Shifting Sands: The United States in the Middle East

Joel S. Migdal

Columbia University Press 2014

Joel S. Migdal revisits the approach U.S. officials have adopted toward the Middle East since World War II, which paid scant attention to tectonic shifts in the region. After the war, the United States did not restrict its strategic model to the Middle East. Beginning with Harry S. Truman, American presidents applied a uniform strategy rooted in the country’s Cold War experience in Europe to regions across the globe, designed to project America into nearly every corner of the world while limiting costs and overreach. 

The approach was simple: find a local power that could play Great Britain’s role in Europe after the war, sharing the burden of exercising power, and establish a security alliance along the lines of NATO. Yet regional changes following the creation of Israel, the Free Officers Coup in Egypt, the rise of Arab nationalism from 1948 to 1952, and, later, the Iranian Revolution and the Egypt-Israel peace treaty in 1979 complicated this project. Migdal shows how insufficient attention to these key transformations led to a series of missteps and misconceptions in the twentieth century. With the Arab uprisings of 2009 through 2011 prompting another major shift, Migdal sees an opportunity for the United States to deploy a new, more workable strategy, and he concludes with a plan for gaining a stable foothold in the region.

Joel S. Migdal is the Robert F. Philip Professor of International Studies at the Henry M. Jackson School of International Studies, University of Washington, and has been writing about the Middle East and state-society relations worldwide for more than forty years. Among his books are The Palestinian People (with Baruch Kimmerling), Through the Lens of Israel, Strong Societies and Weak States, and State-in-Society.

http://cup.columbia.edu/book/978-0-231-16672-0/shifting-sands

Good-Bye Hegemony!: Power and Influence in the Global System

Simon Reich & Richard Ned Lebow

Princeton University Press, 2014

Chapter 1 

Many policymakers, journalists, and scholars insist that U.S. hegemony is essential for warding off global chaos. Good-Bye Hegemony! argues that hegemony is a fiction propagated to support a large defense establishment, justify American claims to world leadership, and buttress the self-esteem of voters. It is also contrary to American interests and the global order. Simon Reich and Richard Ned Lebow argue that hegemony should instead find expression in agenda setting, economic custodianship, and the sponsorship of global initiatives. Today, these functions are diffused through the system, with European countries, China, and lesser powers making important contributions. In contrast, the United States has often been a source of political and economic instability.

Rejecting the focus on power common to American realists and liberals, the authors offer a novel analysis of influence. In the process, they differentiate influence from power and power from material resources. Their analysis shows why the United States, the greatest power the world has ever seen, is increasingly incapable of translating its power into influence. Reich and Lebow use their analysis to formulate a more realistic place for America in world affairs.

Simon Reich is professor of global affairs and political science at Rutgers University, Newark. Richard Ned Lebow is professor of international political theory at King's College London and the James O. Freedman Presidential Professor of Government Emeritus at Dartmouth College.

Endorsement:

"Mounting a frontal challenge to reigning theories in international relations and the conventional wisdom regarding the place of the United States in the international system, Good-Bye Hegemony! shows that the country stopped acting like a hegemon a long time ago. This accessible and engaging work will spark interesting and useful discussions in international relations and comparative foreign policy."--Jeffrey Anderson, Georgetown University

"It seems that only yesterday 'American empire' was a hot topic, but Reich and Lebow demonstrate that even U.S. hegemony was a short-lived post-World War II phenomenon. Though the United States maintains enormous military and economic capabilities, its actual influence and legitimacy are seriously limited in today's multipower world. The authors' argument--that the United States is most effective when emphasizing persuasion and sponsorship--will be central to future policy debates."--Yale H. Ferguson, Rutgers University

"In this thought-provoking and sobering narrative, Reich and Lebow take direct aim at the international relations establishment, arguing for the limits of material power and the importance of legitimacy in gauging America's global influence."--James Goldgeier, American University

"This book's main arguments against hegemonic theory are strong and necessary: the hegemonic period was not as great as rose-colored remembrances portray, the United States was not as benevolent a hegemon as often claimed, and hegemony did not last as long as often depicted. The book makes a forceful statement and should be part of the debate."--Bruce W. Jentleson, Duke University

"This beautifully provocative book turns the mainstream debate on the global power shift upside down. Reconceptualizing the relationship between power and influence, it refutes the widespread view that the United States must remain the world's hegemon and provides the blueprint for a more cooperative U.S. foreign policy. A must-read for all who care about the world's future."--Harald Mueller, executive director of the Peace Research Institute, Frankfurt

Table of Contents:

List of Tables ix

Preface xi

Chapter 1 The Wall Has Fallen 1

Chapter 2 Power and Influence in the Global System 15

Chapter 3 Europe and Agenda Setting 51

Chapter 4 China and Custodial Economic Management 83

Chapter 5 America and Security Sponsorship 131

Chapter 6 The Future of International Relations 171

Index 185

http://press.princeton.edu/quotes/q10271.html

Muslims in Liberal Democracies: Why the West Fears Islam

Jocelyne Cesari, Harvard University

Qantara.de, November 2013

Harvard professor and Islam expert Jocelyne Cesari looks into the mechanisms of the West's fear of Islam, and ponders on how the dominant narrative that tends to present Islam as an alien religion can be countered

The integration of Muslim immigrants has been on the political agenda of European democracies for several decades. However, only in the last ten years has it specifically evolved into a question of civic integration closely related to religious identity. In the 1960s and 1970s, the socio-economic integration of immigrants with a Muslim background was the primary focus of academic literature, but with the emergence of the second and third generations, the interest has shifted to political mobilization. Beginning with the Rushdie affair in the United Kingdom and the hijab affair in France from 1989 to present, the spotlight has moved to the legitimacy of Islamic signs in public space, such as dress code, minarets, and halal foods.

As a consequence, controversies surrounding the visibility of these signs have steadily grown. Controversy is not merely a disagreement about divergent points of view; but it is about fundamental differences (or at least perceived as such) about the principles and norms that regulate the common life of individuals sharing the same time period. Such fundamental divergences that lead to exclusive or binary positions cannot coexist in the same public space.

