Daniel Drezner – who like me, is a Salma Hayek fan – has an article up in the latest edition of the UK’s Spectator (behind a paywall), entitled, “America is Back: Why The superpower is beating the slump – and Britain isn’t.”
There is a lot of good in the article. Drezner contrasts the go-for-it approach to shale gas – “fracking” – in the US with the Green-induced obduracy of the UK government, although I suspect there might be changes here. He talks about the revival of US manufacturing, in part due to the issue of sharply falling energy costs. He notes that the US budget deficit, as a percentage of the national economy, has fallen.
Even so, the scale of the debt that the US has is huge; and it is far from clear to me that that country – or indeed other indebted Western nations – can look to recent US actions with much relief.
So what to make of this?
“The US system of government has been surprisingly nimble despite its perceived political paralysis. In the five years since the financial crisis, Congress has passed legislation that saved the US financial system, rescued the car-making sector, enacted the largest fiscal stimulus programme in the world (which contained substantial tax cuts), overhauled its financial regulation, passed ambitious health care legislation, and then took steps to control spending.”
Oh boy. Let’s take these in order. First of all, is it really the case that it was legislation that “saved the US financial system”? What happened was that the US taxpayer, at vast cost, bailed out the Citis, Goldmans, AIGs and the rest. While the subsequent return of TARP money may have happened at a profit, we ended up with a banking system more rigidly regulated than before under the vastly complex, and possibly, unconstitutional, Dodd Frank legislation. The US financial system is also far more concentrated than before: about half a dozen big – “too big to fail” – banks such as Wells Fargo, BoA and JP Morgan now have control of a big chunk of the total market. Is this sustainable?
Second, the “rescue” of the US car-making industry. I assume that Drezner is talking about the bailouts of GM (and done at the expense of bond-holders in GM and to the benefit of Obama-voting unions). It is the good fortune of the auto sector in the US that cheaper energy makes that industry more competitive against overseas rivals, but the Washington DC has precious little to do with that, other than the negative achievement of not messing it up, or at least not much.
The large fiscal stimulus programme: it is a case of “not proven” as to whether there was much of a clear, Keynesian multiplier effect to justify the enormous sums spent. Peter Suderman at Reason magazine suggested the impact was possibly actually negative a few months ago.
Financial legislation overhaul. Well, all I can say about Dodd Frank is that if this is an overhaul, goodness knows what a bad piece of legislation will look like. Again, a book from the Mercatus Center suggests that Dodd Frank may encourage further crises.
The health care legislation is “ambitious”. Well, instead of ambitious, one might want to say “downright reckless” or something else. The legislation takes the US closer, much closer, to the socialised medical regime that Britain has, with its decidedly mixed results, as shown by the Mid-Staffs scandal.
So yes, America is resilient, and yes, rumours of demise are greatly exaggerated; yes, it is not obvious that China is taking over the world and some of the more breathless boosters of Asia need to get a sense of perspective. That is all fair enough. But spare us too much gush the other way, even though annoying the America-bashers is always good fun.
Here is another piece by Dan D, “Who’s your economic hegemon now?”
Meanwhile, it would be good if the US could wake up to the annoyance caused abroad by such things as the FATCA legislation, which is and remains an awful piece of regulation, although I suspect it will be moderated and changed over the years.