If you think things are bad in the US...

Friday, 15 May 2009 13:21 Last Updated on Friday, 15 May 2009 15:24 Written by David Strom

Every era has its dominant myth that shapes how we view it. The “roaring 20’s” are looked back upon as a time of frivolity and excess, despite the fact that they were actually times of enormous innovation and real economic growth. The 30’s are the time of the Great Depression and Roosevelt saving the United States through his successful New Deal—a view that has largely been discredited in academic research and recently through Amity Shlaes’ book The Forgotten Man. Everybody knows the myth that defines the 60’s for us: baby boomers bravely speaking truth to power and stopping the unjust Vietnam war—never mind the millions of Vietnamese and Cambodians who died for their moral conceit (and in some cases physical cowardice).

The story is developing about the current era—the new era that began with the onset of the financial crisis and that will play out over the coming decade or so—is that we are living in the time when Anglo-American style capitalism has obviously and completely failed. The moral of the story is that we need to replace our individualist economy with the European social democratic style of capitalism.

This, too, is a complete myth, and like the others it has developed because it fits neatly with the world view that dominates the intellectual, media, and political elites who try to run this country.

Consider a few inconvenient facts: the US economy has contracted drastically due to the financial crisis at an annualized rate of about 6% for the past two quarters. Those are terrible numbers. Yet when you turn to Europe you quickly see that their economies are performing even worse, despite the fact that many Euro Zone countries did not have asset bubbles like the housing and stock bubbles in the US.

Numbers just released by the European Union show that the Euro Zone economy shrank at a stunning 10% annualized rate—dwarfing the US’ 6% decline. Germany’s export-driven economy contracted at a 15% annualized rate, putting it into serious depression territory. Canada, our largest trading partner, has seen its GDP drop at a 7% annualized rate, Japan’s has dropped by over 12%.France was an outlier, contracting at a 3.2% annualized rate, but that is balanced by the fact that their baseline unemployment rate before the crisis hit was almost 8%.

It has become crystal clear during this crisis that despite all the talk of “decoupling” of the world’s economy from the US’, it is still the case that if the US sneezes the rest of the world gets the flu. Our trading partners have been harder hit by the crisis than the US itself because their economies are utterly dependent upon a vibrant and expanding US economy.

The US remains the engine that pulls the train of the world economy—and will remain so if we don’t destroy the engines by throwing too much sand into the diesel tanks. Unfortunately that is precisely what the Obama Administration is doing. Overturning longstanding bankruptcy laws on the fly, bailing out every business it can find (if they are big enough political contributors), threatening to take over 14% of the US economy through nationalizing health care, raising energy prices through cap and trade, financing 50% of current spending through running up huge deficits—there is no end to the bad ideas they are pushing.

We may indeed be seeing an end to the Anglo-American style of capitalism. But if so it won’t be because it failed us, but because we failed to protect it and the enormous benefits it has provided us over the years.