Islam and the perceived rejection of democracy

Consequently, headscarves, mosques, and minarets are increasingly seen as a rejection of western democratic values, or even worse, as a direct threat to the West.

During the 2006 campaign to ban minarets in Switzerland, posters from the Egerkinger Committee displayed a woman in a burqa standing next to minarets that were rising from a Swiss flag and pointing to the sky like missiles (see picture). Such a perception of Islam in the public sphere has reached the United States as well through the ongoing Shari'a debates, discourse on Islamic radicalization in jails, and the ground zero mosque controversy in the summer of 2010.

Islamic signs are not only ostracized in public discourse, but are also controlled and restricted through multiple legal and administrative procedures in an attempt to "civilize" or adjust the signs to fit western political cultures. In April 2011, the French government enforced the ban on wearing the niqab or burqa, which was overwhelmingly approved in 2010 by the French legislature. Other countries like Belgium and The Netherlands have followed the French path in 2011 and 2012.

The most recent addition to the long list of outcast Islamic signs is circumcision. In June 2012, a judge in Cologne, Germany, outlawed circumcision on the grounds that it causes "illegal bodily harm". Although Germany's Chancellor Merkel has promised the Muslim and Jewish communities that they can continue practicing circumcision, the legal implications of this ban have yet to be determined.

Cultural struggle within Islam

This cultural struggle is also fought on the Muslim side. Salafism, a specific interpretation of Islam in stark opposition to western values and cultures, advocates many practices such as gender segregation and rejection of political and civic engagement that are deemed as efforts to fight the impurity of the West. This particular brand of Islam is one of the most visible, widespread, and accessible interpretations, and thus gives the illusion to both Muslims and non-Muslims that Salafism is the true Islam.

In sum, an essentialized West and an essentialized Islam are fighting each other and in so doing reinforce one another. The "burqa versus the bikini" opposition often used by both Islamophobes and Muslim fundamentalists encapsulates this sense of profound incompatibility that relates to politics, lifestyles, and most interestingly, women's bodies.

On one hand, for most westerners, the burqa symbolizes total denial of freedom and of gender equality. On the other hand, for fundamentalist religious voices, the burqa symbolizes woman's dignity and her devotion to family values, opposed to the bikini seen as an objectification and degradation of the female body.

Such stark oppositions are of course extreme, but at the same time, reflect the "either or" approach, in which most of the discourse on Islam is currently trapped. The German President, Joachim Gauck involuntarily illustrated the milder version of this binary opposition, when he said that Muslims can live in Germany but that, unlike his predecessor (Christian Wulf), he does not think that Muslims can be part of Germany.

Polarized mindset

One major consequence of such a polarized mindset is to mask the sociological reality of Muslims. In fact, a striking gap exists between the image of Islam as it is constructed in binary public discourse and the multifaceted reality of Muslims across countries and localities.

For example, the dominant assumption is that visible Islamic identities in the West are inversely correlated to their civic and political loyalties, while there is empirical evidence that contradicts such an assumption.

My book – "Why the West Fears Islam – An Exploration of Muslims in Liberal Democracies" – presents first-hand data from focus groups I organized in Paris, London, Berlin, Amsterdam, and Boston between 2007 and 2010. In this regard, it is the first systematic and comparative review of the existing knowledge about Muslim political behaviours and religious practices in western Europe and in the United States.

The major conclusion is that although Muslims are challenged by their secular environment, they do not experience the incompatibility so intensely debated by western politicians and Salafi preachers alike. Then why is Islam depicted as an obstacle in political discourse and the media? Taking up this intriguing gap, I have attempted to make sense of this disjuncture between what Muslims do and the political construct of the "Muslim problem".

During this exploration, liberalism and secularism have appeared as the two major idioms used to make sense of the Muslim presence.

1. Contextualizing Liberalism

The "Islamic Problem" in Europe is a consequence of immigrant settlement that in the last two decades has been phrased in cultural and religious terms. The fact that Muslims stand at the core of three major social "problems" – immigration; class and economic integration; ethnicity and multiculturalism – has increased the concern about Islamic religion, increasingly seen as the major reason for all problems.

I show in my book that in the United States this culturalization of all political issues related to Muslims is more recent and primarily related to security concerns. Therefore, categories of "immigrant" and "Muslim" overlap in Western Europe, unlike in the United States where immigration debates centre on economic and social concerns such as wages, assimilation, and language.

The outcome of these social shifts is visible in the apocalyptic turn of the public rhetoric on Islam in Europe. Extreme right political figures like Geert Wilders speak of "the lights going out over Europe" or of "the sheer survival of the West".

It would be misleading to think that this existential war is waged only on the margins of European societies. In fact, numerous opinions surveys as well as political discourses show that the perception of Islam as a danger to Western core political values is shared across political allegiances and nations.

2. The Alliance of Liberalism and Feminism

In fact, this existential war can be defined as a values-centred liberalism which pitches itself against the recognition of religious and cultural diversity. For example, British Prime Minister David Cameron declared in February 2011 at the annual Munich Security Conference of world leaders: "Frankly, we need a lot less of the passive tolerance of recent years and much more active, muscular liberalism."

It is important to emphasize that, historically, political liberalism at the foundation of Western democracies is not necessarily incompatible with the recognition of pluralism. Based on the principle of toleration, the liberal State is traditionally expected to grant equality to citizens of all religious and cultural backgrounds.

In contrast, the new liberal discourse sees recognition of minority rights as a threat to freedom of expression and women's rights which are apprehended as the core values of national communities. Hence, it advocates a strong cultural integration of newcomers. As a consequence it has created very significant policy shifts in countries usually characterized by multiculturalism like the Netherlands or the United Kingdom. For example, the multicultural project of recognition of "cultural diversity in a context of mutual tolerance" of Labour Home Secretary Roy Jenkins in 1966 is now strongly criticized. In fact, the new political consensus is to prioritize strong cultural assimilation to British values over minority rights.

The markers of European identity

This "new integrationist" discourse is widely shared across European countries and, interestingly, promoted by former left-wing activists. Gender equality and rejection of religious authority, which were primary left-wing topics of struggle in the 1960s have become in the present decade the legitimate markers of European identity. In these conditions, all groups and individuals are required to demonstrate conformity to these liberal values in order to become legitimate members of national communities. The "Moderate Muslims" label serves this purpose. It creates a distinction that is supposedly not based on Islam as such but on the adherence of Muslims to liberal values.

