Why It's Still Kicking Off Everywhere (16 page)

The crowd is 99 per cent white and 100 per cent Christian. Of those I speak to at the interval, many believe President Obama is neither American nor Christian. One is offering for sale a set of playing cards modeled on the famous Saddam Hussein deck, with Obama's picture captioned as a ‘Kenyan born, lying, arrogant Muslim communist that hates America'. ‘We had to print 'em abroad because no American printing house would handle ‘em,' he tells me proudly.

Now Jackie Walorski takes the stage, as the warm-up act for Beck. The forty-seven-year-old Congressional candidate points to the American flag and yells at the audience that they have just days ‘to fight for who we are as Americans':

If we don't fight for freedom, liberty, individual destiny
they
are redefining this country out from underneath us. The battle we're facing is to defend this flag on
our
turf,
our
soil. When our soldiers came out of the boats in Normandy they literally walked over bodies to fight for our freedom. The battle we face today, the ideological war that we're fighting, is for standing up for a constitution. The land of the free and the home of the brave is under assault today.

Walorski's speech is preceded by videos that splice footage of Omaha Beach in 1944 with scenes from 9/11 and the Iraq war: the ‘they' she's referring to are Obama and the Democrat-voting Congress. America's airwaves, though, are alive with the angry voices of enraged white Christians, for whom ‘they' means something else. No one on the stage in Indiana needs to assert that Obama is ‘a racist' with ‘a deep-seated hatred for white people or the white culture'—because Glenn Beck has already said so on TV, back in July 2009. To the American right, ‘they'—subtextually—means the migrants, the black and Hispanic Americans, the newly married gay couples and, inevitably, the Muslims.

This is the Tea Party in full flow, injecting into traditional fiscal conservatism the belief that state intervention into economic life is immoral, un-Christian and unconstitutional. Walorski (who will narrowly miss getting elected in November 2010) explains the thinking to me:

We are watching a freight-train of spending in this country. Americans don't live that way. We're the land of capitalism, we're not the land of taking people's public tax money and throwing it into a concept that isn't proven, that has not produced jobs. That's not what the key is in this country. You can continue to write checks but recovery comes from private-sector jobs and holding a line on spending.

By the autumn of 2010, what's sapping the energy of Democratic Party supporters is that Walorski's words—stripped of their rhetoric—ring true for many Americans who are worried sick about the economy.

According to his advisers Jared Bernstein and Christina Romer, Obama's fiscal stimulus—$787 billion of discretionary spending—would ‘create or save' three million jobs.
¹⁶
They even produced a graph to show the before and after: fiscal stimulus, concentrated as extra government spending rather than tax cuts, would have an amplified ‘bang-for-bucks' effect. Without stimulus, they predicted, unemployment might peak at 9 per cent. It was a gross under-estimate. In the end it peaked at 10 per cent, even with the stimulus.

In March 2009 a further bout of stimulus, this time monetary, was unleashed. Ben Bernanke, boss of the Federal Reserve—who just two months previously had delivered a lecture in London arguing against the classic policy of printing money to stimulate demand—decided to print $1.75 trillion.

This was Keynesianism as practiced by an elite that did not believe in it. The real Keynesians—Paul Krugman in the
New York Times,
Nobel Laureate Joseph Stiglitz in numerous books and articles—warned that the stimulus would not be enough. It was, however, enough to erode the last vestiges of bipartisan politics in America.

For during the neoliberal years the super-rich had spared no effort or expense to create a plebeian backlash against the Federal state. From the platform of Fox News, Rupert Murdoch's employees had railed against big government and high taxes. Across the Bible Belt, the holy book had been brandished by preachers warning against the combined evils of abortion, gay marriage, ‘positive discrimination' for black people, illegal immigration, big government and high taxes.

By February 2009, the religious right in America had an enemy it had always dreamed of: a black president, committed to liberal social policy, big spending and a bailout of Wall Street at the expense of everyone else. In November 2010 they found the means to humiliate him, when the Republicans won a majority in the House of Representatives, including eighty-seven signed-up members of the Tea Party. And in the summer of 2011 they found the issue—America's $14 trillion national debt.

