Ever since the programs of the New Deal pulled the United States out of the Depression, Americans have had a strong faith that their president can surmount economic crises if only he will pull the right levers, support the appropriate monetary policies or order the necessary controls.
But if presidents ever really had such absolute power to control the nation's economic destiny, they have lost it in the interdependent world of the 1980s.
The United States is fully exposed to distant events that can wipe out American jobs, make a basic technology obsolete, cut off a lifeline to vital raw materials, raise interest rates or depress the dollar.
Multinational companies and banks shop globally for their workers, technology and credit -- a fact that enormously complicates the task of individual governments in managing their economies.
In this shrunken economic world, the federal government's fight against unemployment can be undermined by something as uncontrollable as a technical breakthrough in France.
Michelin's development and production of radial tires years ahead of its American competitors enabled the French company to capture quickly a half-billion-dollar share of the U.S. tire market when radials became popular here in the early 1970s.
Last week, Firestone announced it was closing six U.S. plants (including five tire factories) that employ 7,000 workers, in part because radials had displaced the market for the conventional tires they manufactured.
But there are other examples of America losing out even when it has invented the technology.
In the present world economy, technology moves easily from one country to another through licensing arrangements.
That is why Nippon Steel, the Japanese giant that threatens U.S. steel companies with low-cost imports, has been able to achieve some of its vaunted efficiency with technology purchased from the United States.
The decline of the dollar is a vivid symbol of the limits of presidential power when pitted against huge international banks that control the allocation of credit and the movement of funds around the world.
Economists agree that as the banks lend out more and more of the dollars deposited in them by members of the Organization of Petroleum Exporting countries and other foreigners, there are too many dollars loaned for the amount of goods and services to spend them on.Prices rise to absorb this increased supply of dollars and inflation results.
President Carter's March 14 anti-inflation program seeks to restrict the amount of bank lending. The main tool is the Federal Reserve Board's authority that banks have to set aside in reserves, removed from the pool of funds available for lending.
But the Fed's authority does not extend to the $1 trillion "Eurodollar" market of offshore dollars, so Carter's ability to enforce his anti-inflation program is weakened.
"What happened in the later 1970s," writes Richard J. Whalen in the March issue of Harper's, "was the loss of American control over the fate of the dollar and, potentially, of our economy and our nation." In the 1980s, Whalen writes, "we Americans take orders."
Only the multinational companies and banks seem able to adjust and prosper in this situation. While the U.S. economy reeled from higher oil prices, the large oil companies turned in record profits last year.
The fact that sector after sector of the global economy is dominated by American-based companies -- Citibank in banking; Exxon in oil; IBM in computers; Cargill in grain; Goodyear in rubber and tires and Alcoa in aluminum -- has become largely irrelevant to the overall economic picture in the United States.
For all its present difficulties in the United States, Firestone can adjust because $1.7 billion of its $5.4 billion business in 1979 was abroad, and 22 percent of its operations are outside the tire business. The United States economy, however, is hit head on by the forces raging outside.
Awareness of the implications of these developments has only begun to percolate into the upper reaches of U.S. politics. The president's March 14 anti-inflation speech contained only a one-sentence reference to the fact that "this is a worldwide problem."
Presidential discussions of interdependence have tended to center on oil imports. No president has yet attempted to outline for the American public the full extent of the economy's linkage to the rest of the world, to draw up a complete balance sheet of benefits and costs or to propose fundamental changes for coping with a situation that most experts agree is irreversible.
"At the moment there is no global dimension to any U.S. [economic] policy," complains Sen. Adlai Stevenson (D-Ill). "Some things must be done -- even if by the government. Other nations understand that. They have national fuel and transportation companies. Their industrial and tax policies support industry. Then Japanese government organizes industry to take the lead in computers while back in the U.S. the Justice Department is trying to break up IBM."
Some of the boldest ideas for dealing with the current situation have been emanating not from Washington, but from businessmen and bankers whose experience is rooted in the realities of the new multinational economy.
Talk of government planning, of cartels, of public-private consortiums and of government-backed trading companies has begun to be heard in corporate boardrooms that once reverberated with red-blooded rhetoric about free trade, competition and free markets.
"It may be that the world in which we could say to government, 'leave us alone, the market will take care of it,' is gone -- we may have come to that," said a steel executive.
John B. Connally, who received massive aid from big business in his abortive presidential bid, supported Stevenson's legislation authorizing the creation of U.S. trading companies -- monopolies of the kind that represent Japanese economic interests worldwide.
And Connally advocated a North American common market that would impose a cartel-like control over the resources of the United States, Mexico and Canada.
Peter Peterson, chairman of the international investment banking company Lehman Brothers Kuhn Loeb Inc., would like to see a "concordat" formed by the governments of the industrial nations, OPEC, and developing nations. Access to oil and the price at which it is sold would be controlled, in exchange for western technological and financial aid.
Such a system is a long way from the free trade so often heraled in American economic philosophy.
Oddly enough, the international economy that is now proving so troublesome for U.S. policymakers to manage is a creature that is predominantly of American making.
With the approval of the U.S. government, American businessmen and bankers darted all over the world after World War II, making deals, investing and lending money, and opening markets. They built bridges that bound countries together and tied America inextricably to the world outside.
U.S. companies and banks invested $150 billion abroad from 1945 to 1978, creating an overseas commercial empire that annually generates half a trillion in sales and $20 billion in profits.