Strikingly, feminist groups have become key actors of this discourse. Some feminist figures have been particularly vehement against group rights and especially against any Islamic principles that could undermine gender equality. Curiously, this feminist discourse silences the Muslim women that it purports to defend. As a consequence, Muslim women are transformed into subalterns in a way that is similar to the colonial and postcolonial vision of the Muslim subject.

This new integrationist discourse goes hand in hand with states' active policies to transform the behaviours and identities of their Muslim citizens. For example, state-led production of Muslim subjects with the correct moral identity is reflected in various policies: values tests and oaths of allegiance for would-be migrants and citizens; recruitment of "moderate Muslims" as state-sponsored role models and community leaders; formal and informal restrictions of Islamic practices seen as extremist or illiberal.

All these policies can be summed up as an attempt to civilize the "enemy". Such a project is not only a speech act but translates into discreet or invisible regulations/ limitations on Muslim cultural and social practices. Interestingly, most Muslims we interviewed reveal that they are already "civilized" and are trying to find commonality with the dominant group. Most of the time, however, they are silenced or reduced to the reification of their bodies, dress, or minarets.

Being Muslim and a citizen

One of our most striking findings is the non-contentious nature of being a Muslim and a citizen, while it is this exact dichotomy that puts Muslims at odds with the social expectations of most Europeans. Our surveys show that Muslims do not see incompatibility between being a Muslim and being a citizen.

At the core of the European shift is the blind spot of the social legitimacy of religion that has been completely eliminated from most of national discourse and values.

In sum, the symbolic integration of Muslims within national communities would require a dramatic change in the current liberal and secularist narratives. It is a daunting task, but it can be done.

On March 10, 2011, the hearings of the Congress Commission on Radicalization of American Muslims provided a platform for at least two individuals to weave Muslims into the American narrative. In his testimony, Congressman Keith Ellison (D-MN), the first Muslim elected to Congress, tearfully etched into America's consciousness the story of Salman Ahmad, a Muslim paramedic and New York police cadet killed trying to help fellow New Yorkers on 9/11. Additionally, Congressman Brian Higgins, a Catholic, stated that America's tradition is "Christian-Judeo-Islamic," not simply "Christian-Judeo".

This can be seen as empty feel-good talk, but it can also be the prefiguration of how historical references can be used to achieve symbolic integration and counter the dominant narrative that tends to present Islam as an alien religion.

Jocelyne Cesari, Senior Research Fellow at the Berkley Center for Religion, Peace and World Affairs, Georgetown University, Director of the Islam in the West Program, Harvard University

http://en.qantara.de/content/muslims-in-liberal-democracies-why-the-west-fears-islam

The Last White Election in the United States?

Mike Davis

New Left Review

January-February 2013

Last September, while Bill Clinton was delighting the 2012 Democratic Convention in Charlotte with his folksy jibe at Mitt Romney for wanting to ‘double up on the trickle down’, a fanatical adherent of Ludwig von Mises, wearing a villainous black cowboy hat and accompanied by a gun-toting bodyguard, captured the national headquarters of the Tea Party movement in Washington,DC. The Jack Palance double in the Stetson was Dick Armey. As House Majority Leader in 1997 he had participated in a botched plot, instigated by Republican Whip Tom DeLay and an obscure Ohio Congressman named John Boehner, to topple House Speaker Newt Gingrich. Now Armey was attempting to wrest total control of FreedomWorks, the organization most responsible for repackaging rank-and-file Republican rage as the ‘Tea Party rebellion’ as well as training and coordinating its activists. [1] Tea Party Patriots—a national network with several hundred affiliates—is one of its direct offshoots. As FreedomWorks’ chairperson, Armey symbolized an ideological continuity between the Republican congressional landslides of 1994 and 2010, the old ‘Contract with America’ and the new ‘Contract from America’. No one was better credentialed to inflict mortal damage on the myth of conservative solidarity. 

Only in December did the lurid details of the coup leak to the press. According to the Washington Post, ‘the gun-wielding assistant escorted FreedomWorks’ top two employees off the premises, while Armey suspended several others who broke down in sobs at the news.’ [2] The chief target was Matt Kibbe, the organization’s president and co-author with Armey of the best-selling Give Us Liberty: A Tea Party Manifesto. Although Kibbe, originally a protégé of Lee Atwater, is an equally devout Misean (indeed, ‘distinguished senior fellow’ at the Austrian Economics Center in Vienna), he is a generation younger than 72-year-old Armey or, for that matter, most of the Tea Party base. On the FreedomWorks website Kibbe describes himself as living ‘with Terry, his sublimely awesome wife of 25 years’ and spending his leisure time ‘reading Hayek or Rand, watching The Big Lebowski or listening to a killer Grateful Dead show.’ Yet as Armey himself had put it, ‘sometimes you’re the windshield and sometimes you’re the bug.’ [3] 

Although he had support from powerful backers, including former White House counsellor C. Boyden Gray, Armey’s delusional dictatorship over Tea Party Central lasted less than a week. In conference calls with staff and supporters he denounced Kibbe for using the organization for self-publicity and personal profit (especially in the publication of his new book Hostile Takeover: Resisting Centralized Government’s Stranglehold on America) while keeping him—chairman and historical icon—out of the media limelight. Armey was also critical of the million-dollar annual fee that FreedomWorks pays Glenn Beck for publicity and fundraising (Rush Limbaugh reportedly has a similar deal). [4] In addition, Armey accused Kibbe’s team of failing to rally behind the doomed Senate campaign of Todd Akin, the Missouri ignoramus whose remarks about ‘legitimate rape’ had led Romney and other outraged party leaders to demand his withdrawal from the race. According to one staffer interviewed by the Post, ‘It was clear that under Armey’s leadership, the organization as we knew it was going to be driven into the ground.’ [5]

