Obama’s election last Tuesday marks an enormous opportunity for the United States to redefine itself, both with respect to its economic and social model, and in how it relates to the outside world. It is in this capacity for periodic reinvention that America’s greatness lies. The chief task of the president-elect is not merely to make use of the huge shift in political power that has occurred, but to reformulate what America stands for in the realm of ideas, as Franklin Roosevelt did after 1932 or Ronald Reagan after 1980.
Indeed, this task is made extremely urgent by the evident failure of many of the ideas of the period just past, that is, of the Reagan era. The Reagan revolution when it first occurred was an important and broadly beneficial development. In the year 1980, there had been a steady increase in the power and scope of modern states ever since the Great Depression, whose most extreme expression were the communist countries then populating the world. But in developed democratic countries as well, excessive government regulation and bloated state sectors were holding back growth and creating a crisis of stagflation. After the deep recession of the early 1980s, the United States and the global economy have experienced a remarkable three decades of virtually uninterrupted economic growth—until now.
There are three core Reaganite ideas that need to be reformulated or discarded altogether if the United States is to navigate the current crisis and restore its credibility in the new era. The first has to do with deregulation and the role of the government in the economy more broadly. The Wall Street collapse and the big recession we are heading into occurred for reasons intrinsic to the Reagan model, that is, because the government had permitted the emergence of an enormous, wholly unregulated shadow finance sector under the belief that this sector would be self-correcting. Financial market liberalization had proven highly dangerous in any number of earlier cases, most notably the Asian economic crisis of 1997-98 and the Swedish banking collapse of the early 1990s, but these warning signs were not heeded and no one imagined that this could happen to the United States itself. In this the Democrats were fully complicit, not just in their support for loan expansion by Fannie Mae and Freddie Mac, but in Clinton Treasury Secretaries who pushed financial market liberalization on the developing world. The current crisis of course has many other causes, such as the more than $5 trillion of excess savings pouring into the country from China and other Asian countries after 2002, but the idea that history was on the side of ever-expanding deregulation was ultimately an important cause of the collapse. The Reagan-era joke, “Hi, I’m from the government and I want to help” doesn’t sound so ironic in light of the Fed and Treasury’s heroic efforts to keep the economy from walking further off a cliff.
The trick in redefining the model is not to overdo it on the regulatory side. The financial sector is very different from other parts of the economy because failure there imposes enormous spillover costs on everyone else, and is why Congress ended up having to vote for the $700 billion bank bailout in September. Labor market deregulation, by contrast, has had very beneficial effects in driving down unemployment rates and permitting much more rapid adjustment to changing conditions. American income distribution has gotten excessively skewed towards the wealthy, but we don’t want to fix that problem by returning to a trade union dominated labor market.
The second big Reaganite idea that needs to be rethought concerns taxes and spending—i.e., fiscal policy. Reagan introduced the notion that tax cuts would be self-financing because all taxes smothered growth; he was also responsible for promoting the idea that virtually all new government spending outside of defense would necessarily be wasteful. While there is some rate of taxation for which this is true, the actual tax cuts enacted both in the 1980s and in the early 21st century have simply served to deepen fiscal deficits and further skew income distribution to the wealthy. The impact of these deficits was for many years masked, however, by the fact that foreigners were wanted to hold their ever-mounting reserves in dollars, a phenomenon that put off the final reckoning but ensured that the fiscal crisis would be much more severe when it finally arrived.
This attitude towards taxes and spending has rendered the American political system incapable of confronting, first, the huge looming entitlement crisis over social security and Medicare, and second, energy. The single best thing we could have done for ourselves in the past generation was to impose a stiff carbon tax in periods when energy prices were relatively low; it was also something that no politician had the courage to take on. No one is going to be talking about increasing taxes until we are out from under the current recession, but in the long run Americans will have to learn to pay their own way.
Reaganism reinforced American exceptionalism in many respects. The United States is the only developed democracy in which a proposal to slightly increase the progressivity of an already progressive income tax, as Obama suggested, can be denounced as “socialism,” or where a proposal to force all Americans into a common health insurance pool, as we already do with regard to automobile insurance, can be attacked as “socialized medicine.”
The third Reaganite idea that needs rethinking has do to with foreign policy and the uses of American power. Reagan’s foreign policy was based on a big conventional military buildup and sharper “moral clarity” in the ideological struggle between democracies and dictatorships. This was the right policy for the time, and Reagan was extraordinarily lucky in that the Soviet empire unexpectedly and peacefully collapsed shortly after the end of this watch.