If Obama's stimulus had worked, or if Bernanke's $1.75 trillion had ever filtered through to homeowners as a supply of new credit, then the power of the conservative argument would have been blunted. It would have remained what it always was, an ideological trend; a frustrated faith in small government, co-existing with the actuality of a giant state.

But in July 2011, with the impact of the stimulus running out and unemployment once again rising, the Tea Party would take America to the brink of technical bankruptcy, forcing the end of fiscal stimulus and the beginning of a decade of austerity. President Obama, who had come to power pledging to restore bipartisan politics in Washington, would preside helplessly over its destruction—and with it the destruction of the certainties at the heart of American politics for decades.

With the approach of the next phase of the crisis, the atmosphere is defined not just by this paralysis at the level of Federal economics, but by the fractiousness, verging on outright defiance, that prevails between conservative state governors and the presidency. As we will see, this has massive implications for the rest of the world.

The economics of the Arab Spring

The social and political roots of the Arab Spring, and the Western myopia towards them, have been well documented. But the economic roots were, at first sight, a mystery. The experts were blindsided, in part, because the economics of the region looked positive. In 2009, growth in Tunisia bottomed out at 3 per cent; in Libya it was 6 per cent and in Egypt, 4.7 per cent. Thereafter, the economies of all three countries bounced back strongly.

On top of this, lots of other indicators looked good. Egypt had managed to pull 9 per cent of its population out of absolute poverty in the 2000s; in terms of corruption, according to Transparency International, Mubarak's regime was on a par with Berlusconi and Hu Jin Tao's—and certainly nowhere near the top of the global league of crookedness. On the Gini Index, which measures levels of inequality, Egypt stood level with France, Tunisia with the USA.
¹⁷

But the positives masked severe structural imbalances, the most obvious symptom of which was youth unemployment. In Egypt, even before the crisis hit, 92 per cent of the unemployed were first-time job-seekers. As growth slackened, unemployment in the twenty-to-twenty-five age range rose to 28 per cent. In Tunisia it stood at 30 percent; in Yemen, estimates put the figure at 50 per cent.
¹⁸

As Arab dictators have now learned to their cost, youth unemployment is not just any old statistic to be offset by high growth, high oil prices, or a pat on the back from the IMF. It destroys human capital and spreads bitterness across society.

What was more, when the recovery came, youth unemployment did not fall back. The reasons were, again, structural: the International Labour Organization found that, in Egypt, patronage was causing three-quarters of school-leavers to wait five years to get their first job. Meanwhile, massive underinvestment in education had left 44 per cent of the workforce illiterate and more than 75 per cent lacking anything higher than middle-school qualifications. The ILO found, in other words, what you find if you hang around the edges of Tahrir Square: a smattering of graduates and a mass of chirpy, uneducated teenagers with nothing better to do than sit on somebody's parked motor-scooter, crack jokes or join in revolutions.

When the global recovery got under way in 2010, the poor were hit by price rises, occurring in the first place because, since 2000, all global recoveries have sparked commodity price inflation; and secondly, because the USA had decided to unleash inflation onto the developing world.

As the effects of Obama's stimulus faded, in November 2010 Ben Bernanke began a second round of money printing—$600 billions' worth—known as ‘Quantitative Easing II'. QEII, it was recognized even at the design stage, would not increase demand directly in America. By reducing the value of the dollar, and the attractiveness of dollar investments, it would create an international ‘wall of money' flowing out of the USA towards its emerging rivals: Russia, Brazil, India and other dynamos of the global south. Those countries' currencies would have to rise against the dollar, or they would have to tolerate rampant inflation, or both.

Some countries resisted. Brazil responded to a 40 per cent rise of the real against the dollar with a tax designed to suppress the flow of capital into Brazil. It spent tens of billions of dollars in the foreign exchange markets buying its own currency to depress the exchange rate, and slapped a ban on short-selling the dollar inside Brazil.