In the end, one of FreedomWorks’ major donors, Richard J. Stephenson, an Ayn Rand fan who operates a controversial but hugely profitable chain of private cancer treatment centres, offered Armey $8 million in instalments to go back to his ranch in Texas. Kibbe resumed control over 400 North Capitol Street NW, but Armey supporters continue to spread rumours about staff wrongdoing. Tea Party blogs, in turn, have accused Armey first of extortion, then of treason after he told his side of the story to Mother Jones’s David Corn. In other circumstances this duel between the black hats and rightwing Deadheads would have been a ‘tempest in a teapot’, akin to the episodic defrocking of a famous televangelist or a Congressional adulterer. But Kibbe, a cool operator in a histrionic milieu, insisted that Armey and his backers were clumsily camouflaging the larger issues at stake. In an internal document he charged that the attempted takeover was just old-guard retaliation for FreedomWorks’ sponsorship of Tea Party activists in primary campaigns against ‘establishment Republicans’ (a term which in Tea Party/Sarah Palin circles can encompass Rick Perry and Lindsey Graham as well as John McCain, Haley Barbour and John Boehner). [6] As an example, Kibbe cited the controversial Arizona primary the previous spring where redistricting had pitted two incumbent Republican congressmen against each other: Ben Quayle, the son of Bush Senior’s vice president, and David Schweikert, a prodigy of Arizona ultra-conservatism. While Boyden Gray and other wealthy trustees donated to Quayle, Kibbe lionized Schweikert for standing up to Boehner and other GOP grandees. [7] 

It was inevitable that defeat in November 2012 would reopen every wound and rivalry amongst prominent Republicans, undoing all the hard work of Karl Rove and his billionaire friends in creating a beauty strip of party unity around the Romney campaign. Across the suburban steppes Republican factions started warring with each other. Since the last GOP ‘moderates’ have been driven into extinction and 1980s-vintage Reaganites are gone to pasture, the current Republican civil war (as illustrated by the events at FreedomWorks) has a distinctly Oedipal dimension: jaded Gingrich revolutionaries versus their own demon spawn. Seldom in the history of the House of Representatives has the majority party so brutally cleaved itself down the middle as did the Republicans on New Year’s Day, when 151 members—including Majority Leader Eric Cantor, most of the freshmen and almost all of the Tea Party caucus—rejected the fiscal compromise (‘Plan B’) submitted by their own Speaker. Some prominent supporters of the rejectionist bloc immediately warned that the 85 Republicans, mainly from Northern and Western states, who had voted for the bill (along with 115 Democrats) could face capital punishment in the 2014 primaries. [8] The rift in Congress continued to deepen a few weeks later—largely along a Mason–Dixon fault line—when an even larger majority of the Republican caucus (179 members) voted against emergency aid for victims of Hurricane Sandy that was eagerly sought by Republicans from Northeastern states. Boehner’s dwindling band of conservative realists are discovering that the small-government fundamentalism of the Tea Party, originally heralded as the third wave of the Reagan Revolution, is actually the road to an elephant graveyard.

...

Full-text available, at:

http://newleftreview.org/II/79/mike-davis-the-last-white-election

The Paradox of Islam’s Future

RAYMOND W. BAKER 

Trinity College, Connecticut

Political Science Quarterly 

Vol.127 - No.4 - Winter 2012-2013 

pp. 519-566

RAYMOND W. BAKER argues that although violent extremism flows from radical Islamic movements, the Islamic mainstream has effectively adapted to the globalized world and will shape the future of Islam in ways open to principled accommodation with the West. He claims that mainstream assertiveness, unencumbered by Western interference, provides the most effective way to counter destructive radicalism. 

ISLAM TODAY PRESENTS ITSELF CLOAKED IN A PARADOX. By all

economic and political measures, the late twentieth century was a time

of dramatic decline for the Islamic world, particularly its Arab heartland.

The deterioration continued through the first decade of the twenty-first

century, accelerated by the American shattering of Iraq and Afghanistan.

Sober voices from the Islamic world now regularly and accurately describe

their current state as the worst in the 1,400-year-old history of Islam.

Not surprisingly, Western analysts routinely speak of Islam’s decline, particularly

in terms of its political dimensions. Only Marxism rivals “political

Islam” in the number of times it has been pronounced dead, dying, or in

some obscure “post” state. Yet, again and again, Islam appears at grave’s

edge to renew itself in unexpected ways. It does so today in the form of a

worldwide Sahwa Islammiyya or Islamic Awakening that has been in the

making for a generation or more.

Precisely in these times of unprecedented material vulnerability, Islam of

the Awakening has emerged as a powerful wave of world-historic change

that is sweeping through communities of Muslims around the world. Islam

has established itself as the only transnational force able to resist America’s

homogenizing power on a global scale. It has inspired the most successful

Arab resistances to the American-backed expansion of the Israeli state.

Extraordinary popular revolutions in the spring of 2011 in Arab lands,

though not led by Islamists, evinced a distinctive Islamic coloration. Everywhere

the Islamic presence in public life has been strengthened in the wake

of uprisings. The ordinary Muslims who made these revolutions, notably

in Egypt and Tunisia, framed their mobilizing calls for freedom and justice

in an Islamic idiom rarely appreciated or even understood in Western

commentary. As people took to the streets by the hundreds of thousands,

calls celebrating the greatness of God mingled with those demanding

the end of tyranny. This improbable assertiveness of Islam in so many

unexpected ways is the central and little-understood paradox of Islam in

our time: How at a time of such unprecedented weakness has Islam made

itself such a powerful transnational force? How has an Islamic world in

decline and under attack succeeded in initiating a centrist, global wave

for renewal? By what alchemy does Islam translate the visible weaknesses

of Muslims into a formidable wave of Islamic resistance?1

THE MAINSTREAM AND THE ISLAMIC AWAKENING

The simple and straightforward answer to all three questions is the constantly

renewed capacity of the Islamic mainstream, the Wassatteyya,

to energize and guide the Islamic Awakening. The Islamic mainstream

draws as no other force on the inherent strengths of the revelation. It is

mainstream Islam that is safeguarding the faith in these difficult times.

It is the mainstream that will ultimately shape the future of Islam and

Islamic societies. The obsessive focus of the West on contemporary Islamic

extremism has obscured and at times even obstructed and delayed this outcome.

