Tuesday, August 30, 2011


It's incredible how our world changed in just one generation. It was 1980. I was in junior college when I started studying politics and international relations. The United States was engaged in a cold war, paying for the defense of the west, and staring down the Soviet Union as it was crumbling into history. The American Peace, or Pax Americana, was in full bloom.

South of the border, most of Latin America was dominated by corrupt regimes and crony capitalists. The region's growing debts insured that the United States would wag it's finger at our neighbors to the south, as if they were broken step-children. And why not? The U.S. had a debt to GDP ratio that was just above 30% (we owed about $979 billion then) while most of Latin America had debt to GDP ratios that hovered between 35-60%, which would be even higher when set against declining export earnings in the 1980s. Though debt ratios didn't approach 100% for most of the region in the 1980s, declining export earning contributed significantly to Latin America's Lost Decade.

And we continued to wag our finger through it all.

How things have changed in just one generation.

There's no longer a cold war, but the United States continues to spend lavishly on military budgets like drunken sailors. We are spending far more money on defense than the next 17 militaries, combined. Worse, we spend 6 times more than our presumptive enemies China, Korea and Iran put together (we might be spending more than $1 trillion a year on defense).

And for what? To defend ourselves from terrorists who killed fewer Americans in 2010 (15, most in Afghanistan) than dog bites (34) or lightening (29)?  Combined with the incredibly irresponsible trickle down borrow-and-spend policies initiated by President Reagan (then carried on by both Bushes), and it should come as no surprise that America now finds itself in a financial mess. We've been spending and cutting taxes recklessly, while subsidizing crony capitalists, and pursuing foreign demons that don't warrant the expenditures.

How big is the mess? The U.S. now finds itself with a debt to GDP ratio that hovers over 95%. This is far worse than any of the major economies in Latin America today. Bolivia, run by socialist president Evo Morales, recently posted a 3.7% budget surplus (in 2010) and felt comfortable enough to lecture the United States on it's finances.

And while capacity to pay is as important as ever (the U.S. still retains the capacity to pay), the recent stupidity we saw over the debt ceiling is not encouraging. The Tea Party's fake populism and manufactured rage are encouraging the Barbarians at the Gate to question the credibility of the United States.

Today, even though annual budget deficits in the United States have only averaged about 10% of GDP after the 2008 market collapse (not bad considering what happened) ...

... total debt to GDP ratios in the United States have risen so fast it's now approaching 100% of GDP. This is quite a swing from when it was just above 30% when President Reagan entered the White House. No wonder Ecuador's socialist president lectured the United States on it's finances. Simply put, he can.

Why is all of this important? Because apart from the faux populist outrage we're getting from the Tea Party cranks (where were these guys when Reagan tripled and Bush II doubled our national debt?), we now have to deal with a world that has less confidence in America.

The world sees a country that seems more concerned with empty tax cuts, crony capitalism for Wall Street, and endless foreign wars than it is with fiscal responsibility and global leadership. They see a nation run by Wall Street kleptocrats, who are guided by ideologues pushing a failed ideology. Worse, many have a sense that they are seeing an empire in decline.

This helps explain why leftist-socialist presidential candidates have had found success in Argentina, Brazil, Chile, Bolivia and Venezuela. While there's much to admire in this country, it's no longer easy for  Latin Americans to point to the United States' economic model as the path to follow. How can it be when fraud and incompetence on Wall Street are rewarded with bailouts and bonuses?

Yet, the United States continues to prod and push Latin America on issues ranging from drugs to immigration when, as any Latin American will tell you, it's U.S. policies and habits that encourage both. The Bush administration even tried a cold war tactic when they participated in (led?) an attempt to remove Venezuela's Hugo Chavez from power in 2002, even though he had been popularly and legitimately elected president. While it wasn't picked up by America's media, political insiders understood that the U.S. had a hand in the attempt to oust Chavez from power by bankrolling Venezuelan groups opposed to Hugo Chavez.

Then there's the hypocrisy of our response to the 2008 market crash.

History tells us that if any of our neighbors to the south had experienced the same market meltdown that we did in 2008 that our response would have been much different. Apart from demanding strict austerity measures we would have pressured Latin American officials to make big changes in the way government bureaucrats and their crony capitalists did business. Our response to our own meltdown, however, was to spend lavishly and to cover up for Wall Street with taxpayer backed bailout funds.

How we reacted to our market meltdown in 2008 is one of the reasons why I wrote, tongue-in-cheek, that it's a good thing we don't have a U.S. Embassy in the United States.

In the past - using the U.S. Embassy as a base to direct events - the U.S. initiated coups and forced unwanted leaders from power for lesser offenses throughout the world. With this in mind, in 2009, after being asked about the evolving economic mess in the United States, Chile's then President (2006-2010) Michelle Bachelet joked:

The reason why in the United States there has never been a coup d'etat is because, in the United States, there is no United States embassy.

President Bachelet may have been joking (she issued an apology later), but the point was made. After 30 years of pursuing budget busting tax cuts and unrestrained neoliberal policies in the United States, we are now experiencing what Latin America did when it embraced free market policies under corrupt regimes in the 1980s: economic instability and financial collapse.

What's worse, in many ways we've done nothing to rectify the issues that have altered our economic landscape in just one generation. This is unfortunate because, while our media ignores how it's all tied in to the American Peace, Latin America is picking up on the new realities of Pax Americana in the 21st century.

I'll be touching on this, and other issues, in my Politics of Latin America class this winter. Stay tuned for updates.

- Mark

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