Why the World is Better Off Without American Leadership

Or, Why History’s Repeating Itself Today

Tonight I had the dubious honour of reading one American pundit after the next — from Ross Douthat to David Brooks — trying, in the aftermath of Trump’s speech to Poland, to define the “West” or “American leadership”. Needless to say, they couldn’t. Probably because the modern history of global political economy is unfamiliar to them, probably because it’s not taught or even discussed anymore.

But it should be. Here’s some history that you probably don’t know — but everyone should.

After World War II, the US and UK got together to design a global economic system to prevent the very mistakes that caused that catastrophe. Today we have just a superficial understanding of political economy: we think in binary terms of either “hate” or “economic anxiety”. Then, figures like the great JM Keynes had a more nuanced understanding of political economy. They knew that stagnant economies are like amplifiers of a society’s latent rage — that poverty feeds hate with anger. And so the point of the system that Keynes hoped to design was to prevent imbalances between nations — that is, one nation owing too much to another, thus causing onerous debt repayments, which are essentially what drove the German economy into the ground, and led to world war and holocaust.

To prevent all that, Keynes — along with the equally brilliant founder of Buddhist Economics (yes, really), EF Schumacher — proposed something really radical, revolutionary, beautiful, transformative. History’s first ultranational currency, Bancor. Bancor wasn’t a currency that you or I could hold: only governments could hold it, only gold could be exchanged for it, only the IMF could lend and settle it, and — here’s the key — opposite to your personal bank account, if you held too much, you’d be charged interest — making the rational thing for you to do to invest your surplus of it. The Bancor system would balance itself — and an era of peace would dawn.

It was the single most brilliant institutional design probably in human history. Can you guess what happened next?

There was only one hitch. America. Because America was the stronger party in the post-war negotiations, Bancor never came to be. Why did America object to Bancor? Largely for selfish reasons: so the dollar could become the world’s reserve currency. So because America wanted an advantage, probably the most brilliantly designed global economy in history simply never came to be.

Here is the point. “American leadership” is a myth. It never was, from the very beginning of the era it was supposed to define. Instead of really leading the world, America crippled the global economy at the very moment of its rebuilding.

What was the global economy that ended up being created? Other currencies were fixed against the dollar, and the dollar was convertible into gold — currencies weren’t free floating like they are today — the idea being stability for people over returns to speculators. But in the 1970s, guess who broke this system apart? America, again. It suspended gold convertibility — literally reneging on the design of the entire global financial system that had been built to accommodate it. Why? Countries were converting dollars into gold (and then into other currencies), because the global economy was coming back to life. Less dollars were needed when more goods were being made in Europe and Japan. Again, America couldn’t seem to bear this, and so it just broke apart the very system it had created.

The rest, as they say, is history. The point isn’t that “there was a gold standard”. The point is that there was a global financial system in which stability for all nations was the purpose — not just the advantage of one nation. And yet, at the crucial moment, in every instance, America failed the test of leadership. It simply put itself first. That isn’t leadership in any sense.

Today, the wages of those fateful choices are self-evident. The global economy is one in which massive imbalances between rich and poor have piled up — again. Those massive imbalances are causing extremism right wing nationalist movements to rise — again. Those rising nationalisms are making alliances, demonizing immigrants, attacking media— again. History is repeating itself — again.

All this is happening not in spite of the US providing leadership — but because the US failed to be a leader exactly when it was needed most. And today, the US is failing again: to recognize its own very lack of leadership. Even now, we could rebuild a global economy with Bancor. But who even remembers Bancor, Keynes, and Schumacher today…when Ross Douthat thinks modern history began with Jerry Falwell and ended with Eric Trump?

There are many other reasons we can say: the world is better off without US leadership. The endless pointless wars it has led its allies into. The fact that it can’t seem to take care of its own house. The age of speculation and greed that its extremists ushered in. And so on. But these are smaller, and less vital.

The simple reason the world and America are both better off without US leadership is this: it never really offered the world any. History is repeating itself today because America prevented the future from being made — even at the cost of its own.

Umair
July 2017