Many major economies have been running away from problems, putting your head in the sand, thereby making the bag of problems heavier and bigger.
The west has long opted to keep boosting debt to compensate for flattening productivity and stagnating incomes, for example. A mentality of looking away and kicking the can down the road is familiar to many every now and again. At the global geopolitical and economic level, the corona crisis has highlighted the dangers and risks involved.
In recent weeks, it has become clear again that the U.S. has been running away from certain problems for a long time. In this case, the after-effects of a few centuries of institutionalized racism. Financial markets seemed to hardly care about the impact of protests, riots, and looting.
However, they are a symptom of the broken American political-economic system, in which it is mainly the top layer that has benefited in recent decades, while the masses have barely seen their situation improve or have even lost out in real terms.
This development has been reinforced by the massive amounts of money pumped into the asset markets by the Fed since the financial crisis in particular. In the words of an analyst of Rabobank, “this is socialism for the rich and raw capitalism for everyone else.”
The corona crisis makes the problems even more profound: the Fed continues to boost the asset markets with unprecedented money creation, while, at the same time, the virus strikes far harder among the Latino and black population than among the white population.
The pandemic has also painfully exposed other weaknesses of the U.S.
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The very poor social safety net.
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The emergency measures that have been taken to help people through this difficult time are facing capacity and other restrictions. For example, between a third and a quarter of all unemployment benefits that should have been paid out have not yet been paid in the past three months.
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The U.S. health care system leaves a great deal to be desired across the board; the U.S. has some of the best hospitals in the world, but many Americans have to rely on poor healthcare which is often shockingly expensive.
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Coordination between federal and regional governments is faltering and occurs in fits and starts, and states often lack resources.
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Polarization in Washington and in society has taken on such intense forms that it is often extremely difficult to pass laws and make policies (although the initial stimulus packages did come about rapidly). Voters no longer simply disagree; they fear and detest the other party.
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America’s reputation is crumbling at an accelerated pace. This makes it more difficult for the U.S. to make its mark on the world, as a significant portion of U.S. power is based on so-called soft power. This power can be divided into ideological, cultural and institutional power.
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In spite of flaws and a level of hypocrisy, American liberal democracy has always been a shining example for people around the world. Failed wars, massive inequality and a dysfunctional Washington have dimmed this admiration. On an institutional level, America is losing power as well, because other countries have gained more say in the IMF and the World Bank, for instance, and because Washington is withdrawing from all sorts of international partnerships and treaties. Culturally, America still has a major advantage — American film stars and rappers continue to capture the imagination of many billions of people — but a tentative shift is visible here too.
In this climate, Trump can no longer use the booming economy for his reelection, and he is now opting for a tough-guy approach. He is stepping up tensions with China, for example, by threatening to restart the trade war, keeping open the possibility of branding China a currency manipulator, pushing the Hong Kong issue to its extreme and coming down on Huawei even harder. Domestically, he dismissed governors as a bunch of wimps in how they deal with the riots. “You have to dominate. If you don’t dominate, you’re wasting your time,” he said. “They’re going to run over you. You’re going to look like a bunch of jerks.” Trump mainly adds fuel on the fire, while the country needs a leader who unites the Americans.
Yet, we cannot assume that Trump wasted his reelection chances by stoking this fire. The violence and protests are probably not really causing voters to switch camp — instead, the existing contradictions will only increase. In addition, it is wise to keep in mind that many experts believe the 1968 race riots made a substantial contribution to Richard Nixon’s reelection because he presented himself as the man of law and order.
Whatever the outcome may be in November, it is certainly likely that the U.S. will face a very turbulent period after the elections. If Trump wins, many will not be able to accept this, as four years of his presidency have wreaked havoc on the position of the U.S. If Biden wins, it remains to be seen whether Trump will accept this. He has already hinted he will not. A major political crisis looms as America has for been running away from its problems for far too long.