US – Warren's space

Six years ago, Ito and I celebrated the 4^th of July at the American Ambassador’s residence in Rome as the guest of our friend David Zimov (Economic Councilor at the American Embassy in Rome). It was a very fun event with lots of hamburgers and hot dogs, beer, and a concert by the US Marine Band. The cost of this extravaganza to us taxpayers was truly trivial compared to the cost of one day of our many wars (or our “special military operations” as Russia likes to call its wars). And the benefit to America in the form of international good will, far exceeds any American benefit from our wars, if there is any.

Janet Yellen’s upcoming trip to China will also cost a small drop in the bucket compared to sending the Sixth Fleet with a benefit for American security and wellbeing many times greater. At the same time, the US Senate continues to stall the confirmation of nominees to critical diplomatic positions. Go figure.

We seem to favor military spending over diplomacy to the detriment of our security and to our wellbeing more generally. In testimony before the UN Security Council Max Blumenthal recently stated that “The Biden Administration knows that ‘it is escalating a proxy war against the world’s largest nuclear Power. Why are we tempting nuclear annihilation by flooding Ukraine with advanced weapons and sabotaging negotiations at every turn?’ For those US officials who personally benefit financially, ‘a negotiated settlement to this territorial dispute means an end to the cash cow of close to $150 billion in US aid to Ukraine.’” https://expose-news.com/2023/07/03/us-officials-benefitting-from-ukraine-war/

When I noticed that the small handheld American flags we were all given at the Embassy’s 4^th of July party was made in China (they had a very conspicuous “made in China” tag on the handle) the person sitting next to us was appalled. I explained to him why he should celebrate a feature of American life that has helped make us freer and more prosperous: 1. Our tax dollars were prudently spent in buying the cheapest flags; 2. The money the government saved could be spent on other government priorities (or—God forgive—returned to us taxpayers); 3. The American workers who otherwise would have been diverted to make these flags at higher cost; would remain in their current more productive activities raising our standard of living; 4. The larger volume of world trade strengthened America’s standing in the world. Though I don’t know how the American Embassy was able to avoid the shortsighted “Buy American” requirement, I was glad that it had.

Following the end of the second of two devastating World Wars within three decades, the world came together to establish international institutions and norms meant to prevent another world war and to promote the shared economic and political interests of all peace loving countries. The United States led this effort and has dominated the resulting global governance structure (the UN, IMF, World Bank, WTO to name a few of the best known). The one-country-one-vote structure of the UN has limited its effectiveness. The International Financial Institutions like the IMF, on the other hand, are governed on the basis of votes and financial contributions proportional to their economic importance. Their effectiveness and legitimacy depend, in part, on maintaining such relative voting strength as countries’ economies grow.

Resolving conflicts without world war has been a magnificent achievement. But the opening of the world to freer trade and finance with broadly agreed rules under which it is conducted are dramatically important achievements as well. Economic growth is not a zero sum game. Every country has benefited from global financial cooperation. Estimates (by Bradford DeLong and the World Bank) of Global World Product rose from $1.1 trillion dollars in 1900 to 4.1 trillion in 1950 but exploded there after reaching $41.1 trillion in 2010 (all in 1990 US dollars). According to the World Bank, global poverty has been cut in half in the last twenty years.

The dominant role of the US in International Financial Institutions reflects its economic size and military strength but equally the perception of the rest of the world that the liberal, free markets and trade model promoted by the US was indeed the right one for each country’s growth and prosperity. The world’s continued acceptance of the US’s leadership rests on the general belief that the US is an honest broker, fairly promoting rules that serve the general good rather than seeking special advantage for its own people and industries. The US cannot expect other countries to abide by such international norms of behavior if it is not willing to conform to them itself (i.e. subjugate its sovereignty to international agreements in these areas).

America’s record is not pure by any means. The increasing crony capitalist nature of our military industrial complex, about which we were so presciently warned by President Eisenhower, is hardly a model of competitive market capitalism. But the political structures established after WWII have generally worked well to coordinate national cross boarder activities peacefully and without wars. To cite one example, the International Telecommunications Union has developed rules and procedures for allocating radio spectrum, satellite orbits and technical telecommunications standards that have made possible efficient and interconnected global communications systems. You could not telephone anyone you want any where in the world from anywhere in the world (not to mention the Internet) without them.

The International Monetary Fund is another example of an international cooperative agreement, in this case for facilitating the financing of trade and capital movements (cross border investments). It has played an important role in removing economic restrictions on global trade and finance, though that role has been undermined to some extent and made more complex by the US abandonment of its obligations to redeem its currency for gold under the gold exchange standard imbedded in the IMF’s Articles of Agreement when President Nixon killed what was left of the gold standard.

Few countries want the leadership provided by the US replaced by China or anyone else, but as China and many other country’s economies and trade have grown relative to the US and especially to Europe, they rightly expect to have a larger role in organizations that act for the entire world. The US congress has very shortsightedly and foolishly refused to approve the adjustments in the governance of the IMF that would accomplish that. As a result it is undermining the foundation of the US’s leadership role. “Indeed, Treasury Secretary Jacob Lew made this point implicitly in testimony this week in which he also restated U.S. reservations about the AIIB: Our continued failure to approve the IMF quota and governance reforms is causing other countries, including some of our allies, to question our commitment to the IMF and other multilateral institutions that we worked to create and that advance important US and global economic and security interests.

…The IMF reforms will help convince emerging economies to remain anchored in the multilateral system that the United States helped design and continues to lead.” http://www.lobelog.com/washington-misses-bigger-picture-of-new-chinese-bank/#more-28547

While there are legitimate arguments over whether an Asian Infrastructure Investment Bank is a good thing or whether such funds would be better spent through the Asian Development Bank (China, which would lead the new AIIB, doesn’t have such a great record with the quality of its own infrastructure spending), the real issue is whether the world will remain united in the post WWII international order and presumably under US leadership of the International Financial Institutions it helped establish. The principles of inclusiveness and a level playing field that have always been the foundation of US promoted institutions clearly call for and would be promoted by supporting the expanded role of China in these institutions in keeping with its increasing involvement in the world economy. US opposition to the IMF governance reforms and its reaction against the AIIB appear duplicitous and are undermining the foundations of its leadership. “The decision by the UK, and subsequently, France, Germany, and Italy, to participate is therefore significant not only because they will be major shareholders, but also because the decision by traditional U.S. allies signals that Washington is increasingly isolated.” http://www.cfr.org/global-governance/bank-too-far/p36290

Everyone has a strong interest in having China join and work within the established liberal economic order rather than going its own way with a competing order. Recent US behavior hardly promotes that goal.

For my earlier comments on the AIIB see: https://wcoats.wordpress.com/2015/03/18/the-asian-infrastructure-investment-bank-aiib/