More so than its imperial wars, it is the gutting of the US economy that brought the eclipse of the American century, writes Hussain Abdul-Hussain* On the eve of the Afghanistan war, historian Bernard Lewis argued that Osama Bin Laden wrongly believes he can inflict a defeat on the American empire in the same manner he had humiliated the Soviet superpower a decade earlier. While America is not in a position as precarious as its Soviet nemesis in 1989, it is certainly not as powerful today as it was when it entered the war in 2001. Many argue that imperial hubris, coupled with two simultaneous wars in Afghanistan and Iraq, have accelerated the American demise. A better answer, however, might be found in economics. The 20th century was the American century. Thanks to an ever-expanding economy, the United States overtook the leading empire, Britain, a scenario that is now replaying itself with China in the shoes of the growing power, at the expense of an aging America. In the United States, neoliberals have dominated economic policy, at least since 1980. According to this school -- as defined by Austrian-British economist Fredrick Von Hayek and his disciples at the University of Chicago such as Milton Friedman -- the less government intervention in the market, the stronger the economy. Neoliberals dominated as a response to stagflation and other economic ills that had befallen the United States, Britain and other capitalist countries throughout the 1970s. With a neoliberal takeover, governments abandoned most welfare programmes, undermined labour unions, and downsized. The neoliberal scheme was then used as a one- size-fit-all. Under the aegis of the World Bank and the International Monetary Fund (IMF), economically troubled governments in Chile, MexicoArgentina, Dubai, and Greece -- among others -- were forced to swallow the neoliberal pill. Results proved disastrous as governments defaulted under colossal debts. Social unrest ensued and, in the case of Mexico, led to wars between drug cartels still ravaging until today. Unlike smaller countries, America could get away with its neoliberals economics thanks to two main factors. First, the dollar had been designated the world's currency. After Nixon untied the dollar from its gold base in 1971, Washington was at liberty of printing money and avoiding shortages of cash that usually paralyse countries like Greece. However, printing banknotes results in inflation and big world economies might consider dumping the dollar. The only reason these economies have kept their greenbacks has been to maintain the value of their reserves, including $2 trillion in US debt to China and Japan. Second, since 1980, America has been hiding behind reports of fake economic growth. America's banks post brokerage and overdraft fees, for instance, as profit. Stock market brokers make colossal bonuses only by speculating against the market. White-collar employees on one floor in New York's Financial District swap bonds with brokers on another floor, registering virtual profit in the absence of actual production or accumulation of wealth. Such profits give a false sense of prosperity and economic growth until finance people run out of games. The bubble then bursts causing recession and a shakeup as a new bubble forms, and perhaps subsidises the losses from the previous one. What the neoliberal school offered America, and the world, starting 1980, was monetary solutions to economic problems. As Wall Street posted profits throughout the 1990s and 2000s, American manufacturing plants were downsizing and shutting down, thus sending workers back home and causing ever soaring unemployment. The manufacturers that remained above water were those that diversified their business to include financial services. Despite all the bursts and recessions under their rule, neoliberals still have the nerve today to call for smaller governments and the scrapping of more taxes for the rich. Ironically, neoliberals remained silent when the US government was forced to step up to rescue finance institutions deemed "too big to fail". On top of the skewed neoliberal theory is an impatient American public. Suffering from a deteriorating economy, many Americans want instant fixes for a problem that has been long brewing. Those who voted for Barack Obama to rectify the situation have already abandoned him in less than 20 months after his election. Many Americans want the government to shrink, but still be able to fix the economy. They want to balance US debt while maintaining their entitlements and not paying a dime more in taxes, a formula that does not work. Meanwhile on TV, Wall Street indicators are still erroneously taken to represent the health of the economy. Media often reports on presumed economic comebacks (from its new lows, not compared to pre-2008 highs), even though America's manufacturing base is still shrinking, the balance of payments always negative, the national budget sinking more into the red. Bin Laden has not defeated America. Neoliberal economics has. America will never resume its superpower role unless it retrieves its old time role as an industrial power hub, rather than a financial services centre. Until America changes course, China will remain the rising star and coming superpower. And when America changes course, if it ever does, dismantling the World Bank, the IMF and apologising for the havoc these have wreaked on world governments will be in order. * The writer is a visiting fellow at Chatham House.