But other countries could not, or would not, use capital controls. The outcome speaks for itself: the UN's global Food Price Index, which had been set at 100 in 2004, rocketed from 180 in July 2010 to an all-time high of 234 in February 2011. In spring 2011, after Bernanke vigorously denied that QEII had had the slightest impact on the Arab Spring, UK economist Andrew Lilico produced a graph showing the almost exact correlation between Federal Reserve money-printing operations and global commodity prices. Noting the revolutions that followed, he observed drily that ‘the Fed seems very clearly to have achieved more in the Arab world in six months than the Pentagon achieved in decades'.
¹⁹

In Egypt the impact of QEII was particularly acute: food prices rose 19 per cent in the year to February 2011. Over the same period in Syria, the price of dairy products and cooking oil went up by 27 per cent.
²⁰

In an intriguing historical comparison, bond analysts at Barings Asset Management took food price data from the revolutions of 1848 and superimposed them onto wheat price movements in the Arab world in 2010. The results were remarkable. In 1848, inflation correlated closely with revolt: the higher the cost of bread, the more revolutionary the outcome. In 2011, Tunisia, Yemen and Lebanon experienced price hikes which, in 1848, would have been prompted expectations of violent revolution; Egypt, Jordan and Palestine, meanwhile, were off the scale. Saudi Arabia stood exactly where England had stood as Europe raged 150 years ago: with food price stability and minimal unrest.
²¹

Commodity price inflation, as all global agencies agree, hammers the poor. It turns the ‘acceptable' poverty of $2 a day into utter destitution. And the problem is that it has become endemic. Every economic recovery now sparks a commodity boom, mainly because of structural factors which currency manipulation by rich countries only exacerbates: population growth, rising demand in India and China, resource scarcity and the impact of climate change.

As the experts bicker over the precise role of poverty and food inflation in the Arab Spring, they do so to the sound of unrest across the developing world. Fragile dictatorships that have not yet fallen wonder how long they would survive in any second financial crisis, or any third commodity spike.

The economic fault lines

Watching Obama fail, the UK's Labour government crash and burn, the eurozone's technocrats stagger from one catastrophe to the next and Arab dictators wilt in the glare of revolt has not been pretty. This bonfire of ideologies has left a trail of broken-hearted believers: diehard Mubarak supporters clustered outside the great man's trial; the German Green Party pleading for the EU's leaders to ignore the anti-euro sentiments of their own voters; Obama himself, wearing his trademark puzzled frown as his ratings lurch from bad to worse.

But this is not the end of the process. Returning to the
Alien
metaphor, if the ‘floor' represented by the state burns through, then it is clear where the acid will start corroding next: the hull of the spaceship itself, that is, globalization. For if the state can't contain the crisis, the crisis will move on to relationships between states and classes.

Brazil's finance minister has already fired the warning shots. At the World Trade Organization in January 2011, exasperated by the impact of QEII, he threatened to sanction the USA for currency manipulation: ‘This', he affirmed, ‘is a currency war that is turning into a trade war.'
²²

As monetary stimulus becomes currency manipulation and G20 summit agreements give way to summits that end inconclusively (as in Seoul in 2010), the possibility looms of trade wars, outright competitive devaluations and the nuclear option of debt default. As one bond market participant put it to me, we are no longer dealing with market forces: ‘all market risk is now political risk'.

Now, throughout the world, there will be austerity on an unprecedented scale. From California to Cairo, it is certain that the rising generation will be materially poorer than those that came before. Even if we do not have a deflationary slump, 1930s-style, countries like Greece will experience 1930s levels of austerity.

But the mainstream political and economic decision-makers seem unable to rethink. Their mental framework was shaped in a world in which Lehman Brothers was on Seventh Avenue and house values always rose. And this, in turn, creates a crisis of legitimacy: non-centrist parties of the right and left are advancing electorally across Europe, while the Muslim Brotherhood is making steady gains in Egypt; and these are just the tip of a deeper disaffection.