Europe Blames America

London

You may think our current economic difficulties are all about subprime mortgages, securitization, the drying up of credit, falling house prices and the like--but that's not how the rest of the world sees it.

Yes, all of these problems are on foreigners' list. But, more important, they see this as the end of "the American century": America caused the world's economic problems; America will pay a terrible price.

"The origin and center of gravity of the problem is clearly in the USA," pronounced Peer Steinbruck, the German finance minister. He's not alone. British Prime Minister Gordon Brown says his nation's economic problems were imported from America - a view shared by the leader of the Tory opposition.

Name an economic problem, and its origin is George Bush's USA and the radical deregulation policies of the neoconservatives. That gets the local politicians off the hook.

There's worse. The initial failure of US lawmakers to agree on a $700 billion bailout package last month shows that America's squabbling politicians are irresponsible, interested only in getting re-elected. Never mind that the British took longer to decide what to do about a single bust bank (Northern Rock) than our politicians took to decide on an industrywide, massive bank-rescue effort.

Or that we had a rescue package in place before the Europeans even met last weekend to discuss what to do.

Gleeful European leaders are agreeing with French President Nicolas Sarkozy that the US problems show that the "idea of an all-powerful market without any rules and any political intervention is mad . . . [and that] self-regulation is finished. Laissez faire is finished. The all-powerful market which is always right is finished."

That no American politician or policy maker ever proposed that the financial system operate "without any rules" matters not to America's critics. No matter, either, that these same critics have just spent years criticizing Sarbanes-Oxley as an example of American overregulation.

No, the important thing is that the American model is dead. Or so they think--or, to be precise, hope.

No longer can America recommend its version of capitalism to the developing world, or turn its collective nose up at the alternative models of authoritarian capitalism offered by China and Russia. Or at France's protection of "vital infrastructure companies" (a group that includes yogurt maker Danone).

The smirking goes on: The burgeoning federal deficit marks the end of the dollar as a reserve currency--and good riddance to it. Its status as a reserve currency only served to shore up America's prestige and allow it to borrow to support military spending and unwise adventures, such as those in which America is now bogged down in Iraq and Afghanistan.

I'm not making this up. As an American economist in London known as a conservative believer in democratic capitalism, I seem to be the guest of choice on TV programs hunting desperately for someone willing to support the US system.

The critics I face range the spectrum, from politicians on the left who are delighted that capitalism has run into difficulties to those on the right who blame the loss of their friends' jobs in the City (London's financial district) on US policies.

Some complain that, by bailing out Bear Stearns, we've loosed the force of moral hazard on the world, encouraging sinners to sin again without consequence. Others complain that, by failing to bail out Lehman Bros., we've cost thousands of well-paid Brits their jobs.

Some complain that the Paulson rescue plan rewards the greedy bankers who unleashed the American disease on Europe; others complain that by not passing the Paulson plan on the first try we exacerbated the problems of European financial institutions.

Clearly, the best response is simply to ignore all of the caviling and caterwauling. Foreigners won't love us again unless we elect Barack Obama. Let's just remember the critics when foreign banks try to deal themselves in on the US rescue plan.