The Party of Davos
The looming economic crisis comes from the unsustainable US external debt. For more than a quarter-century, we Americans have been buying more from the rest of the world than we have been selling it, and borrowing from abroad to make up the difference. The resulting trade deficit has been a major engine of global growth under Davos's management. But common sense and simple arithmetic tell us that even the United States cannot go on much longer spending more than it is earning.
When the day of reckoning comes, high interest rates and a falling dollar will force us Americans to rebalance our trade by cutting the price of what we sell and raising the price of what we buy, lowering real incomes. The crisis in the nation's trade sector will be transmitted to the rest of the economy, made vulnerable by overindebted consumers, overleveraged pension funds and overpriced houses. Thanks to George W. Bush's reckless fiscal deficits, the government will have less ability to overcome an economic crisis through borrow-and-spend, as it did in the last economic downturn. With the appetite for America's IOUs diminishing, US politicians will have their hands full dealing with rising energy costs and the tottering finances of healthcare, education and pensions.
The basics of a harder-times scenario are not much in dispute. The debate is between those who foresee a hard landing and those who believe that the world's central bankers will somehow figure out a way to avoid a global financial meltdown. But hard landing or soft, even the staunchest supporters of globalization admit that lower living standards are already in the cards. N. Gregory Mankiw, who as Bush's chief economist famously praised the offshoring of American jobs, recently acknowledged that US reliance on foreign savings to support its consumption means a "less prosperous future."
Financier Warren Buffett reaches the obvious conclusion: We are headed for "significant political unrest." Democratic Senator Max Baucus, a staunch free-trader, recently told Chinese business executives that unless they cut their country's trade deficit with America "US politics will become unmanageable." New York Times columnist and Davos champion Thomas Friedman, who also sees the writing on the wall, suggests dividing political parties by economic class, with Republican Wall Street joining with Democratic Hollywood against disgruntled working-class "populists" in both red and blue states.
But working-class disgruntlement is likely to go beyond Freidman's stereotype of uneducated losers. The outsourcing and downsizing of opportunities is already adding to the insecurity of people much further up the skill ladder. There are signs that the anxiety is spreading to the business class as well; within organizations such as the National Association of Manufacturers, the owners of smaller and medium-sized businesses, who still depend on an American workforce, are beginning to dissent from the once united front in favor of globalization.
Resistance to Davos is also growing in our own hemispheric neighborhood. Latin American oligarchs who prospered by selling their countries' assets and people to transnational investors have been ousted in Brazil, Argentina, Venezuela, Uruguay and Bolivia. In Mexico, which is having a presidential election this July, a leftist critic of NAFTA leads in the polls. The Party of Davos may not be over, but the rest of the world seems less willing to foot the bill.
Here in America, the coming unrest could turn right as well as left. The Republican Party is hopelessly tied to the multinational priorities of the US business elite, but its managers are skilled at stoking nationalist resentment among the working-class victims.
In the two-party system the burden therefore rests on the Democrats' ability to produce leaders who are not co-opted by the Party of Davos. Given the current crop, our chances may not seem great. But leaders are often produced by the times. As globalization's squeeze on ordinary Americans continues, the political price will rise for those who continue to give priority to bringing Burger King to Baghdad over healthcare to Baltimore. It's worth remembering that Franklin Roosevelt, who was as elite and privileged as one could get, responded to the economic crisis of his time by becoming--as they muttered in the best clubs--"a traitor to his class."