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US faces tough road in revitalizing institutions

By Yuan Peng (People's Daily)

08:11, August 12, 2011

Following the ease of the U.S. debt ceiling crisis, the U.S. sovereign credit rating has been downgraded, leading to an all-around slump in the three major indexes on the New York Stock Exchange on Aug. 8. The risk of a double-dip recession is mounting amid the spread of the international community's mistrust in U.S. sovereign credit and its economic recovery prospects. The Obama administration has to continuously face the music and try its best to save the U.S. financial market and meet the "historical challenges" to its economic development.

Barack Obama's two-year "New Deal" has shown that only "institutional reforms" can solve the issues facing the U.S. economy. The unsustainable deficit-ridden U.S. economy has long suffered from the inherent nature of its economic hegemony. Although Obama is deeply aware of the fact, it is difficult for him to reverse it.

The Obama administration has no better choice but to continuously borrow debt. It aims to stimulate a deficit-based economic recovery by raising its debt ceiling, continuously borrowing funds and injecting them into the economy and eventually meet the objective of cutting the deficit after its economic situation gradually improves. Therefore, the essence of the U.S. debt crisis is whether the United States can achieve economic recovery and sustainable development through the conventional means of buying new debt.
The success or failure of this plan depends on whether Obama can make good use of the hard-earned money to continue his structural reform, whether he can develop effective measures to quickly stimulate the economy, alleviate unemployment and boost people’s confidence, and whether he can complete the structural reform in the mid-to-long term. At present, there is no reason for optimism because Obama's structural reform lacks the conditions necessary for success.

There have been two major structural reforms in American history. The first one was the Progressive Movement that occurred in the late 19th century and early 20th century. The movement solved many severe problems concerning industrialization, urbanization, market concentration and internationalization that arose when the United States was in transition from liberal capitalism to monopoly capitalism.

The second was the New Deal introduced during the 1930s and 1940s by then U.S. President Franklin D. Roosevelt. The New Deal was implemented to solve problems arising from the country's transition from basic monopoly capitalism to state monopoly capitalism. The success of the Progressive Movement should be attributed to the effective cooperation between Democrats and Republicans. Although the two parties took different reform paths, their goal was the same. The success of Roosevelt's New Deal lies partly in his absolute authority during almost 13 years in office. Another reason for the success of the two structural reforms is that the first and second world wars diverted attention from the country's domestic failures and greatly boosted its economy and employment.

Currently, Barack Obama is in a totally different circumstance. Within the United States, the two parties are fighting with each other, the two parties themselves are divided, and the political foundation for a crucial political reform does not exist.

In addition, there are many social contradictions, interest groups are diversified, and it is hard to do almost anything, such as reducing welfare expenditure, increasing taxes or cutting down government expenditure. Therefore, although Obama has the ambition to carry out a reform, he is not capable enough to do it. Outside the States, allies of the States such as European countries and Japan are facing situations that are even harder than the situation faced by the States itself.

The rising momentums of emerging powers are unstoppable, an in-depth transition of international system is developing, and therefore, it will be even harder for the United States to rely on international mechanisms and transfer its contradictions. What is more important is that the model of driving growth by means of war has already become less effective for the United States. The special characteristics of the most recent wars demonstrate this in the anti-terrorism era.

Instead of boosting the economy, the wars in Afghanistan and Iraq have actually slowed it down. That’s why Obama did not dare take the lead in the War in Libya. In addition, it seems that Obama does not have sufficient personal authority, decision-making capacity and political foundation at the critical moment for a great reform, and these things are preconditions for a successful reform.

Ultimately, what the United States is facing is not only an economic problem but also a political problem. Many far-sighted people of the States have been worrying about the destiny of the U.S. hegemony. They have seen that things such as the balance between the executive and congress, two parties complementing each other, social vigor and enterprising spirit, which the Untied States has been proud of for a long time, did not function well this time and instead turned into obstacles for the economic recovery in the new era of national mode transition caused by the international financial crisis and the transition of the international system.

Where are the economic growth points of the United States? Will the two U.S. parties be able to suspend their disputes and come to a correct development direction? Are the people of the States prepared to overcome "a hard time?" These fundamental questions will definitely be the central themes in the general election of 2012.


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