To this day many conservatives assert that the Soviet Union collapsed because of the Reagan posture, an attribution of causality that was at best only partially true. The neoconservatives in particular hoped that this chain of events—i.e., overwhelming US military dominance followed by the total collapse of America’s enemies—could be replicated in other parts of the world. George W. Bush’s great tragedy was to be persuaded that, after September 11, he could be Churchill standing up to Hitler or Reagan at the Berlin Wall by using American military power in the Middle East. He gravely overestimated the threat facing the United States, and in the process took actions that made all of the actual threats of nuclear proliferation and terrorism worse than before. In the process, he undermined America’s moral authority, which in the long run is one of our most enduring sources of power.
In addition, modern American conservatism is built around a prickly defense of sovereignty and distrust of international institutions. Only a country that thinks it is hegemonic can try to get away with this. But that hegemony was always an illusion—witness our inability to pacify Afghanistan without help from allies—and in non-security spheres was nonsense from the start. We have created a globalized world that produces a huge demand for global public goods like macroeconomic coordination, security, dealing with failed states, health and safety standards, disease control, carbon abatement, and the like. But far from investing in institutions to manage these problems, the United States has been busy eroding existing international structures for its own short-term foreign policy goals, from the undermining of the ABM treaty to the nuclear deal with India to foot-dragging on global warming.
One of the big unanswered questions is whether the November 4 election constitutes a “realignment” of the American electorate that will lead to a prolonged ideological shift that will last a generation or two, as did the 1932 and 1980 elections. Conservative commentators like Karl Rove have asserted that the United States remains a “center-right” country and point out that in the end 46 percent of voters voted for John McCain.
Whether this realignment materializes will depend on at least three things. First is the depth of the emerging recession. If, as seems likely, it proves to be at least as deep as the one that began in 1981, Americans will remain focused on economic issues and their solutions for a long time to come.
Second, Obama must been seen as effective in dealing with the economic crisis and foreign policy in the early months, avoiding a prolonged transition and putting into place strong policies that restore confidence at home and abroad. The extraordinary skill with which he organized his campaign bodes well for an equally effective early start to the administration (and suggests that being a community organizer may be a good qualification for being president after all). But we will have to see.
The third factor will be whether Obama can clearly articulate the broad ideas that will define the new age, ideas that will become the consensus points of reference in the coming years. The Clinton administration never did this, accepting instead most of the core ideas of Reaganism and simply shifting policies somewhat to the left. In fifty years, no one will refer back to the “Clinton era,” but they may talk about the “Obama era” superseding the “Reagan era” if the new president can formulate a clear definition of what the United States stands for domestically and in foreign policy. In the realm of ideas, things are up for grabs in a way they haven’t been for several decades now. That is what makes the present both an anxious and an exhilarating time.
© The American Interest LLC 2009-2010
Terms & Conditions | Syndication | Customer Service
14 Comments »
I’m not sure if we should talk about the current financial crisis in terms of clash of ideas this time ( it is a good way when we talk about political reforms in Russia during the 90′s etc ) but in general I think it is brilliant.
Comment by Jordi – November 9, 2008 @ 10:00 pm
First, “The End Of History”. Now, “A New Era”. How does this guy have any credibility?
Comment by csmats – November 11, 2008 @ 8:15 pm
Mr. F:
this is BS. First, RR was never in favor of total deregulation. Anyone who has read Adam Smith knows that there is some required regulation – one of the most intense cabals to obtain improper advantage that Smith described was that between businessmen and bureaucrats. In the current meltdown, the Democrats in congress and the Clinton Admin basically ruled out common sense in forcing at best, abetting at worst the mortgage lending industry, especially Freddie and Fannie, to dispense with things like credit history, assets, income and down payments, as a basis for obtaining a loan. These are “regulations” pure and simple, and RR had nothing – philosophically or otherwise – to do with their dismissal.
Second, RR had a far greater causal effect on the fall of the Soviet Union than you make it (you prefer to see this as an accident of history). Reagan identified the Emperor as having no clothes, and encouraged his slaves to press for change. Without his activism, the rotting carcass of the USSR might still be moving. As it is, Putin seems to be trying some form of necromancy.
