One of the meetings here in London was at the Royal Institute of International Affairs (Chatham House) on November 17th which focused at the impact of the economic crisis on foreign policies and power. The speaker was Gideon Rachman of the Financial Times (on-the-record). He made a key point on the relation of the economic capability and prosperity to strategic and foreign policy. Rachman indicated that the U.S. engaged in a deflationary policy because of the Republican desire to cut public support for the economy. This trend is mimicked by similar conservative governments in Europe through their culling of government programs, especially for the poor. Simultaneously, China, a command economy, grew at 9% last year with developed market industrial economies trailing China at 1-2%. There is no doubt that ourselves and China are following inverse trajectories, we have willfully pursued a diminished influence and smaller role in world affairs while China is on the rise and capitalizing on our financial mistakes. Growth, not deflation, is the best strategy to deal with deficits and increase our power relative to China.
In this case it appears that the policies of the Western European governments will shortly create a semi-depression if they continue with their brutal cuts in expenditures and mass firings. In the U.S. Obama tried to float the economy by injecting money into our economy to help modernize our infrastructure. But now it looks like we may go down economically, just as Europe likely will, by the inability of Republicans to support economic policies that encourage growth rather than encourage a longer and more profound recession.
The point was the economic growth is a key factor in global power and we are paradoxically opting for less influence as the world becomes more dangerous. We have become captives of ideology and the consequences for this myopia will be a sustained recession and atrophy of our hard and soft power. A great country needs a great educational system, top science and technology, modernization of its productive resources towards common needs of the entire population, and ability to care for its population rather than the forces of a cruel market place where the rich get richer but the nation as a whole gets poorer.