The horrific violence used to combat extremism has had the effect

only of augmenting its role at the expense of the mainstream. Military

invasions and occupations radicalize the Islamic world in destructive ways

and temporarily crowd out the mainstream. In the end, when calm returns

to Islamic lands, mainstream Islam will more effectively assert itself.

Consistent with well-established historical patterns the mainstream will

reabsorb the extremists into a re-centered and inclusive Islamic body.

What exactly is the Islamic Wassatteyya and how does it work these

effects? It is most useful to start with the provisional definition that the

Wassatteyya is what its adherents say it is...

...

Full text available at:
http://www.psqonline.org/article.cfm?IDArticle=19005 

The American Boulevard of Stolen Dreams: 1990s-2012

Hedrick Smith | Dec. 20, 2012 TheGlobalist.com

Documentary filmmaker and former New York Times reporter Hedrick Smith's new book, "Who Stole the American Dream," recounts the political decisions that led to a fraying of the economic fabric for middle-class America. In part two of his timeline, Smith takes us from the breakdown of bipartisanship to the meltdown of the U.S. housing sector and the long, jobless recovery.

This is continued from The American Boulevard of Stolen Dreams: Part I — 1945-1980s.

1990

Congress passes the H-1B visa program, permitting U.S. businesses to import college-educated foreign workers for high-tech and knowledge economy jobs.

For the first time since World War II, a major piece of legislation passes Congress without a single yes vote from the opposition party.

By the early 2000s, close to a million Americans have been replaced by foreigners, even though studies by the Rand Corporation and others assert that there is no shortage of Americans to fill such jobs.

1993

For the first time since World War II, a major piece of legislation — President Clinton's budget — passes Congress without a single yes vote from the opposition party. In a virtually unprecedented party-line vote, not a single Republican supports Clinton's tax increases.

1993-1994

Hampered by partisan gridlock, the 1993-94 Congress becomes one of the two least productive legislative sessions in a half-century, with the second lowest percentage of major legislation passed.

1994

The CEO stock option boom takes off, with 70% of CEOs now receiving stock option grants. By 2000, grants of millions of stock options become the norm, hugely increasing CEO pay.

Corporate executives overtake the inherited rich as the biggest portion of the nation's richest 1%.

1995

Partisan gridlock shuts down the government after Republicans take control of the House of Representatives for the first time in 40 years and Republican Speaker Newt Gingrich sets up a confrontation with President Clinton over the budget.

Eventually, with polls showing the public blames Republicans more than Democrats, Gingrich backs down.

1999

General Electric CEO Jack Welch is named "the ultimate manager" of the 20th century by Fortune.

GE CEO Jack Welch wins favor on Wall Street for cutting 25% of his company's workforce — or 130,000 jobs.

Nicknamed "Neutron Jack" for the weapon that kills human beings but leaves buildings standing, Welch reverses the employee-friendly policies of his predecessor and wins favor on Wall Street for cutting 25% of GE's workforce — 130,000 jobs.

As one executive put it, "Working for him is like a war — a lot of people get shot up."

1995-2000

By balancing the federal budget and generating budget surpluses, the Clinton tax increases of 1993 help to lower inflation and interest rates and to generate the nation's strongest steady economic growth period since the 1960s, boosting the real wages of average middle-class workers.

2001-03

President George W. Bush pushes massive tax cuts through Congress each year, starting in 2001, despite opinion polls showing the public favors using budget surpluses inherited from Clinton to increase spending on education, health, and Social Security, or to reduce the national debt.

May 2003

At a White House ceremony, President Bush thanks "my friend Dirk Van Dongen" for helping to move the Bush tax cuts through Congress.

Unknown to most Americans, Van Dongen is a Washington insider, field marshal of the "Gang of Six" — the six major business organizations that anchor the Tax Relief Coalition that lobbied for tax cuts.

2001-03

The Federal Reserve, led by Chairman Alan Greenspan, cuts interest rates 11 times from 6.5% to 1%, providing cheap money to fuel a housing boom and revive the U.S. economy.

Home prices rise so fast after Greenspan's interest rate cuts that Americans borrow $700 billion a year from their home equity.

Home prices rise so fast that Americans borrow $700 billion a year from their home equity. Despite warnings about the dangers of rising personal debt, Greenspan hails homeowners' "equity extraction" as the engine for consumer demand and economic growth.

2003

Airline mechanic Pat O'Neill retires from United Airlines after 35 years on the job, but when United Airlines declares bankruptcy, his lifetime pension is drastically cut, and his employee stock-option plan collapses.

His 401(k) suffers from a sharp stock market decline and he is forced to take another job. To rebuild financially, O'Neill is still working today, and he expects never to retire.

2004

Pam Scholl and Mike Hughes lose their jobs when the old RCA television tube plant in Circleville, Ohio, shuts down — one of 54,000 American plants to close in the 2000s.

Scholl gets another job fairly quickly, but Hughes can't find steady work.

2004

Bill Nichol, CEO of Kentucky Derby Hosiery, bowing to Wal-Mart executives telling their suppliers to set up low-cost production in China, says he is moving a big chunk of his company there.

Wal-Mart gets 80% of its products from China-based production, much of it from U.S. companies operating in China.

2004-05

Alan Greenspan praises the rapid growth of the subprime mortgage market and encourages mainstream borrowers to shift from standard, level-rate loans to adjustable-rate mortgages.

Then, from 2004 to 2006, Greenspan raises interest rates, making adjustable-rate mortgages riskier.

Wal-Mart gets 80% of its products from China-based production, much of it from U.S. companies operating in China.

2003-07

Small-business owner John Terboss of North Miami Beach, Florida, is talked into a series of adjustable-rate home mortgage refinancings, each with a higher loan balance.

When he discovers that his broker got an $18,875 bonus for putting Terboss into a high interest loan, Terboss tries to cancel the loan and gets socked with a $21,000 prepayment penalty. In all, he loses $150,000 in equity he had put into his home.

2005-06

More than half of the people to whom banks sell subprime mortgage loans, at high interest rates with heavy fees, are actually solid mainstream middle-class borrowers who qualified for — and should have been sold — prime loans.

2006

American business has shed much of the cost of the corporate safety net. By the mid-2000s, only 18% of employees at companies with more than 100 workers get health insurance fully paid by employers, down from 70% in 1980.

