Short-Sighted Hegemony

The recent shocks to U.S. global hegemony have been rather jarring. The most recent indication that American influence is waning are moves by oil-producing states to shift away from the dollar - signaling the approaching demise of the U.S. as the world's global reserve currency. A declining dollar could have severe medium-term effects on the U.S. economy, with the possibility of higher inflation and the necessity for a much stricter fiscal policy. Thus far we've been able to run large trade and budget deficits pretty much at will because we can just print more money that everyone else has to use. If we can't do that any more, we'll have to make some rather painful adjustments. It'll be interesting to see how our political leaders react to having to actually pay for our large defense establishment (particularly as we have to compete with scarce oil resources with the likes of China) or the health care needs our aging population (cause y'know health insurance companies need their profits!). Yes, "interesting" would definitely be the word. I also suspect that Americans will not take kindly to no longer being "#1."

The decline of American economic and military power raises two important sets of questions. First, is this a bad thing? Well, the answer depends on what replaces U.S. hegemony as the global force for order. If it's a system of collective security with a coalition of democratic states (US, Japan, and Europe) then we don't have much to worry about. If it's Chinese hegemony, then that's an extraordinarily bad thing, since China will do what all hegemons do and attempt to impose their own values and maximize their own interests at the expense of everyone else - especially the most recent hegemon (i.e. the US). The decline of Britain and France were relatively benign, since they developed strong alliances with their successors. I'm afraid we'll be more like Spain, with our rivals eager to pick over our carcass.

Which brings me to question number two, raised eloquently by Chris Bowers: what have we done with our hegemony? My immediate reaction to that inquiry was that the U.S. did what every other preeminent power has has done: the political and economic elite tried to garner as much wealth and power as they could at home while making attempts to consolidate their military hegemony abroad. The results of these actions are also always predictable: the decay of the domestic economy and imperial over-stretch. Heck, the use of the U.S. as the reserve currency is part of what got us into this mess. If we'd adopted something like the Bancor system as a neutral reserve system as Keynes had wanted, we wouldn't have had either the advantages or the disadvantages of controlling the world's money supply, which over the long run would have been a good thing.But in my less cynical moments, I think U.S. leadership, which should be dated not to 1991 (where Chris puts it) but to 1918. From that lens we haven't done too bad: defeating fascism and communism while fitfully promoting democracy and human rights isn't really so bad.

But I agree with Chris that we squandered a golden opportunity over the last two decades. What we should have done was to recognize that the unipolar world wasn't going to last, and that we should lay down our supremacy on our own terms by building strong international economic and political institutions that would secure broad-based economic growth, international stability, and democracy. There were some moves in that direction under the Clinton administration, but regrettably under George Bush and his cronies the U.S. made every mistake a declining hegemon can make. I hope that he have enough influence, and Obama enough wisdom, to put us back on course. Maybe it's not too late.