Why should we elect Obama? One obvious reason is the mess the American Economy (as traditionally defined) is in right now. Does this mean that Obama and his economic advisors will come up with good plans for reviving the economy and preventing a further slide? I suspect they would do better than McCain and his crew, but also that they will not be very well equipped themselves to understand the real problems. They come from the University of Chicago or at best are of the Robert Rubin-Larry Summers school, which in my mind makes them more part of the problem than the solution. Still Obama, if elected, will have a huge positive impact, I suspect. Let me explain, starting with a bit of history.
The Post-war Surpluses…
After World War I, the US became the leading world economy in conventional terms. This status was considerably strengthened after WWII, which had mostly destroyed other advanced economies, while building up huge reserves of demand everywhere, demand which US industry alone was in any position to satisfy. The US ran a long trade surplus, partly because it stimulated trade by foreign aid, particularly via the Marshall Plan, which aided Western European recovery after WWII. The trade surplus helped promote good factory jobs, and the money earned through such jobs filtered through the rest of the economy, keeping employment fairly robust. This was further aided by high military spending, along with other government spending such as on the race to the moon, which was often financed through borrowing.
The Deficits that Followed …
However, by the 1960’s, with the lengthy Vietnam War and a continued growth in optimistic government programs, government priming of industrial efforts expanded too much, and a cycle of inflation commenced. That problem was added to in the early ‘70’s by the formation of OPEC, which led to an abrupt rise in oil prices. That led in turn to a US balance-of-payments deficit.
Now, a strong argument can be made that a balance-of-payments deficit resulting simply from high oil prices is not much of a problem; the OPEC countries were just taking advantage of a situation they had relatively little to do with, since the oil coming out of their territory they usually didn’t even directly do much to produce, leaving that to western companies or contractors. Their spending on luxury goods or armaments or their “recycling” the money to the US by investing in US businesses only enriched some Americans at the expense of others. (In fact, to the extent that the US was the main recipient of recycled oil payments, it might even have benefited from payments made to the OPEC countries by other oil purchasers.)
The main effect in the US, then of the initial oil shocks was to redistribute money mostly upwards from factory workers to investors. But since a large portion of US investment is channeled through institutions such as pension funds, non-profit foundations, university endowments and the like, the riches from abroad were distributed more widely than to a small investor class.
However, the combination of inflation of wages through union contracts and higher oil prices caused profits from domestic industries to stagnate or fall. Then the heads of the institutional investors such as pension funds, along with bankers who stood to profit from recycled oil investments and other capitalists, pressed for a combination of measures. These included restraints on unions and higher productivity, or failing that, moving production offshore to lower wage countries. The wealthy and would-be wealthy also pressed for lowered taxes for themselves, In addition, a relative fall-off in US innovation led to big gains by exporters from countries such as Japan.
All of this increased the balance-of-payments crisis, since now (that is by the 1980’s) not only raw materials, but also manufactured goods were coming from abroad. How was the US able to sustain this continued trade deficit? One main reason was that the flow of attention to the US was and remains very large, though it is now shrinking fast.
The Attention Economy to the Rescue…
Being tied together via advanced communication (i.e., attention) technologies, the US is a huge and mostly inward looking audience, which means that US stars have a built-in advantage in dealing with the outside world. The larger one’s existing audience, the more attention outsiders are likely to offer. This advantage is compounded by the fact that English, spoken as a first language by more than half a billion people, it is a second language for many hundreds of millions if not several billion more. In addition, creators in the US have figured out how to make action movies and video games that attract even across language barriers to a surprising extent.
Being a fan makes you feel part of the most visible fan base; it also makes you eager to please the stars you care about. IN the case of American stars on the world stage, their existence exalts the whole country in the eyes of others. The net outflow of payments in money was counterbalanced therefore by a net inflow of attention payments. This meant foreigner were eager to get close to the stars by various sorts of loans or investments in the US, with Japanese investors at one point buying up Rockefeller Center in NYC and Arab investors buying stores such as Saks Fifth Avenue. Neither of these probably made a great deal of sense as strict monetary investments, but they made much sense as homage to famous and star-used institutions. In addition, living in the most advanced attention economy has come to mean living with few restrictions on expressions and a ready fan base for new stars, even if they come from abroad, in whatever field they happen to be. America now depends on this openness to maintain its place in the world.
….. But Then Came W…
All that has been eroded by Bush administration policies, however. Its invasions of Afghanistan and Iraq, its use of torture, its condemning prisoners to Guantanamo, as well as its resistance to immigration, has eroded, and if it continues, will further erode the US attention advantage.
…So Now we Need O.
Due to his race, his personal background, his intelligence and relative youth, Obama’s election, just by itself, will markedly change perceptions of the US. If he is bold enough to follow through on his promises to change foreign policy, especially around Iraq and in terms of increased diplomacy, as well as in areas such as global warming, he will greatly increase the world’s willingness to pay attention to everything American. The 200,000 person crowd he attracted last week in Germany, plus the excitement about his candidacy in much of the world already attests to this. He may be a “rock star” but that is just what we need.