The Financial Crisis (Part 1): Signs of imperial decay

Since the end of the Cold War, a lot has been written about US imperial ambitions and the parallels with former empires, including the Roman and British hegemonic periods. A lot of such arguments are hogwash. However threatening -and thus useful to opponents of US foreign policy- American imperialist tendencies might be, Washington has never had any of the territorial ambitions for conquest or rule that true empires display. At most, the US has actively and mistakenly tried to export its ideology to the rest of the (presumably non-enlightened) world. Control of other populations- surely the cornerstone of any imperial tendency- has never been modern Washington’s ambition. Control of natural resources has been a goal, of course, but mostly as part of an agenda dominated by realpolitik. Its geopolitical objectives have been to maintain its superpower status, rather than achieve imperial control. That in itself can hardly be compared to Roman conquests of Dacia or British rule of India. However, the US does display certain similarities to past hegemons, not so much because of any imperial characteristics but because of its dominant position in world politics. A subsequent analogy would be its inevitable decline.

The most recent financial earthquakes- with New York being at its epicentre- bring up some obvious comparisons to the latter days of Rome’s and London’s control of world affairs. The projection of imperial power has both a military as well as an economic component. The former depends on the latter, and a worsening economy obviously precedes a weakened military. American military power is still impressive, but its financial foundations are clearly under pressure. This downturn is not a particularly joyous observation. For all its faults -and there have been countless-, it is far from clear that US decline will herald better times. Omnes una manet nox, or “the same night awaits us all”.

Notwithstanding many other legitimate comparisons, the most revealing parallel with the decline of former dominant nations is that US hegemony has shifted from being a comparative advantage to being a burden, both politically as well as economically. Power projection is a costly affair. Whereas Washington’s dominance allowed it many privileges that gave it an edge over potential rivals, its current international position is increasingly costly without any matching benefits. The monopoly of the dollar as the international currency of choice created a unique ability to export inflation and print money without significant negative consequences.

Its geopolitical influence opened the doors to markets and natural resources worldwide. Global confidence in American economic prowess allowed for cheap credits (given the low perceived risks of default). The perception of a unipolar system -or bipolar during the Cold War- created high levels of tolerance to American exceptionalism, as witnessed by Washington’s active involvement in establishing the International Criminal Court without actually ratifying the treaty itself. Similarly, its perennial refusals to pay its UN financial contributions while continuing to be its most influential member is a sign of it being a primus inter pares. Moreover, the White House’s ability to rally allies whenever necessary gave it greater diplomatic influence than any other coalition during the last fifty years. The list of advantages goes on and on.

Now, however, the tide is turning towards a much less rosy cost-benefit analysis of the US’ (still) dominant place in global affairs. The dollar is weaker than ever, with the Euro and even other currencies eating away market share. US political influence, albeit still significant, is rapidly declining, with its legitimacy undermined by eight years of misrule and post Cold War arrogance that made it overplay its hand. The basis of US diplomatic ties was always the reluctant appreciation, and even admiration, by its allies. That admiration seems to have evaporated, and is being replaced by indifference and, increasingly, structural antagonism in many parts of the world. Perhaps most telling is the fact that in order to preserve US consumptive patterns, it is increasingly required to borrow from abroad, with a monthly trade deficit of roughly seventy billion dollars.

Related to this is the increased frailty of American ideological discourse. White House references to “freedom” and “democratization” have had a hollow ring to them for a while already, but now even its claims of being the champion of capitalism seem to become increasingly disputable. Their interventionism with respect to the financial and housing markets is only the latest of a clear dichotomy between ideology and practice. Government expansion into the American economy has been accelerated. There is increased protectionism and higher domestic spending, and the rise of plutocratic tendencies in Washington seems to be growing into one gigantic market failure (markets need honest and neutral oversight). An essential part of US leadership has always been based on it being an example of a dynamic and vibrant society which led to either envy or hope among other nations. Those times seem to be ending.

No empire or internationally dominant nation has been able to maintain its position for long while depending on foreign capital to meet its consumptive excesses. The current American dual deficit -with both consumers as well as government spending more than their income- is shifting long term power towards other international actors. Whereas during the final (pre-World War II) century of “Rule Brittania” London’s military and diplomatic power was unrivalled, their increasingly weak comparative financial and industrial position eroded its place on the world stage. After 1945, exhausted by the war effort, the emperor was revealed to have no more clothes. The era of the largest empire the world has ever seen came to a rather unspectacular and feeble end.

Although historian continue to dispute the reasons behind the fall of the Roman Empire, there is no doubt that Roman industry and finances were weakening long before the Barbarians became a real threat. When the Visigoths sacked Rome in 410 AD, a significant structural shift away from specialised trades and towards subsistence agriculture had already taken place, and for a long time already Western Roman consumption of luxury goods had been financed by foreign sources. There wasn’t so much a specific breaking point that led to decline as there was a structural economic downturn that reduced its ability to finance international dominance through military and diplomatic means. This downturn was marked by excessive consumption and changing trade patterns that made maintaining the empire a net economic burden, rather than a comparative advantage.

There should be little doubt that the US will lose its dominance sooner or later. The underlying processes leading to that decline have started already, although one has to be careful in judging prematurely. Perhaps the rumours of its death have been greatly exaggerated, to paraphrase Mark Twain. What is unclear, however, is how the US will handle this transition and what its consequent place in the new world order will be. Britain, continued playing a significant role on the world stage even when it lost its overseas territories. It is still one of the most influential actors when it comes to global diplomacy, and has maintained a decent standard of living for its home population. The Western Roman Empire, on the other hand, was invaded multiple times, its capital pillaged and sacked, and its former glory was replaced with irrelevance. What will Washington do when the Barbarians come knocking at the Beltway gates?