Only 35% still get lifetime monthly pensions, paid by the company, down from 84% in 1980.

2006

Oracle CEO Larry Ellison, with $706.1 million in pay and stock in 2001, tops a Wall Street Journal compilation of the biggest CEO pay packages from 1995 to 2005.

Close behind are Michael Eisner of Disney (with payouts of $575.6 million in 1999 and $203 million in 1993) and Sandy Weill of Citigroup (with pay of $621.8 million in three big years between 1997 and 2000).

July 4, 2007

Hundreds of workers at Sunbeam's profitable plant in McMinnville, Tennessee, are laid off and ordered to train their replacements in a factory in Mexico, in a firing ordered by Sunbeam CEO Al Dunlap. Dunlap has made a personal fortune as a serial downsizer of businesses.

In 2007, the richest 1% take a near-record 23% of the personal incomes paid to all Americans.

Jack Wahl, owner of Sunbeam competitor Wahl Clipper Corporation, criticizes the Sunbeam layoffs as short-sighted and "extremely wasteful," and says his company runs profitably with U.S. workers.

2007

The richest 1% take a near-record 23% of the personal incomes paid to all Americans, earning a combined $1.35 trillion a year, which is more than the entire economies of Canada, Italy, or France.

2007

Among economic sectors, corporate profits see their share of national income rise during the Bush years to the highest level since 1943, while the share of national income going to employee salaries and wages sinks to its lowest level since 1929.

2008

In a Cornell University survey, 57% of people say they have never benefited from any government program or policy.

But questioned in more detail, it turns out that 94% have actually benefited from at least one program. The average person has used four government programs.

2008-09

In the recession, hundreds of major U.S. companies — including General Motors, Eastman Kodak, Sears, Motorola, UPS, Fedex, Hewlett-Packard and National Public Radio — either cancel or cut back their employer match for 401(k) programs.

2009

After a taxpayer bailout, big Wall Street banks rebuff President Obama's appeal to "hire American." They continue offshore hiring and domestic layoffs.

In the 2000s, the Hackett Group reports, 3.9 million jobs in finance, information technology, human resources, and back-office functions have been lost in North America and Europe.

In 2011, JPMorgan Chase, Bank of America and Citigroup sign new contracts to offshore $5 billion worth of IT and back-office work to Indian firms.

In the 2000s, 3.9 million jobs in finance, information technology, human resources and back-office functions have been lost in North America and Europe.

2009

Millions of average Americans, including Pam Scholl and Mike Hughes, become middle-class dropouts — the New Poor. Scholl is laid off for a second time and, despite an intense search for work, remains unemployed for 18 months.

The only work Hughes can find is as a night custodian at a local high school at about one-fourth of his old pay at RCA. Scholl eventually gets a public sector job, at about half her old RCA salary.

December 2009

The United States ends a decade with the slowest economic growth of any decade since World War II. Economic growth was slow prior to 2007, even before the Great Recession, despite President Bush's promise that his tax cuts would spur growth.

2000-09

In this decade, the Commerce Department reports, U.S. multinational companies hire 2.4 million people overseas while firing 2.9 million workers at home.

IBM now has more employees in India than in the United States. Intel CEO Craig Barrett says his company can be successful without ever hiring another American.

Cisco CEO John Chambers says his company is developing a strategy to become "a Chinese company."

December 2009

Germany ends the decade having earned $2 trillion in trade surpluses, with 21% of the German workforce still in manufacturing, versus America's $6 trillion in trade deficits and 9% in manufacturing.

Since 1985, average German hourly wages have risen 30%, compared to 5% in the United States.

2009-10

With the U.S. economy in a painfully slow recovery, political lobbying in Washington is enjoying a boom. As Congress tackles such big ticket items as a stimulus bill, health reform, and financial regulation, a record $7 billion is spent in lobbying in these two years — 87% by business interests.

in the 1960s, only 6% of all legislation faced a filibuster, but now it is up to 70%. Most bills passed by the House die in the Senate.

Business outspends labor on lobbying by 65-to-1. Wall Street banks hire 1,477 former members of Congress, Congressional staff or Executive Branch officials to lobby against new financial regulation.

2010

The National Retirement Fund deficit is calculated at $6.6 trillion by economists at the Boston College Center for Retirement Research. At year's end, the average 401(k) balance is $17,686.

For people in their sixties, on the verge of retirement after 20 years in a 401(k) plan, the average balance is only $84,469.

Economists warn that half of Baby Boomers will not have enough funds to cover their basic financial needs in retirement.

June 2010

Democratic majorities in Congress pass President Obama's health care law. Not a single Republican in either House votes for the final bill — a sharp contrast to the strong bipartisan support for Medicare in 1965.

2010

Escalating use of the filibusters (or the threat of filibuster) in the Senate has become a major reason for Congressional gridlock, allowing a minority — sometimes just one or two senators — to prevent even the start of debate.

Scholars who now call Congress "the broken branch" of government report that in the 1960s, only 6% of all legislation faced a filibuster, but now it is up to 70%. Most bills passed by the House die in the Senate.

2010

Wall Street financial firms hire 1,447 former government officials as lobbyists to fight new banking regulation legislation, attempting to eliminate or water down provisions for strict regulations.

After the bill passes, Wall Street bankers and lobbyists continue the battle to delay or weaken new regulations.

2010

In the Congressional elections of 2010, business interests outspend labor $1.3 billion to $79 million, a 16-to-1 advantage for business.

In soft-money contributions to political parties, rather than donations made directly to candidates through political action committees, the business advantage is 97-to-1 ($972 million for business to $10 million for labor).

Corporations sit on $1.9 trillion in cash, spending more money on buying back stock than hiring workers.

2010

Thirty-three of sixty new Tea Party members elected to the House are millionaires. Tea Party members have an average net worth of $1.8 million.

Overall, 261 of the 535 senators and House representatives are millionaires — 49%, compared to 1% among the public at large.

2010-12

Washington's vanishing political center — so vital to bipartisanship in past decades — continues to shrink.

Two moderate Senators — Democrat Evan Bayh of Indiana and Republican Olympia Snowe of Maine — announce they are so frustrated and disgusted by the harsh partisan divide that hobbles Congress that they are quitting and will not seek re-election.

