Friday, September 17, 2010

Canada's View: Third World America

I always it fascinating to read foreign press accounts of current affairs in the United States, to see what things look like from the other side of the fence so to speak.  This latest report from Canada's newsweekly MacLeans though is downright depressing. Titled “Third World America”, it argues that the United States is teetering on the brink of a systemic financial collapse, not a mere recession, and a plunge into the status of becoming a true Third World nation.

Sure, you can dismiss some of that as hyperbole, or perhaps even an innate Canadian inferiority complex, but the examples that make up the first third of the article are pretty telling. My personal favorite is the course being offered to county managers by Purdue University explaining how to breakup a paved asphalt street into gravel to save on road maintenance costs.  But along with offering up some economically-fueled horror stories, the MacLeans piece tries to get to the root causes of America's current economic decline.  Michael Bernstein, an economic historian at New Orleans' Tulane University laid the blame at the feet of conservative icon Ronald Reagan.  “We have been involved for three decades now in paring back public commitments and public spending, and that started with the Reagan revolution,” Bernstein said. “We are living with the outcomes and consequences.”

Interestingly one of Reagan's former staffers, Clyde Prestowitz, who served as a trade official to Reagan and later helped negotiate the NAFTA trade agreement, put the blame on American trade policies, specifically the United States' habit of trading economic favors for perceptions of national security.   Prestowitz said that the US was too willing to swap economic agreements in exchange for the right to put a military base in a foreign country or for support at the United Nations.  He also blasted the US government for not challenging other countries, most notably China, on currency manipulation – keeping their currency artificially “cheap” to give them an unfair advantage in the import/export markets.  Prestowitz also noted that other countries were willing to protect “key industries” the feel are important to their national well-being with heavy subsidies; the US, by contrast, has been dedicated to the advice of Adam Smith and has been more than willing to let jobs and industries go abroad in this era of globalization.

Smith was an 18th century Scottish economist who popularized the idea that some nations would be better at producing a specific good than others (for example France can produce wine better and cheaper than England), so it makes economic sense to buy goods from the countries that do the best job of producing them rather than trying to produce every good your society needs yourself; it is the basic idea behind globalization, and one embraced by American economists and politicians, particularly conservative ones.  But the 21st century is much different and much more complex than Smith's 18th, we wouldn't follow 18th century medical advice (where a doctor would likely have you slapping a leech on your forehead to “re-balance your humors”), does it make sense then to follow 18th century economic advice, especially when, as Prestowitz notes, other countries aren't playing by the same rules?

The MacLeans article points to the need for some new and different thinking from America's leaders, both political and economic, if we are to reverse this financial slide.  Sadly it looks like we're not about to get any. 

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