Thursday, November 27, 2008

The Toxic Delusion of Exceptionalism

A great many Americans believe in Creationism but, of all the fanciful myths our southern cousins embrace, none rivals the notion of American exceptionalism. Ronald Reagan parlayed American exceptionalism from myth to outright delusion because of the horde of believers.

The notion of American exceptionalism is grounded in the genuinely exceptional (for their time) concepts that forged the creation of the United States of America. It's why American courts constantly struggle to read into their country's constitution the intentions of the "founding fathers." The idea is that strict adherence to the beliefs of a gaggle of highly privileged, 18th Century white guys somehow assures the security, sanctity and vigor of the state even into the 21st Century.

Ronald Reagan duped his people with the cheap parlour trick of restored exceptionalism. The Reagan vision they so eagerly embraced carried with it an enormous price tag that garnered scant attention. Ronald Reagan came into office when America was the world's largest creditor nation. He left America, eight years later, as the world's largest debtor nation.

In the post WWII era, successive administrations, Republican and Democratic, had steadily whittled away at their nation's debt as a percentage of GDP. Under Reagan's stewardship that unglamorous effort by his predecessors was utterly trashed as the debt to GDP ratio soared madly.

The graph above depicts the betrayal of America as shown in the red lines of Bush/GHW Bush and, later, GW Bush. That's the malignancy that has brought the United States to its knees. Reagan and Bush Sr. and Jr. have savaged their own country and its promise.

The mortal sin of the American people must be their gullibility. I recall many years ago Pierre Berton opining that the greatest difference between Canadians and Americans was that Americans were guided by a powerful "need to believe." This craving has left them easy meat for hucksters like Reagan and the Bush dynasty. It has led them to a childish indifference to debt and a retarded, self-destructive antagonism to taxation.

Harper, his buddy Tom Flanagan and the University of Calgary cabal, still cling to the Reagan vision albeit with a lower tolerance for public debt. They embrace the Norquist ideology of shrinking government (through privatization where possible) until it can be drowned in a bathtub.

Yet the world we'll see by 2015 will put the lie to their ideologies as those nations with strong central governments ascend to dominance. America's greatest fear is of the day its foreign lenders no longer fear an abrupt American economic decline and, instead, come to accept it as an unfortunate inevitability offset by commensurate prospects for their advancement.

George w. Bush spoke of America's "addiction to oil" but never touched on the greatest affliction, America's addiction to borrowing and debt. No matter how dark the scenario confronting president-elect Obama, try to imagine what he and his countrymen would have to face if the foreign lending tap was turned off. Imagine what America would look like if it was forced to live on its own GDP. That's so frightening as to be almost inconceivable.

And yet there is a creditors' psychology that comes into play whenever they're confronted with a particularly troublesome debtor. There's a tendency to let bad debts ride - for a while, sometimes a long while - hoping against hope that a miracle turnaround might appear. But eventually there comes a stage of painful resignation where a creditor knows it has to cut its losses, it has to take a big hit now instead of an even bigger hit later. There's a whole basket of emotions that comes into play - self-ridicule at not having acted sooner, anger at the debtor's betrayal, even a thirst to punish the debtor in non-pecuniary ways. I can't begin to tell you how many times I've seen this process played out at levels great and small.

Bush, Cheney, Rumsfeld, Wolfowitz and the lesser players were true believers in American exceptionalism. They freely drank of the cup of hemlock served up by lunatic outfits such as the Project for the New American Century which proclaimed that the 21st Century belonged to the United States provided it was prepared to be both ruthless and mass murderous in its pursuit of global domination.

What they never understood is that the PNAC vision, as restated in the puerile Bush Doctrine, couldn't begin to work in any nation that couldn't live for a year on its own takings. It couldn't possibly work for a country permanently dependent on foreign lenders. Someone had to pay for those enormous military expenditures.

Can Obama rescue America? I can't see how. He can probably, at best, stablize its decline, make it bearable and spare his people complete chaos. What he cannot do is restore the United States to anything resembling pre-Reagan America. Too much damage has already been inflicted, too many rivals are on their way up. The Reagan legacy has done its work.

The day will come, probably within the next decade, when Americans are shaken out of their stupor and finally confront the reality of their notional exceptionalism and those who used it to con them. I wonder what they'll think of Reagan and his disciples then?


Anonymous said...

Great post -- I wanted you to know about my book on the Ronald Reagan myth; it's coming out Feb. 3 and addresses this very topic -- Will

The Mound of Sound said...

Thanks Will. It looks like an interesting read. Congragulations. I'll check it out.


LeDaro said...

Indeed it is a great post and a great analysis. Is it possible that a country like China can totally destabilize and bring down the American empire without firing a single shot – through financial manipulations? After all China is the biggest creditor to US.

It is a chaos which Bush Administration has created in the Indian subcontinent that we see the heartbreaking disaster we see in Bombay and elsewhere in the region.

The Mound of Sound said...

I'm hesitant to believe it's in China's interests to "bring down the American empire" through some economic coup. There will still be a lot of wealth to plumb but I suspect China will begin paying more attention to its ascendancy by joining other key American creditors in picking the carcass clean by acquiring American assets at bargain basement prices.

Just as China has inherited the West's manufacturing base, it and America's other creditors will probably move on both the resource and financial sectors - on their own terms.

Bailouts and recovery spending are enormously costly, particularly when you don't have the liquidity to pay for them. I wouldn't be surprised to see Washington try to game this to some degree - inflating their currrency an obvious gambit. That would mean, however, the very real likelihood of losing the American dollar as the world's reserve currency and that would force the US to return to some pretty harsh fiscal prudence, the terms dictated, in part, by its rivals.

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