Third, there’s much more to criticize in your thinking. I won’t bother with it. I would only advise you to go out and replicate de Tocqueville’s inquiry into the nature of America and its politics. Maybe someday you really will witness and describe an “end to history”. Until then, I’m putting you in the “no read” zone as a waste of my time.
Sincerely
jafco
Comment by jafco – November 11, 2008 @ 9:23 pm
A measured critique of Reaganism from someone I saw as a fellow-traveller with it.
Fukuyama still has mixed feelings, though, about wage regulation. I suspect this recession will mean that America’s unemployment rate, despite the appalling wages so many Americans endure, ends up no better than employment levels in other developed economies where workers are supposedly ‘feather-bedded’.
Fukuyama includes in his list of Reaganisms to be challenged the idea of taxation as waste and as a drag on economic productivity. Hopefully, there will be a recognition that governments can invest to enhance a nation’s productivity, by investing in education, healthcare, employment-generation programs, etc, and that workers will be more productive and motivated if they are well-paid, secure, educated, healthy and have good work-life balance.
Comment by rob – November 11, 2008 @ 9:53 pm
From your lips to God’s ears, Francis Fukuyama.
Two thoughts, however: Americans are still very prickly about their sovereignty. In fact, many nations are–we are not alone in this. Americans will definitely hold their president’s feet to the fire if it looks like he is selling out real American interests just to “play nice with the Europeans.”
Second, Obama can’t do a darned thing unless he comes with genuine healing in his wings. And this means not stirring up hornets’ nests. Overturn the ban on federal funding of embryonic stem cells? Is that really the first foot to be put forward, given that he only won 52.6% of the votes?? Let him first pick the issues that unify us as Americans, not the issues that divide us bitterly.
Red State Gal
http://redstatefeminists.org
Comment by Red State Gal – November 11, 2008 @ 10:59 pm
[...] to this Francis Fukuyama really isn’t worth listening to that much anymore. It’s kind of [...]
Pingback by Listen to this « The Chiego Blog – November 11, 2008 @ 11:40 pm
Barak Obama has all of the globalist ideas that Fukuyama rehashes here. Fortunately for America – these ideas are incoherent and self-destructive – so Obama will not be able clearly articulate them – and he will damage America by trying to implement them. Fukuyama’s socialist realignment will be impeded by 2 of the 3 contingencies on which he says it rests – Obama’s socialist programs will deepen the recession, making it extremely hard for Obama to talk up utopian dreams at the expense of the American dream.
So the realignment will need intense help from the liberal media establishment, who will turn up the volume with tons of “news” about how liberal professors and journalists think that there are “early impressions that Obama is effective in dealing with the economic crisis and foreign policy.”
Fukuyama states that the problem with America is President Reagan’s ideas – these “need to be reformulated or discarded…to navigate the current crisis and restore [America’s] credibility in the new era.”
Here are the three old ideas Fukuyama lists for curing America’s “Reaganitis:”
• More government regulations;
• More taxes so that the government can keep spending; and
• Abandon U.S. military strength and moral clarity in foreign policy, and invest in international institutions to manage foreign affairs.
First Fukuyama writes a book saying history is over – now he wants America to repeat history with another debacle like the Carter presidency?
Fukuyama’s ideas will weaken America economically and militarily. If Obama tries them – he’ll lose the 2012 election by a landslide. So it’s probably a good bet that Obama will keep the Fukuyama agenda under wraps…unless he gets a 2nd term.
Comment by Chris Boegel – November 12, 2008 @ 12:42 am
Mr. “end of history” is at it again. You really don’t remember the Clinton years as having been successful in terms of either the economy or of foreign policy?
On de-regulation: Just because the Bush zealots were willing to stand aside for 6 years without fulfilling their obligations as leaders to re-assess the need for regulation, as they happily watched a cascading situation in the economy, doesn’t mean Clinton’s initial moves almost a decade earlier with respect to the economy (which functioned quite successfully under his watch) were wrong. It’s not Clinton’s fault Bush was asleep at the switch.
As to foreign policy, it was the Clinton military which kicked the Taliban out of Afghanistan with ease. Since then Bush has wrecked the military and, by bankrupting the country with his tax cuts for the rich, destroyed our ability to pay for our defense. “Soldiers without flak jackets” is how Bush should be remembered. But any attempt to try and smear Clinton because of Bush’s stupidity is completely strained.
