Debt Crisis Sparks America's Global Moment

Commentary | July 29, 2011

Writing in Newsweek Poland and The Huffington Post, EWI Vice President Andrew Nagorski examines how the debt crisis is changing America’s views of its position in the world.

Back in the 1920s, American correspondents based in Europe were writing about a new phenomenon. "The Americanization of Europe proceeds merrily apace," Karl von Wiegand wrote in The Washington Herald on June 14, 1925. "Half in wonderment, half in protest this tired old group of nations is falling under the magic sway of that babulous 'dollar land' across the ocean." Edgar Ansel Mowrer of the Chicago Daily News added: "By the early twenties signs of Americanization were appearing all over Europe." He pointed to the introduction of mass production, mass entertainment and, in general, the opening up of the old continent to new economic and social trends pioneered by the United States.

What passed for Americanization then is, in effect, what is called "globalization" now -- the rapid spread of ideas across borders and oceans, often overwhelming national efforts to block them. But, as Americans like to say, what goes around comes around. Whatever the outcome of the political battles in Washington sparked by the current debt crisis, there is another story playing itself out here. Simply put, the United States is now as much on the receiving end of globalization as it is an initiator of that process -- and this will have profound implications for its future.

There was a time when Americans were firmly convinced that European problems -- especially their large public debts, unemployment rates that were routinely much higher than in the United States, and vastly overextended pension and social welfare systems -- were ones that they did not have to worry about. Or, at the very least, they were convinced that the scale of Europe's problems dwarfed any problems that the United States faces. But no more. Suddenly, Europe's problems don't look that remote or dissimilar, and some commentators are even warning that if Americans don't get their house in order they could end up like Greece.

To be sure, the United States, for all its worries, is still a long way from a Greek-style crisis. Its economy remains fundamentally more healthy and dynamic, and Americans can continue to take justifiable pride in their country's track record on entrepreneurship and technological innovation. Then, too, the continued growth of its population is in stark contrast to Europe's demographic decline. But even the fact that some Americans are using Greece and other ailing economies as examples of what their country should avoid marks a psychological shift. The underlying assumption is that Americans can't take for granted anymore that they are immune to the negative trends that are so evident elsewhere.

The positive side of that psychological shift is that Americans are now more open to looking to Europe for possible pointers on what they should be doing in their own country. That means examining what Europeans are doing right, and applying the lessons learned to the United States. Suddenly, Americans are openly acknowledging they don't have all the answers and aren't reluctant to search elsewhere for them.

Even looking to a place as small as Latvia. When Latvian Prime Minister Valdis Dombrovskis visited the U.S. recently, his story of how his country has worked its way back from near economic collapse by embarking on a bold mixture of drastic budget cuts and tax increases received serious attention. "Decisive action in Latvia helped restore confidence," wrote columnist Robert Samuelson in The Washington Post. "In the United States, government has drifted. Its inconsistencies and indecision have corroded confidence and compromised recovery."

Dombrovskis was careful not to preach, pointing out that the American fiscal crisis is "substantially smaller" than Latvia's and the specific remedies inevitably will be different. But at a lunch at the Council on Foreign Relations, he volunteered that he was struck by how much less the United States taxes energy use than Europe does. Higher energy taxes, he added, both generate substantial revenue and makes people focus on energy efficiency. While that's a message that many Americans still find hard to accept, preferring to push for greater exploitation of existing resources instead, attitudes towards what others have been doing are changing. Germany serves as one clear example. In the early days of the Obama Administration, officials were dismissive of the economic policies of Chancellor Angela Merkel, arguing that she was too timid in her stimulus efforts. But in the current issue of Foreign Affairs, Steven Rattner who served as Obama's "Car Czar" in that period, offers a glowing piece about how Germany has "reestablished its position as an economic juggernaut," relying on high-end manufacturing that fuels its exports. "Whatever its flaws, the German model shows that a developed country can remain competitive in a world where new economic giants, such as China, India, and others, are emerging," he concludes, encouraging the U.S. to learn from Germany's successes -- or risk losing out as globalization accelerates.

Whatever happens in the short-term with the debt limit, Americans recognize that much of what they took for granted about their economic future is now in jeopardy. It isn't just the federal budget that is in trouble: several state budgets have already sparked major crises -- and new austerity measures. Earlier this year, Wisconsin's Republican Governor Scott Walker mounted a major push to curtail the collective bargaining rights of trade unions, arguing that otherwise public expenditures could not be brought under control. Similar fights have erupted in Indiana and Ohio. In California, Democratic Governor Jerry Brown has so far failed to find a formula that Republicans will accept to plug his state's massive budget deficit. "Summertime, and the livin' is easy," proclaims the unforgettable opening line of the aria for George Gershwin's 1935 opera "Porgy and Bess." This very hot summer, Americans are in anything but that kind of carefree mood. No, life isn't catastrophic -- but the unease is all too prevalent. There's the growing realization that America's future well-being is tied to its ability -- or inability -- to forge political agreements that put its economy on a new firmer, more responsible footing, just like other countries that are facing similar challenges. And just like others, it must cope with globalization, or become its victim. It cannot wish any of this away.

If this means that Americans will do a better job of learning from both the positive and negative examples elsewhere, this summer of 2011 could yet prove to be a salutary one -- both for the United States, and for a world that still counts on its economic and political leadership.