Obama's Misguided Approach America Has Become Too European

The Obama administration and the Federal Reserve want to fix the United States economy by spending more money. But while that approach might work for Europe, it is risky for the US. The nation would be better off embracing traditional American values like self-reliance and small government.

A Commentary by Thomas Straubhaar

A jobs protest in Los Angeles: America needs to become more American again.
AFP

A jobs protest in Los Angeles: America needs to become more American again.


There's no question about it: The 20th century was America's era. The United States rose rapidly from virtually nothing to become the most politically powerful and economically strongest country in the world. But the financial crisis and subsequent recession have now raised doubts about its future. Are we currently witnessing the beginning of the end of the American era?

A firm belief in the individual's ability, ideas, courage, will and a reliance on one's own resources brought the US to the top. The American dream promised everyone the chance of upward mobility -- literally from rags to riches, from minimum wage to millionaire. The individual's pursuit of happiness was seen as the crucial foundation for the well-being of society, rather than the benevolent state which cares for its subjects -- and certainly not the welfare state, which provides a social safety net for its citizens.

In the American system, every man was responsible for himself -- in good times and bad. No one could count on government assistance, not even the wannabe millionaire who did not make it and ended up homeless.

For many US citizens, the financial crisis has turned the American dream into a nightmare. Millions of Americans are struggling with high levels of debt, and not only because they bought overpriced houses during the housing boom and can no longer afford their mortgages. Often families are burdened with loans they took out during better times for cars, furniture, electronic gadgets or university tuition. Uncertainty and worries about the future are keeping many families awake at night.

From 'Hire and Fire' to Just 'Fire'

The economic data reveals just how deep the misery is. After a good beginning to the year, the economic recovery in the US has slowed significantly. There are hardly any new jobs, and the official US unemployment rate remains high at 9.5 percent. The actual unemployment rate could be almost twice as high, partially because of the many Americans who are working part time against their will and also because of the millions of people locked up in the country's prisons.

Particularly troubling is the phenomenon of long-term unemployment, something which is unusual in the US. The number of people who have been without work for more than six months has skyrocketed as a result of the recession, from just over 1 million to 6.8 million. The traditional policy of "hire and fire" has become a one-way street: Now it is all firing and no hiring.

The state is also suffering as a result. Heavily indebted state, county and city governments have less money to spend. Even before the crisis, roads full of potholes were part of everyday life in some places, as were power outages and other problems with the public energy and water supply. What's new, however, is that some cities in America are deliberately choosing to cut core services, such as switching off street lighting. Last winter, Colorado Springs, which with its 400,000 inhabitants is the second largest city in the state of Colorado, turned off one-third of its street lights to save money.

Nothing is immune from the wave of budget cuts, it seems. Schools have been closed and teachers laid off. Roads have been allowed to fall into disrepair and parks left to rot.

Fear of the Double Dip

It appears that the US economy, after the worst crisis of the postwar period, is slow to recover its old dynamism, unlike in previous recessions. Some economists are warning of a double-dip recession, and putting forward radical proposals to prevent this worst-case scenario from becoming reality.

In his widely read Friday column in the New York Times, the Nobel laureate economist Paul Krugman last week called for the administration to bet the farm on a new attempt to stimulate the economy. Krugman recommended that the Federal Reserve buy up government securities and corporate bonds on a massive scale, announce its intention to keep short-term interest rates low in a bid to push down long-term rates, and raise its medium-term target for inflation. The Obama administration should also use its two government-sponsored real estate lenders, Fannie Mae and Freddie Mac, to help heavily indebted homeowners refinance their mortgages, Krugman wrote.

On Friday, Federal Reserve Chairman Ben Bernanke made a speech that sounded like it had been based on Krugman's column. He announced exactly what the New York Times columnist had called for, saying that the Fed was ready to intervene and would reanimate the sluggish US economy with further cash infusions if necessary. Then on Monday, Obama said he and his economic team were "hard at work in identifying additional measures" to stimulate the US economy.

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