Comment by dyinglikeflies – November 12, 2008 @ 6:34 am
Despite what has happened lately, the end of story is still a vey useful way to think relevant issues susch as failed states. Pales, you should learn to read philisophy.
Comment by Jordi Costa – November 13, 2008 @ 9:15 pm
The new articulations Fukuyama offered to Obama,hopefully do not touch to the foreign countries which they are already in recession and not cause new conflicts around the world in order to compansate the US recession.
Comment by Savas Bicer – November 15, 2008 @ 9:45 am
The conservative fetishism of the Reagan years continues to surprise me. Perhaps the absence of a more contemporary role model forces a revisionist understanding of history, but it is precisely the failure of the Bush Administration that – to borrow from the angry commenter above – showed Emperor Reagan in his stark nudity. The collapse of the central pillars of his economic policy, coupled with Bush’s dramatic failure to understand the limitations and sources of American power, should finally lay Mr. Reagan’s legacy to rest. The neocons learned the wrong lesson from the Reagan years. Their optimism heading into Iraq is a direct product of their myopia following the collapse of the Iron Curtain. To be sure, Mr. Clinton and his supporters are not innocent in this. But the ideas Mr. Fukuyama presents here seem relatively uncontroversial to anyone who has been following global politics for the last two decades: we need to reduce our reliance on foreign oil and funding; restore our moral authority; recognize the proper role of regulation in financial markets; and reinvigorate international institutions. Sounds like common sense – something that’s been missing in the White House for the last eight years.
Comment by Brian Stout – November 18, 2008 @ 5:02 pm
F. Fukuyama dans un journal français s’approfondie dans le diagnostique de la crise financière et économique mondiale, et fait appel à l’histoire très contemporaine pour expliquer le ‘Nouveau capitalisme américain’ émergé selon lui dans la période reaganienne ou durant ce qu’il a appelé ‘révolution Reagan-thatchérienne’, basée idéologiquement sur les principes du libéralisme capitaliste, et ‘argumentée’ par le besoin de s’échapper des pressions de la régulation financière et de la présence de l’Etat provident qui étouffent (selon les reaganiens) l’innovation et sapent la compétitivité.
Ce processus a été accompagné par une guerre froide avec le front socialiste (pour éviter une guerre destructive), et l’exportation de certaines idées dont Fukuyama contribuera plus tard avec plusieurs autres dessinateurs de la politique extérieure américaine à leur design et vulgarisation. Lesquelles idées postulent au niveau politico-économique que l’état doit reculer en arrière devant les lois du marché et doit ramasser ces tentacule, le domaine financier doit se libérer de la régulation en baissant les impôts, en se croyant que ‘la baisse des impôts s’autofinancerait’ et les marchés étaient capables de s’autoréguleraient.
Résultats de tous ces choix -bien sure sur la réalité ‘exagérés’ et ‘déformés’ par les multinationales pétrolifères et leurs lobbies politiques- tout simplement une ‘Crise financière et économique’ mondiale dont la part des USA est très robuste. Un raisonnement simple rend l’administration de ce dernier pays le premier coupable ; Première introduction : USA=locomotive de la croissance mondiale, deuxième introduction : le système financier des USA est fortement tremblé et est actuellement instable, donc le résultat logique c’est l’effondrement des systèmes financiers mondiaux et l’installation d’une crise financière et économique ; puisque le système économique mondial est dominé par le capitalisme basée sur le jeu financier.
Les répercutions de cette crise se sont explicitement manifestés dans les indicateurs économiques, et au niveau des grandes bourses mondiales, causant ainsi des agitations politiques dans les sociétés cosmopolites et chez les Makers des politiques. Le défi dans ces quartiers, c’est de trouver des solutions efficaces, rapides et durables !! à un système mondial effondré, malgré les fonds mystérieuses qui avaient été mises en jeu depuis l’époque reaganienne ou même avant, justement après la découverte de l’or noir, c’est-à-dire l’exploitation des cette ressource naturelle à l’intérieur et l’extérieur, et l’accumulation des capitaux chez la minorité qui dirigeait la planète. En comparaison, l’échec du système socialiste mondial était causé plutôt par la conjoncture de ‘plusieurs forces extérieurs’ : blocus, guerre froide, dépenses financiers dans les guérillas de libération…etc, que par une telle ‘autodestruction capitaliste’ dû principalement à un égoïsme exagéré de ‘la société’=the companey.