The dollar became the center of the world banking syetem, and the United States provided technology and capital in return for markets and raw materials.
But as the world economy developed and integrated, the United States was not always the benefactor. Cheap foreign goods, some of them manufactured abroad by U.S. multinationals utilizing inexpensive labor, poured into this country. It was a boon for consumers, but it hurt such U.S. industries as cars, electronics, textiles and shoes.
At the same time, governments that had been gaining strength and confidence showed a new political determination to apply self-interest controls on trade and investment.
Increasingly, America finds itself in a world of cartels, regional trade blocs, and monopolies rather than in the free-trade environment it set out to create.
Foregin multinationals now regularly agree to conditions imposed by foreign governments that include promises to use local markets even when they are costlier than those available abroad. Until recently Brazil required foreign firms to export a fixed percentage of their production or lose their right to do business in Brazil.
Such controls help the balance of payments of the foreign countries. In return, the foreign governments agree to protect the multinationals from undue competition.
But in the process, conventional notions of free trade fall by the wayside.
Throughout these developments, the dollar remained at the heart of the expanding world economy. But the dollar was also internationalized, along with the rest of the system, making it increasingly difficult for the U.S. government alone to apply the traditional monetary and fiscal defenses against the inflation of the national currency.
With the huge oil price increases of the 1970s, this problem became glaring.
From the time that OPEC first began accumulating its fortunes, neither OPEC, nor western governments have had a decisive voice in the process by which this money was channeled through the international banking system.
Instead, a handful of huge multinational banks -- the only institutions with the adequate financial expertise -- acted as the principal intermediaries between OPEC and borrowers around the world.
As the money moved out of the pocketbooks of western consumers to OPEC, massive amounts of greenbacks did not pile up in the treasures of governments in sandy desert countries, as some nonexperts imagined.
Rather, vast amounts of money were assembled in the banks of Manhattan and London, on deposit to OPEC governments.
The deposits that OPEC did not use to pay western companies for technology, food, arms and other equipment were available to the giant banks for lending. As this pool of funds accumulated, the banks extended vast sums to developing countries and other big borrowers. Even governments of wealthier developing countries, such as Brazil, now stagger under a load of debt.
This development has ominous political implications for U.S. inflation-fighters. If Carter is serious about cutting inflation, he will need foreign help. But governments that are deeply in dollar debt have a stake in encouraging the continued devaluation of the U.S. currency.
The problems of the U.S. government are complicated by the fact that much of the money has moved beyond the Federal Reserve's control into the Eurodollar market in which banks, borrowers and speculators move money between accounts in banks abroad.
Even before the OPEC windfall, foreign companies and governments acquired billions of dollars, as the United States ran balance-of-payments deficits. All these dollars now constitute a huge claim against the U.S. government. And as these dollars in foreign banks are loaned and reloaned, they expand the money available for transactions, including for speculation and inflationary investments.
The Bank for International Settlements in Basel, Switzerland, estimates that the total loans by offshore banks -- the "Eurodollar" market -- now represent some $1 trillion, compared with only $670 billion in December 1977.
U.S. monetary experts assuage fears by noting that much of this lending is between banks. The amount loaned to non-banks -- borrowers that include multinational companies, as well as private speculators -- is only $150 billion. But that figure itself has grown by 50 percent since December 1977, when it stood at only $100 billion.
This vast pool of offshore credit in dollars includes money in unregulated offshore havens such as the Bahamas and Grand Cayman Islands, where U.S. banks alone have $80 billion on deposit.
U.S. officials acknowledge that the problems of capping credit fueled inflation in such a complex system is overwhelming.
The Federal Reserve Board has set up a voluntary program to limit the expansion of bank credit to six to nine per cent this year. It is phasing in a new requirement that will force U.S. bank branches abroad to adhere to U.S.-established reserve minimums for their "Eurodollar" deposits. And it is imposing reserve minimums as well on deposits in U.S. branches of foreign banks.
However, that still leaves billions beyond the Fed's reach. And since 1977, OPEC nations apparently have channeled increasingly large amounts of their deposits to non-U.S. banks.
This means that big borrowers or speculators can easily find foreign banks with dollars that are not subject to the Fed's credit-tightening program.
The United States could respond to its current frustrations by abandoning its postwar policy and turning to an international economic policy based on ruthless self-interest. Some even say that the United States, with its own oil, grain, minerals and technology, might re-emerge in a commanding position after such an all-out economic war with the rest of the world.
But few are ready to espouse the United States turning away from the world it shaped.
Instead, some say the time has come for the nation to adjust its institutions to fit the new situation better, even at the cost of some of its "free trade" philosophy.
They note that two of the U.S. industries that have received the most government support in technological research and in promoting exports are also the most successful: aerospace and agriculture.
At the very least, some academic critics of the U.S. economic policy say, the U.S. government should find ways of making American-based multinationals instruments of U.S. economic policy -- as Japan's multinationals are.
There is nothing in the United States comparable to Japan's Keidandren, the so-called "main temple" of Japanese business representing 700 or more big firms and acting as that country's corporate foreign ministry.
Stevenson and others in Congress favor a public grain board that would take over from secretive, private grain companies the task of fixing the price and marketing America's $25 billion grain surplus overseas.
As Big Business's own favorite, John Connally, has said, "We live in a world of fierce economic competition . . . If we are to compete in this world we have to mend our ways."