range of basic and enduring tenets also closely linked with the Reagan era, those associated with neoliberal economics, the system that the Nobel Prize-winning economist Joseph Stiglitz has called "that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently and serve the public interest well." Already this crisis has seen not just our enemies but even some of our closest allies wondering whether we are at the beginning of the end of both American-style capitalism and of American supremacy.
On Sept. 16, 2001, President Bush addressed the nation to express his faith in the American people and "the resiliency" of the U.S. economy. Seven years later, the president again spoke to a country in crisis, using eerily similar language to try to shore up concerns about the market. This time, however, he felt compelled to go further. During a prime-time broadcast to the nation, the president of the richest and most powerful nation on Earth felt compelled to offer a defense of the free-market capitalism whose final and enduring triumph we had been celebrating only a few years earlier after the fall of our Soviet foes. "Despite corrections in the marketplace and instances of abuse," Bush said, "democratic capitalism is the best system ever devised."
To many around the world, however, the president's words were not so reassuring. Not only did his argument ring hollow to those who felt anxiety and rage over Wall Street's ineptitude and greed, its attempt to buoy American capitalism by lashing it to the virtues of democracy contrasted uncomfortably with a chorus of critical assessments from leaders in democracies worldwide.
French President Nicolas Sarkozy concluded recently that the world has seen the end to free-market economies. "Laissez-faire, it's finished. The all-powerful market that is always right, it's finished," he said. We would, he added, need "to rebuild the entire global financial and monetary system from the bottom up, the way it was done at Bretton Woods after World War II." Germany's finance minister offered a similar perspective in remarks to his parliamentary colleagues. "The U.S. will lose its status as the superpower of the world financial system," Peer Steinbrück declared. "This world will become multipolar. The world will never be the same again." Governments long criticized by the United States for intervening in their own economies were reveling in the spectacle of U.S. policymakers wading into their own financial markets in ways that even some socialist leaders would never have dreamt of.
There is some wishful thinking or gloating in these remarks, but they represent a massive wave of reassessments from every corner of the world and every point on the political spectrum. The strongly pro-market Financial Times declared that we are at the end of the era of American "laissez-faire capitalism." From Beijing, Pan Wei of the Center for Chinese and Global Affairs speculated that the crisis would have a leveling effect: "My belief is that, in 20 years, we will look the Americans straight in the eye -- as equals. But maybe it will come sooner than that." (Indeed, it seemed he might already be right. Reports from within the Treasury suggested that the U.S. government intervened in the financial sector, at least in part, in response to Chinese threats to reconsider their policy of buying U.S. debts unless Washington moved to stabilize the markets.)
Buried in all of this, one can hear a refrain with eerie echoes of 9/11: that the United States "had it coming." Indeed, one of the factors that links 9/11, the war in Iraq and this financial crisis is a sense that all of them are tied to the world's changing view of America -- a view that is growing darker. While the "blame America" justification for terror is as odious as it is indefensible, we deserve our full share of the blame for the market disaster. An important dimension of this new anti-Americanism relates to Washington's role as the architect, champion and primary beneficiary of a global system that was widely seen to benefit the few at the expense of the many.
Much of the anger at the bailout and financial meltdown stems from the basic fact that we live in a world in which 1,000 people at the top control assets worth double those held by the bottom 2.5 billion, a world in which the top 10 percent own 85 percent of everything. And it's a world in which that anger is likely to keep growing, because there are other dimensions of this crisis that suggest it could have a broader impact than any financial crisis in three-quarters of a century: This is only the tip of the iceberg.
The collapse in mortgage-backed securities represents a problem with just one subset of a global financial system that has dramatically changed its character in just a generation. Not only is a deep U.S. downturn upon us, but it will hit countries such as China, which trade with the United States; their slumps will depress commodity prices that in turn could cause crises in the emerging world. Complex securities invented by financial "rocket scientists" and understood by very few people have long ago surpassed currency as the primary repositories of "value" on the planet. But they are not issued by governments. Most are not regulated. The risks associated with them are hidden. According to polls of big institutional investors by the National Strategic Investment Dialogue, more than 80 percent do not feel their boards even understand the risks inherent in their portfolios -- as they are required to do by law -- primarily because of the complexity of these instruments and the new global financial system they dominate.
In other words, this crisis -- which, last Monday alone, wiped away more value from the market than the Congressional Budget Office estimates has been spent to date in Iraq and Afghanistan -- is not important merely because it represents the most profound global ideological watershed since the fall of Soviet communism. It is important because it is a harbinger of massive global threats that fester within the system. And our leaders, from the president on down, have been caught as flat-footed by these new dangers as they were complacent and complicit in their hatching.
We now know that the costs to the U.S. government associated with this crash will surpass those associated with the wars in Iraq and Afghanistan. We also know that all such government cost estimates tend to be on the low side. We further know that the U.S. economy recovered quickly after 9/11 and that we are in the midst now of a global downturn that may last for many months and perhaps years. We know that there have been vastly more job losses -- 600,000 recorded thus far this year in the United States -- than were associated with the 9/11 shocks, and that the global job-loss totals that a recession is likely to bring will be measured in the millions. Among the poorest, the likely shocks to emerging markets caused by the United States' inability to spend freely will take a devastating human toll.
By all the metrics available to us, then, the current financial crisis easily exceeds the post-9/11 war on terror in economic terms. Human costs are harder to measure, of course, and the tolls of both events have been devastating. But the financial crisis will certainly touch many more people in many more countries than did 9/11. And even greater crises may loom ahead, thanks to our unwitting creation of a financial Frankenstein's monster of unregulated, risk-laden, global derivatives markets.
As the dithering U.S. governing class is grappling with the disposal of "toxic assets" in the U.S. economy, the world is moving on to debate what is widely seen as a toxic ideology: a form of market fundamentalism that promotes inequality.
While 9/11 and this financial crisis are very different, the stakes of an economic battle can be as high as those in any military conflict. The era of "leave it to the markets" is clearly over. The question during this coming election is whether the United States will choose leaders who support a new American capitalism -- a long-overdue successor to the bankrupt dogma of Reagan-Thatcherism -- that includes effective regulation, recognizes the need for new international institutions to manage our complex global economy and accepts that government must act with markets to promote growth and to protect those whom markets leave behind.
This is the central challenge that will fall to the next president: not just to navigate the shoals of a treacherous global economy but to reinvent what has been one of our proudest exports -- our distinctly American vision of how to create a just society.
David Rothkopf is a visiting scholar at the Carnegie Endowment for International Peace and the author of "Superclass: The Global Power Elite and the World They Are Making."