2011

The housing boom and bust causes a massive transfer of wealth from ordinary American families to the banks — economists say roughly $6 trillion — mainly because so many Americans have drained equity out of their homes.

In 1985, Americans owned nearly 70% of the total value of the nation's housing stock, the main anchor of middle-class wealth. By 2011, the homeowners' share had plummeted to just under 40%, and the banks now owned the major share of U.S. housing.

2012

The United States struggles with what economists call a "jobless recovery" in which data show the economy is growing, but unemployment remains stubbornly high.

This is the third instance of a jobless recovery in recent decades, after declines in the early 1990s and again in 2000-02.

Corporations sit on $1.9 trillion in cash, spending more money on buying back stock than hiring workers, undermining the dynamics of "the virtuous circle."

By 2011, the homeowners' share had plummeted to just under 40%, and the banks now owned the major share of U.S. housing.

2011-12

Some corporate leaders call for a "domestic Marshall Plan" and revisions in U.S. tax laws to generate more job growth, revitalize America's global competitiveness, and to enable more of the middle class to reclaim the American Dream.

Former Intel CEO Andy Grove and GE CEO Jeffrey Immelt, among others, advocate a renaissance in U.S. manufacturing.

Other business leaders and economists call for our current leaders to do what past presidents from Washington to Lincoln and Eisenhower have done — take government action to rebuild America's aging roads, ports, and airports, recoup American's lost lead in technology and innovation, and educate America's next generation and retrain America's current generation to compete better against global rivals.


Read the first part of this article: The American Boulevard of Stolen Dreams: Part I — 1945-1980s

Capitalism, Creditism and a New Global Depression?

New Left Review 77, Sep-Oct 2012
Interview with RICHARD DUNCAN

You were one of the very few analysts to predict the full enormity of the financial crisis, writing as early as 2003 of a coming credit crunch that would have ramifications throughout the asset-backed securities sector, necessitating giant bail-outs for Fannie Mae, Freddie Mac and financial-insurance companies, and a possible meltdown in the multi-trillion-dollar derivatives market. This prescience was in stark contrast to the complacency of most mainstream economists. Could you describe how you came to write The Dollar Crisis—what was the course of your intellectual development and what did you learn from your experience as a Far East securities analyst?

I grew up in Kentucky and went to Vanderbilt University. My plan was to go to law school, but I didn’t get in. Plan B was to go to France for a year, picking grapes. I got a job as a chauffeur in Paris, driving rich Americans, and made enough money to backpack around the world for a year, in 1983 and 84. So I was lucky enough to see the world when I was very young. I spent a couple of months in Thailand, Malaysia and Singapore—and even a couple of months there was long enough to realize: go east, young man.

Go east, because?

Economic opportunity. It was obviously booming—there were big skyscrapers going up, and people couldn’t read maps of their own street. So I went back to business school in Boston, at a time when there was of course very little economic growth in the United States. When I finished business school, going to Asia seemed the obvious thing to do. I found a job in Hong Kong, as a securities analyst with a local, Hong Kong–Chinese stock-broking company. This was 1986. In the first twelve months I was there, the Hong Kong stock market doubled—then I woke up one morning and learned that Wall Street had fallen 23 per cent overnight, and Hong Kong immediately fell back to where it had started. By 1990 I had joined James Capel, the oldest and largest UK stock-broking company at that time, and they sent me to Thailand to manage their research department there. We had ten analysts watching all the companies on the Bangkok stock market. At first, there really was something of a Thai miracle—the growth was solid and fundamental. But very quickly, by 1994, it was obviously a bubble and I started being bearish on the market. I wasn’t saying it was going to collapse, but the growth was going to slow down. But it just kept accelerating, and the bubble turned into a balloon. When it did finally pop, in 1997, Thailand’s GDP contracted by 10 per cent and the stock market fell 95 per cent in dollar terms, top to bottom.

So I witnessed at close quarters a very big boom-and-bust cycle, over a very short period of time. And while I was wrong for several years, I had plenty of time to think about why I was wrong. I started reading a lot of macro-economics: Keynes, Schumpeter, Milton Friedman’s monetary history of the US, the classic works. There was also a sort of lightning-flash moment, around 1994. Five years earlier I had taken a group of fund managers on a trip around the Pearl River Delta, from Hong Kong up to Canton, and back down the other side to Macao. What we saw, all along this vast delta, were miles and miles of factories, as far as the eye could see, full of nineteen-year-old girls earning $3 a day. It was in 1994 that the meaning of this really became clear to me: globalization was not going to work. The US would have a bigger and bigger trade deficit, and the American economy would continue to be hollowed out. It was unsustainable—the demographics made it impossible for this system to work. The Dollar Crisis, which came out in 2003, examined the way those global imbalances were blowing bubbles in the trade-surplus economies, and how the money boomeranged back into the US. I came to see that the unlimited credit expansion enabled by the post-gold, post-Bretton Woods international monetary system was where it all began.

...

What’s been the impact of quantitative easing on the economy as a whole?

The most important short-term effect has been to allow government spending to support the economy while keeping interest rates low. Another aspect, with QE1 in particular, was that the government bought up toxic assets, like the debt issued by Fannie Mae and Freddie Mac. That allowed the financial sector to deleverage by $1.75 trillion, as it swapped mortgage-backed securities for cash. It didn’t work that way in Britain, because the Bank of England didn’t buy assets like that from the banking system, it only bought government bonds. So the British financial sector is still very highly leveraged, whereas in the US it is much less leveraged than it was. Thirdly, every round of quantitative easing drives up the stock market and commodity prices (Figure 12). To some extent higher stock prices create a positive wealth effect, which supports the economy; some sectors will benefit from higher food prices—Mid-West agribusiness, for example—but it’s bad for American consumers; the same goes for the rising price of oil.

