Tags: World | Leaderless | West | US

The World Evolves Around a Leaderless West

By    |   Friday, 22 June 2012 12:24 PM

When a naturally rowdy high school class gets a not-too-competent substitute teacher for the day, havoc often erupts. At least it did at my high school.

This is an appropriate metaphor for the current world situation. A naturally rowdy world is without competent leadership and everything is coming unglued.

In years past, U.S. leadership was a stabilizing anchor for the world. We outlasted the deprived system of communism and democracy spread to every corner of the globe. A strong U.S. economy buoyed markets and prosperity grew across the globe.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

But now that leadership post is being vacated, and we are watching the world evolve in the vacuum.

In Europe, the debt crisis has been begging for a comprehensive solution for three years. The situation continues to decay. True, Europe has special problems that have nothing to do with the United States. However, one can only wonder what affect a strong U.S. recovery and strong convictions from the other side of the Atlantic would have had on Europe's approach to the current crisis.

For example, if the United States had pursued strong private sector growth policies (lower tax rates, less regulation, increased certainty, an energy policy), and gotten somewhat of a handle on the long term debt situation through entitlement reform and spending caps things might be very different in Europe.

Had the United States provided an example of how a massive economy can get a handle on debt and economic growth, European leaders would have had a strong example on which to model reforms and a strong degree of confidence that those reforms would work.

In addition, a strong U.S. recovery would have increased economic growth prospects throughout the world. European countries under the weight of austerity measures would find easier and more compelling to grow their private sector economies in a more prosperous world.

But what has Europe seen from the United States?

They have seen the largest economy in the world respond to the financial crisis by inexplicably dusting off the 1970s economic playbook of big government spending and private sector skepticism, the very policies that got Europe into this mess.

The United States is limping along with the most anemic recovery since World War II largely funded by Fed money printing and massive debt accumulation, something countries without the world's reserve currency would be unable to do.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

Advice from Washington favors more spending and debt accumulation at every turn, which Europe understands from decades of firsthand experience won't work. Such policies from the great United States serve to embolden elements in European countries that oppose swallowing the hard but necessary medicine of austerity.

Also, the largely U.S.-induced slower world economy creates a very difficult environment for European economies to grow their private sectors and offset the negative effects of austerity.

The inability of the U.S. and Europe to handle their debt problems has not gone unnoticed by the rest of the world. Western fecklessness serves to embolden more dangerous elements throughout the globe.

Russia has become more emboldened to act in its own interests. They are arming the Syrian government and aiding Iran. Much of the world is increasingly looking to China for economic leadership. That country has begun to arm itself at a torrid pace. Radical elements are also on the rise in several Middle Eastern countries.

The world is in desperate need of strong leadership, but it isn't getting any. Sound policies and strong leadership from Washington could make a huge difference.

By getting our fiscal house in order and pursuing policies that will unleash the massive potential of the U.S. economy, we could alter the world's increasingly dangerous current course.

There is still time, just not much.

About the Author: Tom Hutchinson

Tom Hutchinson is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.

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Friday, 22 June 2012 12:24 PM
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