For the last two years I have lived, studied, and worked in the United States. I arrived in the country two years ago cynical about the state of its politics. Although my columns for Progress got some of the minor calls correct – like predicting that the extended Democratic primary would help whoever faced John McCain, or that Sarah Palin was the dark horse candidate for Republican VP – I was wrong to think that Hillary Clinton could actually win the nomination after Super Tuesday or that John McCain would give Obama a run for his money in the general election. I got those predictions wrong because I profoundly misunderstood a critical aspect of America’s collective DNA: its ability to reinvent itself, realise its errors, and move on.
But the ability to hold up a mirror and reflect on past mistakes is not the same as changing the error of one’s ways. Electing Obama – even if he is successful in achieving his two principal goals of introducing healthcare for all and tackling climate change – will not be enough. Fareed Zakaria, Editor of Newsweek International, has written extensively about the transition from a unipolar to a multipolar world where emerging economies, the US and Europe compete for ascendancy. What Obama does over the next few years will be critical in determining whether the US are to spend the 21st century dominating despite this ’rise of the rest‘ or being diminished by it.
The pioneer spirit of the US – combined with European self-destruction in the Great War – saw it become, by the early twentieth century, the largest economy and most powerful country on earth. Essential to this was the idea that anyone arriving at Ellis Island could head west to farm or mine and have their land protected through an enforceable system of property rights. Financial Times journalist, Alan Beattie, has commented that, “the landholding patterns were important to begin with in helping the US turn into an industrialised economy.” By contrast, Argentina gave its virgin soil to existing landed classes. As a result, living standards shot up in the US as citizens became the richest on earth while Argentina suffered a century of deterioration.
This rise in living standards was known as the “American Dream.” The phrase’s coiner, James Truslow Adams, described its meaning as,
“that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement … a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”
With the exception of one or two small nations, which are rich in natural resources and heavily reliant on trade, the United States still has the highest GDP per capita in the world. But there is precious little habitable land left to give and a much more stringent approach to immigration. Meanwhile, income inequality has shot up over the last 30 to 40 years. According to the OECD, the US is more unequal than any other developed country. Using the popular Gini coefficient measure (where 0 is the most equal society and 1 designates that all wealth is owned by one individual), the US has risen from 0.32 in the mid-1970s to 0.38 in the mid-1990s. The richest tenth of Americans now get 16 times the salary of the bottom decile who virtually subsist on $15 a day.
What was once a level playing field is now a hoard of wealth for the few. While that same rich 10% take home around a quarter of total annual income, they control nearly three-quarters of all assets and capital. This enables the affluent to help their children through college, onto the housing ladder, and into the best jobs. These opportunities are increasingly unavailable to middle class families. Indeed, 47 million people in the US cannot even afford health insurance.
Obama’s Budget includes some measures to address this and sets out a large programme of deficit-financed expenditure to pay for the $787bn stimulus package, increase education spending, and place a down payment on universal healthcare. The American public supports this agenda and appears to have decided that it wants an expanded role for the state. They just haven’t yet worked out how to pay for it.
Even if revenue from the repeal of the Bush tax cuts and introduction of a cap-and-trade system to reduce carbons emissions is forthcoming, the Office of Management and Budget projects a deficit going into the 2012 election of 3.4% of GDP. The independent Congressional Budget Office thinks that it will be more like 4.2% and then continue to rise—up to 5.7% by the end of the decade. Unlike in the UK there is no end in sight and so the spiral will become unsustainable if it is not addressed.
Scaremongers – including former presidential candidate Ross Perot – predict that, unless something is done, total federal expenditure will rise rapidly from 20% of GDP now towards 50% in 30 years time. Part of the problem is that Uncle Sam faces an entitlements time bomb with the cost of medical support for the old (Medicare) and poor (Medicaid) spiralling out of control in the medium term. Obama believes that he can strong-arm the health profession into bringing down costs, but that won’t be enough.
Over half the projected expenditure increase is made up of interest payments. To avoid this escalation, Obama needs to close the deficit within the next decade and hope that interest rates do not themselves rise as investor’s lose confidence in US bonds. So what would that take? Since Obama has made a series of spending commitments and pledged that taxes will not rise for anyone earning under $250,000 he has two ways to balance the books.
First, through taxation. He could raise capital gains tax (which was reduced in 2003 to 15%), reduce many of the loopholes surrounding corporate tax, or raise more money from the most wealthy. The alternative is to cut spending. Defence is a clear candidate for the chopping board since the United States spends more than the rest of the world combined (and twice as much as China and Russia put together) while public support for belligerence has declined following the Iraq debacle.
Neither approach is easy since the vested interests in favour of the wealthy and defence industry remain strong. But Obama’s no nonsense approach to lobbyists, his popularity, and his clarity in communicating mean that he could make this the lynchpin of his 2012 manifesto.
Looking once again at James Truslow Adams’ quote about the American Dram and it sounds remarkably similar to Keir Hardie’s 1901 motion to the House of Commons promoting socialism: “The true test of progress is not the accumulation of wealth in the hands of a few, but the elevation of a people as a whole.” Obama’s policies have already been described by Republican radio host Rush Limbaugh as “socialist.” But Hardie would have regarded the return of income tax rates on the richest to 39.6% or the government taking part ownership of failing car manufacturers and banks as only the first step.
Obama’s start has been impressive and he has made good progress against his stated goals. But America is at a crossroads. Failure to tackle the systemic problems that have so reduced social mobility could lead to a stagnating economy and with it declining power relative to China, India, Brazil, and the European Union.
To become a truly great president, and defend the United States position in the world, he will need to provide, in Adams’ words, “opportunity for each according to ability or achievement.” If he raises the right taxes and cuts bloated budgets, he may prove Limbaugh right after all. Socialism in one country? Don’t bet against it.