CFR: America is "Uniquely" FUBAR, and the Elites Know It

As most of us struggle to make rent and get unemployment applications into overloaded State jobs service portals, it may help to know that the Powers That Be have already concluded that America has run out of options to deal with the Coronavirus crisis.

This country's growth model -- reliance on bailouts to sustain financial sector growth with a lack of an effective social services net to sustain consumer spending -- makes it "uniquely vulnerable" to the sort of paralyzing system shock and social conflict that are likely be triggered by the pandemic. Of all possible systems, America is the worst equipped to deal effectively with this crisis and most at risk of civil conflict and economic collapse, so says the worthies at FOREIGN AFFAIRS, the house journal of the Council on Foreign Relations (CFR):

The U.S. Economy is Uniquely Vulnerableto the Coronavirus: Why America’s Growth Model Suggests It Has Few Good Options
By Mark Blyth (March 30, 2020)

DISASTER, AMPLIFIED
[. . .]
During a global economic crisis, the United States has one major advantage over other countries: it prints the global reserve currency. Other countries need U.S. dollars because their banking systems lend in dollars even though they can’t print them. During previous crises such as the 2008 financial crisis, sharp falls in global financial markets have been put right by Federal Reserve actions such as rate cuts and bond-buying programs. But this time, Federal Reserve action has not had its usual calming effect: financial markets have continued to fall, and the dollar’s dominance has failed to prevent a flight into cash. Although Congress finally passed a $2 trillion economic stabilization package, its continuing inability to agree on whom to bail out—companies or consumers—reflects tensions in the underlying growth model. The United States typically opts to protect capital and to simply let labor adjust through unemployment. But this instinct—to protect the big players and let workers take the hit—is also a key reason why the coronavirus pandemic is a disaster amplifier for the U.S. growth model in a way that is not true for Germany or even the United Kingdom.

American policymakers’ instinct to protect the big players and let workers take the hit is a key reason why the coronavirus pandemic is a disaster amplifier for the United States.
The U.S. growth model works well as long as there is little unemployment, wages are being earned and spent, and credit is being recycled to cover the difference between wages and costs by consumers and companies. But when markets freeze and cannot price assets correctly (no one knows how much United Airlines stock is worth because they don’t know when Americans will be flying again), the growth model collapses. Once that happens, it is hard to find a bottom. The Federal Reserve and Congress can try to put a floor on asset prices by bailing out companies, but there is no bottom for the broader crisis of consumption that occurs when a third of the labor market is laid off and the other two-thirds are locked at home for an extended period of time. In this world, bailing out capital and expecting labor to adjust through wage cuts and unemployment is simply impossible given the scale of the shutdown.

In other words, folks, we are all fucked, according to the Powers That Be. They are fully aware that the American system of social austerity and massive government subsidies to Big Business has reached a dead end. The Federal Reserve cannot both continue to bailout Wall Street and effectively keep American families spending enough under conditions of prolonged nationwide lockdown and massive unemployment. Something has to give, and it's not going to be stockbrokers in Scarsdale who have to do without hamburgers and Tylenol.

The American "growth model" relies upon a workforce that continues to willingly absorb the costs of periodic economic downturn -- joblessness, loss of homes, reduced wages, staggering personal debt loads, and a declining real standard of living to cover the costs of bailouts of the banks and business -- as occurred in 2009. This time, however, there are less real middle class economic reserves and tolerance for one-sided sustained sacrifice.

For structural reasons, America truly is exceptional, and that does not really bode well for the status quo of elite rule and inequality:

Trade-dependent growth models, such as those found in northern and western Europe, tend to have large welfare states that act as “shock absorbers,” helping to mitigate the effects of economic shocks. In general, the more open a European country’s economy is to international trade, the bigger the welfare state it constructs to act as a buffer in case trade shuts off. Large welfare states also allow their citizens to carry large amounts of debt, since they effectively insure them against periods of unemployment; the most indebted people in the world are not Americans but the Danes and the Dutch.

In contrast, countries with growth models of the Anglo-American variety, especially the United States, tend to have weaker states, lower taxes, and large financial sectors. They have highly flexible labor markets rather than large welfare states, which means they ultimately depend on wages to drive growth. Since those wages have been buying less and less over time, credit cards, student loans, and medical debts have become a standard part of U.S. household budgeting. When those household budgets shrink sharply, their debts are not compensated by the shock absorbers that countries such as the United Kingdom and Germany have in place.