Since around 2011, I’d say the costs of QE have been starting to overtake its benefits, which are subject to diminishing returns. Quantitative easing has created food-price inflation that is very harmful for the two billion people who live on less than $2 a day. I’ve read that global food prices went up 60 per cent during QE2, and this was one of the factors that sparked off the Arab Spring. The oil-price spike has been very negative for the US economy; the 2011 slowdown in US consumption was due to higher food and oil prices. It comes back to the old quantity theory of money: if you increase the quantity of money, prices go up. So far, this has barely affected manufactured goods because of the huge deflationary impact of globalization and the 95 per cent drop in the marginal cost of labour that it’s brought. So we don’t see any CPI inflation, because of this offsetting deflationary force. But food prices have gone up everywhere. If the dollar price of food goes up—if rice prices go up in dollars—then rice prices go up everywhere in the world, because otherwise they’d just sell into the dollar market. So if US rice prices go up, Thai rice prices go up. And when the Fed prints dollars, food prices go up. That’s the main drawback, the one real big problem of QE—otherwise it’d be a great thing: print money, make the stock market go up, everybody’s rich and happy. But it has this impact of creating food-price inflation.

What effect has it had on profits and investment? US business profits have been hitting 15 per cent this year, according to the Economist, but corporations seem to be sitting on cash mountains that aren’t being used.

Yes, profits are very high, first of all because labour is getting a lower and lower share. Also, as a percentage of GDP, US corporate tax last year was the lowest it has been since the 1950s. In total, the tax revenue for the country as a whole was under 15 per cent of GDP, which is, again, the lowest since the 1950s. So, yes, corporate profits have been exceptionally good, although this quarter, suddenly everyone’s concerned that they may be dropping. But there’s a fundamental problem: there are no viable investment opportunities. So much credit has been expended and so much capacity built that we already have too much of everything relative to the amount of income, as it’s currently distributed, to absorb it. If you invest more, you’re going to lose your money; if you take your corporate cash-flow every year and buy government bonds, you can preserve your money for a better day—but that helps push down bond yields to these historic low levels. That’s why, even in Japan, after two decades of massive fiscal deficits, the ten-year government bond yield is only 0.8 per cent; in Germany, it’s 1.2 per cent; US, 1.5 per cent; UK, around 1.6 per cent. They’ve never been lower, and this is part of the reason. When bubbles pop, there’s no place to invest the money profitably, so it’s better to put it in government bonds.

What are the options, over the longer term?

I think there are three ways forward for the US economy—three paths policy makers could take. Option one is what the libertarians and Tea Party people want: balance the budget. That would result in immediate depression and collapse, the worst possible scenario. The second option is what I call the Japan model. When Japan’s great economic bubble popped twenty-two years ago, the Japanese government started running very large budget deficits, and have done that now for twenty-two years. The total amount of government debt to GDP has increased from 60 per cent to 240 per cent of GDP. That’s effectively what the US and British governments are doing now: running massive budget deficits to keep the economy from collapsing. They can carry on doing this for another five years with very little difficulty, and maybe even for ten years. The US government debt is only 100 per cent of GDP, so they could carry on for another five years and still not hit 150 per cent. But though it’s not clear how high it can go, it can’t go on forever. Sooner or later—say, ten or fifteen years from now—the US government will be just as bankrupt as Greece, and the American economy will collapse into a new Great Depression. So, that’s option two. It’s better than option one, because it’s better to die ten years from now than to die now; but it’s not ideal.

Option number three is for the US government to keep borrowing and spending aggressively, as they’re doing now, but to change the way they spend. Rather than spending it on too much consumption, and on war, for instance—the US government has so far spent $1.4 trillion invading Iraq and Afghanistan—they should invest it; not just in patching up the roads and the bridges, but invest it very aggressively in transformative 21st-century technologies like renewable energy, genetic engineering, biotechnology and nanotechnology, on a huge scale. The US government could put a trillion dollars into each of these industries over the next ten years—have a plan to develop these new sectors. A trillion dollars, let’s say, in solar energy over the next ten years: I’m not talking about building solar panels for sale in the market; I’m talking about carpeting the Nevada desert with solar panels, building a grid coast-to-coast to transmit it; converting the automobile industry to electricity, replacing all the gas stations with electric charging stations, and developing new technology to make electric cars run at 70 miles an hour. Then, ten years from now, the US will have free, limitless energy. Trade will come back into balance, because we won’t have to import any foreign oil, and the US will be able to spend $100 billion less a year on the military, because it won’t have to defend Gulf oil. The US government could tax the domestically generated electricity, and help bring down the budget deficit; and the cost of energy to the private sector would probably fall by 75 per cent—that in itself could set off a wave of private-sector innovation that would generate new prosperity.

If the US government invested a trillion dollars in genetic engineering, it’s probable they could create medical miracles: a cancer cure, or ways to slow the metabolic processes of ageing. We need to think in terms of peace-time Manhattan Projects: bring together all the best brains, the best technology, set them targets; use ‘creditism’ to produce results. We can all now see the flaws in creditism—they’re obvious. But as a society, I think the US is overlooking the opportunities that exist within this new economic system—the opportunity for the government to borrow massive amounts of money at 1.5 per cent interest and invest it aggressively in transformative technologies that restructure the US economy, so that it can get off its debilitating dependence on the financial sector, which has developed into a giant Ponzi scheme, before it all collapses. If not, then the US economy is likely to go down sooner or later into a lethal debt–deflation spiral.

Presumably this ‘creditist’ strategy could only apply to the US economy, though?

Not necessarily. For example, the Bank of England has printed so much money to buy up government bonds that it now owns more than a third of Britain’s entire debt. Now, it didn’t cost the Bank a single penny to buy all those bonds—it didn’t even have to buy any paper or ink to print the money; it’s all electronic now. So why not just cancel them? It wouldn’t cost anybody a thing; even if somehow it bankrupted the Bank of England, it could just print more money to recapitalize itself. Overnight, Britain would have a third less outstanding government debt and its credit rating would improve enormously. The government would announce that it was going to take advantage of this historic opportunity to increase government spending and invest it in new industries, so that Britain can finally wean itself off its debilitating dependence on Ponzi finance and develop manufacturing industries again. For example: throw $100 billion at Cambridge to invest in genetic engineering over the next three years, to become the dominant genetic-technology force on earth. Meanwhile create jobs and fix the infrastructure, at the same time.

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Full-text abailable at:
http://newleftreview.org/II/77/richard-duncan-a-new-global-depression