Et donc l’Etat qui a été disparu du théâtre économique et financier capitaliste mondial, revient fortement dans des grandes ‘opérations d’étatisation’ organisés et coordonnées au niveau mondial (USA, Allemagne, France, Japan, UK, Island…etc) avec des injections exceptionnels malheureusement insuffisantes (Federal Reserve Chairman Ben Bernanke told Congress Monday a fresh round of government stimulus is a good idea because there’s a risk the country’s economic weakness could last for some time, 20oct08) car certaines voix demandent des stimulus supplémentaires pour avoir des impacts apparentes.
Vraiment c’est une boule de neige ! qui affectera dans le future proche les pays en voie de développement qui n’ont pas senti de fortes agitations puisqu’il sont déjà agités et aussi du faite que leurs systèmes financiers ne sont pas tellement sensibles, pas dans le sens qu’ils soient forts et protégés mais plutôt qu’il ne sont pas à la pointe et au niveau d’organisation et d’intégration qui leurs permet de sentir la moindre variation, ce qui fait retarder la crise.
Et par la suite, une aggravation de la situation socioéconomique des pays pauvres et vous pouvez (en cas d’absence de mesures sérieuses au niveau mondial) imaginer les conséquences humaines (conflits, réfugies, famines, épidémies, …etc.). Les pays riches ne vont pas s’échapper de la diminution des budgets investis dans le social. C’est un résultat à mon avis évident, car on investi dans la majorité des cas le surplus des budgets dans ‘l’amélioration des services sociaux’, dans la recherche et l’éducation et je rejoins T. Freedman dans sa crainte à propos ‘du rêve vert’ pas uniquement américain mais planétaire -par ce qu’il a besoin de grands investissements dans les recherches scientifiques pour se réaliser- puisque une grande partie du surplus budgétaire est déjà dépensée dans ‘la compensation’ et les PIB ne s’accoraient plus à 100% pour faire des miracles !.
Et on n’attend pas que G.Bush nous rassure sur l’efficacité d’un système (capitalisme) inutile pour la durabilité de l’humanité et qu’on connaît bien…à suivre
A. Achbun
Comment by achbun – November 19, 2008 @ 5:28 pm
[...] AI Editorial Blog » Blog Archive » A New Era [...]
Pingback by Steroids » Blog Archive » Welk percentage spelers van de steroid era gebruikte steroïden? – November 23, 2008 @ 4:29 am
Dear Frank, or Francis, if you prefer,
Great article, the premises with which I agree, except this one:
“But far from investing in institutions to manage these problems, the United States has been busy eroding existing international structures for its own short-term foreign policy goals, from the undermining of the ABM treaty to the nuclear deal with India to foot-dragging on global warming.”
People of all political identifications are right to question global institutions. While there are many good people at the working level who are dedicated to and effective in doing their jobs, I believe these systems, particularly the UN, are fundamentally broken. I wish I could say it was because of the venal desires of those who serve only to enrich or empower themselves, but I fear it is because member governments of the international institutions we created after WWII have over time become acquiescent in the formulation of the least-common-denominator solutions these organizations continue to promulgate. In other words, the best becomes the enemy of the good, if not the mediocre, and sovereign governments pay only lip service to the idealized goals that are meted out in their pronouncements about how the world should work. Look at the IGPCC, the IAEA, even UNDP and UNICEF. Put their goals aside their accomplishments and look at the gap. It is not only the US, which still accounts for around 22% of all these organizations’ budgets taken as a whole, but many other countries that are simply not willing to surrender sovereignty to the will of the whole. I am a firm believer that we need these institutions to help us preserve our planet, but their lack of accountability and transparency, coupled with sovereign (and therefore narrow) interests does not give me confidence in their future effectiveness, no matter how much more actively the US engages.
Unfortunately, I don’t have a grand solution just now, but everybody needs to work on it.
Comment by Arch Roberts Jr. – December 9, 2008 @ 5:03 pm
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Leave a comment
From the September/October 2010 issue
The Future of the U.S. Armed Forces
What impact have the post-9/11 wars had on our armed forces? Our authors have a look, branch by branch.
Getting to No
It's delusional to think that Israeli-Palestinian negotiations, whether proximate or direct, can end the conflict any time soon.
You Are What You Click
Marshall McLuhan once told us that “the medium is the message.” Now the medium is rewiring the human brain.
Vial of Tears
We've only just begun to ask the difficult questions about assisted reproductive technologies.
