America Then and Now

Posted by on 10/21/09 in America, Debt, Global Politics, Government

If we were to step back 230 years, we would find economic and political challenges confronting early America that are similar in spirit to those which confront us now, though for different reasons. Our predecessors faced these matters with less information and fewer potential solutions than we have now; however, they also had less knowledge-clutter and fewer special interests complicating the process.

War
The country was embroiled in major armed conflict that was lasting far longer than almost everyone expected. The conflict was slowly bleeding an underprepared Treasury. Curiously, roughly one third of Americans supported what we now call the Revolutionary War, while another third was adamantly opposed, believing generally that reconciliation with Britain was the best route. The sentiment of the other third—the great American middle—tended toward whichever side appeared to have the upper hand at the time. When the War was going poorly, reconciliation with Britain seemed an obvious solution; when the tide turned in favor of the revolutionaries, so too did the public. How different is that from what we have experienced in our other wars, including the two in which we are currently engaged?

Currency Devaluation/Inflation
Citizens were fearful of rampant inflation due to currency devaluation and angry at the prospects of increased taxation as a potential remedy. At that point, the Continental Dollar was a new currency burdened both by a lack of global confidence (i.e. sketchy track record, untested political system, questionable prospects, etc.) and the pressure of financing the consolidation of diverse colonies into a unified economy. Of course, inflation in America has almost always been at its worst in times of war—Revolutionary, Civil, the Great War, World War II, and Vietnam. Indeed, our current low level of inflation represents an anomaly given the extreme levels of government spending. Will the current dampened inflationary environment be sustained? Or is it simply the by-product of a severely constrained consumer who lacks the confidence and credit necessary to spend, if not the desire to do so? And what if inflation starts to depend more on the consumers in Mumbai or Shanghai than the ones in L.A. Omaha, or Boston?

Debt
America’s government was kept afloat by external financing. Soon after the battle was formerly joined with Britain, Congress sent emissaries including Benjamin Franklin, Silas Deane, and John Adams abroad to find governments willing and able to loan substantial sums to the fledgling United States. Ironically, then as now, the foreign government best able to provide economic sustenance in the late 1770s (France) possessed a political structure that was the antithesis of all that America was advocating. It would be hard to argue that the French Monarchy was any more aligned with the spirit or practice of the US republic than Chinese social-totalitarianism is today. The French power structure (pre-guillotine) denied basic human rights to the vast majority of its own citizens—particularly its rural poor—as does China today. Additionally, while there was genuine support amongst the French for the American cause, much of that support was due to America’s shared enmity for France’s foe across the English Channel. Importantly, the French saw America as a potentially lucrative trading partner, but had little interest—at least at the highest political levels—in seeing America’s threatening political and economic structure succeed. Perhaps there are lessons in this tension that may apply to our relationship with the Middle Kingdom—a “necessary” trading partner with a political structure anathema at almost every level to ours.

But the most important commonality between America Then and America Now is the uncertain nature of the venture. Only with vigilance, effective policy setting, an engaged citizenry and a little luck will the American experiment launched over 230 years ago be sustained.