This lack of shock absorbers is integral to the U.S. growth model, and under normal circumstances, it is a feature, not a bug. When systems such as the American one are hit by shocks, they tend to bail out their financial systems to keep credit flowing and let the real economy absorb the blow through unemployment and austerity policies. The assumption is that with no shock absorbers in place, prices and wages will adjust quickly, capital will be redeployed, and growth will return without the need for state intervention. But these are not normal circumstances. And as U.S. policymakers are quickly realizing, the usual playbook is of limited use in the face of the coronavirus pandemic.

Bottom-line, according to the CFR house organ:

The United States, with its 330 million people, 270 million handguns, 80 million hourly workers with no statutory sick pay, and 28 million medically uninsured, faces challenges quite unlike those in other countries. Putting the economy in a freezer for six months or longer would destroy what’s left of its social fabric along with its growth model. But restarting it could turn the pandemic into a plague that could cause as much damage as the freezer.

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Comments

Lily O Lady's picture

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19 users have voted.

"The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

@Lily O Lady @Lily O Lady in admitting the obvious. They've dropped the pretense of "American Exceptionalism", and are finally admitting that neoliberalism has inevitably become exceptionally fucked up in America.

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20 users have voted.
Cassiodorus's picture

-- for a CFR writer?

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19 users have voted.

"Advertising? Wow! So, people need help figuring out what to buy and then y-you help them?" -- Rick J19Zeta7

@Cassiodorus @Cassiodorus They have rather more radical measures ready to pull out of the desk drawer. 1933 comes to mind. They've made enormous strides toward that already.

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10 users have voted.
Cassiodorus's picture

@leveymg unless something is made to happen by someone currently not in charge. The people in charge today have already declared their priorities: make a bunch of money and escape to some hidey-hole in New Zealand when they've completely screwed everything up.

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24 users have voted.

"Advertising? Wow! So, people need help figuring out what to buy and then y-you help them?" -- Rick J19Zeta7

TheOtherMaven's picture

@Cassiodorus

they're fooling themselves. Reread "Masque of the Red Death"; or just remember New Zealand is home to the Maori, some of the most ferocious warriors on earth.

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There is no justice. There can be no peace.

Hawkfish's picture

@TheOtherMaven

Have been backing up copies of all the bunker blueprints for future reference.

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2 users have voted.

We can’t save the world by playing by the rules, because the rules have to be changed.
- Greta Thunberg

the solution will be what always is. Take from us to bail them out. SS, medicare, any safety net benefits. End of story.

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13 users have voted.

is a progressive Keynesian. He's told truth to power many a time. He does teach a Brown, but he's really not part of the establishment.

Mark Blyth

Go to YouTube and watch some of his stuff. He's great!

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@apenultimate Affairs Magazine in the 1930s. Now, Keynesianism (or versions of it) are standard issue conventional. I agree, nonetheless, that Mark Blythe is a good progressive with his head on straight. Occasionally, even the arch-Establishment publishes this type before they become a fully accepted part of the canon of received wisdom. But, only when realism is forced on them by irresistible events.

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snoopydawg's picture

for decades when Wall Street made them chase profits over people. This is why our infrastructure hasn't been fixed for years or longer and all the money goes into the military industrial complex and CEO pay and congressional bribes. Corporations are not contained in their original countries anymore and its why Obama spent 7 years working on the TPP. I'm sure you all know what was in that dawg so I won't cover it again..

With this last transfer of wealth that is going to be ongoing they can suck the country dry and move to another one ad nauseous...blehh indeed.

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"I will be the best, the best, you know, you know the thing!”
- Joe Biden

Grope and Hope

The Banksters.

Good.

Time we shook them down for a change.

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travelerxxx's picture

@Battle of Blair Mountain

Thought I heard a rumblin'
Callin' to my name
Two hundred million guns are loaded
Satan cries, "Take aim"

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11 users have voted.

is bereft of all innovation or intelligence.

What did we think was going to happen?

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5 users have voted.

At every level the political leadership over government is inept or complying with the inept.

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2 users have voted.