The president of the United States went as a supplicant to Asia, and he returned spurned and lonely. President Obama’s trip to Asia may turn out to have been a more important event than the midterm elections, for it was in Asia that the new world order—and America’s diminished place in it—became apparent.
The United States was scorned and repudiated in three sequential episodes: First, South Korea essentially rejected a reasonably standard and straightforward trade pact—a deal that everybody assumed was done ahead of time and was to be announced as Exhibit A in the president’s “Job Creation Trip.” Second, nearly every important economic power in the world criticized the Fed’s effort to inject money into the U.S. economy via quantitative easing. Third, the president failed to get the G20 powers to agree to anything more than vapid words about trade. The final communiqué reads like a parody of diplomatic jargon determined to mean nothing at all.
In the choice between China and the United States that was being made by many nations, even some of our most stalwart allies, such as Germany, were more than willing to rush into the arms of an ascendant China and align themselves against our declining power. On issues of trade and currency, which is where the battles of today are waged, nations were choosing the future, not the past.
That the administration understood it had been “dissed” by the international community was evident in the president’s own comments at the end of the G20 meeting. No diplomatic Band-Aids were applied: He harshly criticized China’s currency games, using language more appropriate for a filing with the World Trade Organization. If President Obama thought he would find respite from an ugly midterm election in his overseas travel, he was sorely mistaken. The trip merely accentuated his isolation.
The disastrous trip is another reminder that we are just now seeing the real cost of Wall Street’s 30-year carnival. How many times have we heard the self-righteous claim from Wall Street titans: “We paid back TARP—so leave us alone!!” As though they should not be held accountable for the deeper costs of the economic cataclysm.
Our response should be just as clear and powerful: Rubbish! And not merely because the value of the outstanding transfers to Wall Street banks still measures in the hundreds of billions when we count all the hidden transfers such as capital guarantees and interest subsidies. The real cost to the nation is much deeper: The self-interested ideology that Wall Street successfully peddled to the nation over the past 30 years has brought us to the precipice that President Obama faced on this trip.
So why is Wall Street responsible? The culmination of the Wall Street economic model was not just the financial services cataclysm of 2008-09. It is also the long-term decline of the U.S. economy when compared to our international competitors. The four critical elements of the Wall Street ideology were: the total deregulation of financial services, dramatically lower marginal tax rates for upper income and corporate taxpayers, dramatically reduced social investment by government—even in critical areas such as infrastructure and education—and only minimal cost reductions in entitlement programs, because the political cost of these cuts was too great to be borne.
The result: financial bubbles, enormous deficits, lagging competitiveness, distorted income distribution, dependence on foreign capital to fund our debt. Which makes it all the more incredible that at this very moment we are returning policy to the same Wall Street leadership that got us here.
What are the top agenda items for the Republicans, newly ascendant? Return to a deregulatory ideology; extend the Bush tax cuts in perpetuity; revoke as many elements of Dodd-Frank as they can; and pretend to cut spending, though there is as yet no sign that the Republican leadership has the will to do anything other than superficial earmark-type cuts.
Not on the table are the sorts of investments in infrastructure or education that would make us competitive over the longer term. It sounds exactly like what we have just done for 30 years. As Albert Einstein said, insanity is doing the same thing over and over and expecting a different result.
Welcome to the asylum!