It has been more than a month that the conflict in Georgia broke out and since then the diplomacy has gained impetus in the region. Even though different reactions have been shown against Russia it has become clear that there is a dispersion of hegemonic power of the US in the world politics. Multipolarity and chaos have become the new popular keywords. However, it seems rather difficult to say certainly that the power getting concentrated on a specific country as in Cold War era or the 20th century.
Especially, beginning with the Iraq war and negotiations beforehand carried out by the US diplomats to get the support of its allies has been one of the major milestones in this process of dispersion of power. Or maybe the reality has become more obvious. After the end of the Cold War in spite of the main rhetoric that the US is the only superpower, it was really hard for this country to change the minds of its allies in terms of opening a new front in Iraq. Turkey and many countries in the EU did not support this adventure of Bush government.
One can claim that Afghanistan and Iraq operations could have turned into success stories that would enhance the US power on global scale. However, what we are talking today is weakening support to the US and its image among people all around the world.
Though it is not only the political loss the US has to face as a consequence these “operations”. Joseph Stiglitz and Linda J. Blimes calculate $3 trillion bill for Iraq war as a burden to the US budget and they further claim that this would be doubling when the repercussions of the war calculated for the rest of the world. So, more or less we are talking about 6 trillion dollars. This number is well beyond the $700 billion that is spelled for the survival of the US economy. One can find Stiglitz’s calculations too exaggerated, but even the modest numbers are around $300-$400 billion, which can be a significant amount of capital to be able to make the US a sustainable economy.
It is a well known economic approach that wars help the wheels of the economy to turn once again and World War II can be given as a good example for the US to become the dominant economic and political power. On the other hand, for UK and Europe, which had to bear a longer period of war than the US in the World War II, this meant the collapse of these countries’ economy and it appears that we have more or less the similar situation for America. May be not only Iraq and Afghanistan wars can be given as supportive examples, but as you know the US has to reformulate its economic policies due to printing so much money to finance the expenses during Vietnam War.
Additionally, failures in Iraq and Afghanistan and losing so much energy, time and money caused the US to lose its priorities in other geographies and new actors to substitute this country, as it did just after the Cold War era in Eurasia. Russian and Chinese dominance in the region is an obvious reality right now.
Thinking about Joseph Nye’s “Soft Power” approach, we can say that the US has lost its credibility and attractiveness which makes it hard for the US to pursue a successful foreign policy like in Clinton era. After eight years of Bush administration the US is a country in wars and consuming 25% of energy in the world, which makes it dependent on Middle East countries and now it has to struggle with a serious economic crisis. The problem is so serious that while making emphasis on the virtue of democracy and human rights, it does not hesitate to cooperate with Qaddafi, who was one of the most serious threats and supporters of terrorism according to the US just a couple of years ago, to find alternatives to its oil resources.
Economics and the Markets
There are cycles in world economy and when it reaches to its highest point the fall begins. However, changing systems and technologies beforehand or after the collapse happens would help economies to recover once again.
Keynesian approach to Great Depression can be given as a good example to this claim, which helped the US to get out of the crisis. Or developments in IT technologies helped production to increase in unbelievable ratios for the last two decades.
Now, the markets collapsed, yesterday Russians who invested in Russian MICEX or RTS were 20% worse off than last week or it was almost 10% of loss in European markets. The situation was not different for Dow Jones Index which fell below the psychological 10.000 level. For today, the markets show a slight increase, but it is hard to say that everybody have good feelings regarding the future, and “the bulls” had vanished while “the bears” dominate the market.
What happened in financial markets, and up to a certain extent in commodity markets, was earning money from “money” which can be defined as fictitious production in economic terms or a kind of “miracle”. Even for oil which has even become more than $140 per barrel, now the price of oil is between $80 - $90 band. Now, I have a big question in my mind regarding the famous peak oil claims!
A Humble Critique
Recently, Asian economies were producing so fast without taking into account the depletion of natural resources and the collapse of environment. However, Chinese domination is also one of the big blows to the economy we know. Since everybody was talking about removing trade barriers in WTO, but they started to complain when Chinese low-tech goods dominated the market.
Especially, beginning with the new millennia, dollar reserves that everybody accumulates in their Central Banks or on bonds have reached to unbelievable levels. The numbers spelled for Russia was around $600 billion and more than $1.5 trillion in China. Thinking about the cost of this policy another aspect of this has become obvious in Russian case. Moreover, incredible growth rates started to lose impetus and Russia which was growing 7-8% in average is predicted to be growing around 1-2% next year. Thus, the importance of sustainable development not based on petrodollars was certified once again.
Pelosi was announced as the responsible of the bailout defeat, but her words still echoes in my ears; “insulating Main Street from Wall Street”. Thinking about Enron case her words push me to think on this issue deeply. It seems that Lehman Brother’s CEO, Richard Fuld earned $484 million since 2000, while the US tax payers have to pay billion dollar bills.
Last week on Jerry Springer Show, Bill Clinton stated that the economic policies implemented by Bush government cannot be specified as sustainable. In fact, thinking the “genius” implementations of Wall Street and mortgage market an economy based on real estate dynamics and war that has not lasted even after 5 years it is easy to understand Clinton’s suggestions. What happened until now, in spite of all transparency, market economy, invisible hand and moral hazard rhetoric, the market collapsed and the state felt itself obliged to take an active role as a problem solver. The West consumed more than it produced and its debts accumulated. Policies based on consumption seem not that sustainable in spite of many genius inventions in financial markets. Bill Clinton is right in his claims. Iraq War and an economy based on real estate sector are not capable to generate capital. You are consuming what you are producing and no foreign capital is coming from abroad. Blasting bombs in Iraq does not generate money, or every home built in Connecticut only helps capital to change hand between labor market and contractor and then among brokers in financial markets.
Bill Clinton suggests that pursuing innovation policies in energy sector would help the US to decrease its dependence on the Middle East oil and also would help to generate money that make everybody to have a house as they have today without suck credits.
One can claim that the US itself prints money which is convertible all around the world and it does not need money coming from abroad (i.e. foreign trade, fixed capital investment etc.). However, a loose fiscal policy with a loose monetary policy that struggles with inflation and recession dilemma had collapsed at the end of the day.
To sum up, it can be said that now economics dominates the politics. While we were discussing Russian aggression in Caucasus, today plunging markets in all around the world are the hottest topics on the agenda. Even though there are pessimists those believe that the new bailout plans would not be enough to overcome the current crisis let’s cross our fingers and hope that this would not end with a deepening crisis that would cause economies to shrink and unemployment rate to reach its levels in 1929.
Hasan Selim Ozertem (JTW)
07 October 2008
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