Wednesday, January 21, 2004
Re: US economy & foreign policy

WHat interests me is how a screwed up domestic economy will shape American foreign policy (political and economic?) Any thoughts..

The deconcentration US power is undergoing can be seen in an historical perspective. Nixon betrayed the Bretton Woods agreement to keep the US$ gold-backed, and started spending with great profligacy, while the W.Euro allies and Japan were still forced to stick to their part of the bargain and support the US$ as a currency of seignorage in return for US military support against the Eastern Bloc. Post Cold War, that compulsion has almost vanished, and those crucial economic supports for US spending have been withdrawn. In fact, they are actively building alternative currencies to compete with the almighty dollar.

The upshot of it all was "dollar hegemony", and the artificially high standard of living in the US. The smartie-pants here thought they still had it all worked out when it looked like East Asia was going to be the new support, through a contrived system of dependency. But now that's proving to be untrue as those economies have started changing their behavior. Malaysia has already talked of a "gold dinar", and many ASEAN nations wanted an independent Asian Monetary Fund (tho now it will only be a subsidiary of the IMF). Moreover, India leapfrogged into the picture, posing credible competition to what the US considered its core competency.

The answer to Rachit's question can partly be gauged from the way US executives talk about how the services sector here plans to restructure to maintain competitiveness.

The US can gently let itself down and then compete more naturally by only one method – allowing greater immigration of willing workers (of all skill-levels) from certain other countries. The other politically infeasible option is to somehow convince its people that they really need to change their lifestyles and get used to tough times and a lower standard of living (which will anyway be achieved, on aggregate, by the former option).

The third option is to go the imperial Roman way and use the military muscle it built up on Euro-Japan-sponsored Star Wars profligacy, and forcibly create new hostage nations and dependencies.


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