Across the globe, people pray for the US economy - but the US needs the world more than the world needs it, argues Fintan O'Toole.
When the European leaders gather for their summit in Brussels next Thursday they will have to face not just the immediate crisis over the EU constitution but a wider set of anxieties about Europe's place in the world.
While the essence of the EU seems to many of its citizens to be bureaucracy, compromise and tedium, the US presents a far more alluring myth, "the American Dream". The lesson of the EU's present impasse, we are told, is that it needs to get with the programme and, as Europe did for most of the 20th century, follow the American lead.
The US is dynamic, rich, and above all powerful. Both its admirers and its critics agree it is an unparalleled superpower, occupying an unchallenged space at the heart of any conceivable world order. In the argument between pro-Americanism and anti-Americanism, between Boston and Berlin, it is easy to forget that while the European model may be in difficulty, the American one is in even bigger trouble. The US can't rule the world, and the EU has to get on with the job of finding its own way to a better future.
Asked to name the top visitor attraction in the US, most people would probably hazard a guess at Disneyland, the Empire State Building, Niagara Falls or Yosemite National Park. It is in fact an ugly 32-hectare sprawl of concrete, steel and glass off Interstate 35 in the profoundly unfashionable city of Bloomington, Minnesota. It is a vast shopping complex called the Mall of America, and it attracts more than 40 million visitors, mostly Americans, every year.
Among shoppers, the mall is the holy of holies, the only place in the world where you can find Bloomingdale's, Macy's, Nordstrom and Sears under one roof. Along with another 520 or so stores and 60 restaurants, they stretch over 4.3 miles (6.9km) of store frontage, occupying 400,000sq m (1,312,000sq ft) of retail bliss.
Its 12,000 staff will sell you everything from condoms to Chryslers, from porcelain teacups to custom-made teddy bears. In this place alone, $1.7 billion (€1.39 billion) is spent every year. At the centre of the world's image of the power and status of the United States lies our sense of that country as the most successful, innovative and competitive economy on the planet. The US creates products that global consumers want to buy. Its workers are incredibly hard-working and productive. Its companies lead the field in many areas, using brilliantly skilled researchers, developing innovative production and management techniques, and making marketing almost an art form. Nothing seems more obvious in today's world than the status of the US as an economic, as well as military and political superpower.
More than anything it is the dynamism of the US economy that validates American claims to world leadership. Critics of the use of US power inevitably come up against the undeniable reality that this is a country that works. And a country on which the rest of the world depends. In their daily lives, ordinary people in Europe and Asia have learned to pray for the US economy. They have become used to the simple truth that their own prosperity depends on the continuing success of the wealth-creating powerhouses of Seattle and Palo Alto, Wall Street and The Loop and the wealth-consuming malls of the US. They know the US drives the world. What they usually don't know, however, is that the world drives the US.
That's right - the US economy depends on the rest of the world even more than the rest of the world depends on the US. For a long time now, the US has been importing more than it exports, as the insatiable demand of US consumers for everything from Japanese electronics to Nike runners made in Vietnamese sweatshops outstrips the capacity of US industry to sell its products overseas. The US is not just the world's richest economy, it is also the world's biggest debtor. To feed its vast appetite for consumption, it borrows. By every important economic measure, it takes more from other countries than they take from it. And the scale of the imbalance has become so dramatic that even organisations such as the International Monetary Fund, which generally repeats US economic orthodoxy, are finding it necessary to use strong language.
At the start of 2004, the IMF warned that the United States' net financial obligations to the rest of the world could be equal to 40 per cent of its total economy within a few years - "an unprecedented level of external debt for a large industrial country". The US trade deficit is currently running at a record annual rate of just under $700 billion (€572 billion). Even during the 1990s and the longest and strongest business expansion ever known, the American trade and current account deficits were high and rising.
What is especially striking is the alarming pattern of increase in the deficit. The 2003 trade deficit was 17.1 per cent larger than the previous record shortfall of $418 billion (€342 billion) posted in 2002. Even more strikingly, the deficit for 2004 was $617 billion (€504 billion), even though a weaker dollar should have depressed imports.
The problem is exacerbated by rising levels of public debt. In 1950, after the expense of the second World War, US public debt stood at $257 billion (€210 billion). Even by 1970, it was just $389 billion (€319 billion). At the end of 2003, it had reached almost $7 trillion (€5.72 trillion). In itself this level of public debt of over 60 per cent of GDP might be sustainable. But the rates of growth in the debt are not. The Congressional Budget Office estimates that, by 2008, the debt will be $9.7 trillion (€7.9 trillion) and that by 2015 it'll stand at $12.7 trillion (€10.4 trillion).
Instead of tackling the problem, the Bush administration has made it much worse with its two main policy platforms: foreign wars and domestic tax cuts. While the Iraq war alone was costing an average of $5.8 billion (€4.7 billion) a month, President Bush was spending money without raising it. In his first three years alone, Bush cut $3.12 trillion (€2.55 trillion) in tax revenue. Revenue from individual income taxes in 2004, as a percentage of GDP, was the lowest since 1951. The Financial Times reported in May 2003 that the Bush Administration had buried a US Treasury report that predicted US deficits would rise to 10 times the current US national debt, or the equivalent of four years US economic output, or 94 per cent of all US household assets.
These growing deficits cannot be domestically funded as US citizens hold historically low levels of personal savings. If the nation is in hock, its citizens are even more so. Personal savings are at an all-time low. The US economy spent its way out of the dotcom collapse through $2 trillion (€1.6 trillion) worth of consumer debt. The typical US household now holds eight credit cards with an average debit balance of $7,500 (€6,130) on each. Essentially, therefore, the US depends on foreign investment to keep its high levels of consumption afloat. Without the constant inward flow of money, the cycle of spending and investment that makes the US economy so dynamic would be unsustainable.
And that inflow itself depends in large part on the ability of Americans to borrow money. The cycle works like this: American consumers use their credit cards to buy foreign imports. The sale of these goods puts dollars into the hands of the foreign companies who leave much of the money in the US because they get high returns by lending it to Americans. Those Americans borrow the money to fund more consumption.
But the ability of these consumers to remain in the game is increasingly questionable, because of the growing inequality of US society, and the fact that the earning power of the middle-class has gradually been eroded over the last 20 years. The US is the most unequal society in terms of wealth distribution in the industrialised world.
The American Dream of a good life for allis becoming a nightmare for many. The US Department of Agriculture describes 31 million US residents as being "food insecure" - not sure where their next meal is coming from. There are now more US residents living in poverty than there were in 1965. More than 40 million US residents have no health insurance, and a further 29 million are estimated to be underinsured. Thus the US, in spite of having many of the best medical schools and hospitals in the world, is getting sicker. Over a 10th of the entire population of Mississippi has diabetes. The same proportion of the population of Maine has asthma. And while, in 1993-1995, there were just three states where people were ill for an average of more than six days a month, by 1999-2001, there were 14.Together, all of these factors call into serious doubt the sustainability of an economy that depends on the capacity of ordinary Americans to keep borrowing and buying.
By impoverishing its underclass and putting its middle class under ever-increasing pressure, the US is creating a real danger that the cycle of consumption and borrowing that attracts foreign money and keeps the nation from bankruptcy will slowly grind to a halt. In this context, the US model is not so much a solution for Europe as it is part of the long-term problem.
Post Washington: Why America Can't Rule the World, by Tony Kinsella and Fintan O'Toole, is published by Tasc at New Island.