Shocks and aftershocks

7: The post-liberal malaise

Liberalism has run its course. The US is no longer the ‘indispensable nation’. Other countries must find their own new way.

There were many good reasons to learn the lessons of the Global Financial Crisis and the structures that created it but many more bad reasons not to. Liberalism’s overreach, having destroyed the wealth and livelihoods of so many innocent bystanders, kept on rolling.

The Obama administration, in office from 2009 to 2017, put enough fiscal stimulus into the economy to prevent a bad recession becoming a full-scale depression. There was a push – for a while – to enact tough new standards for the finance sector that would prevent or outlaw the reckless behaviour of the previous decades. But that would hurt profits; the corporate sector owns the US political system; the regulations that Wall Street permitted were far too weak to make the system safe.

But the money kept rolling in. Some big banks were taken over by other big banks. Thousands of employees were sacked, but the top executives either got other well-paid jobs or retired to their lavish estates. The government picked up the massive bailout bill. There were harsh words spoken at inquiry hearings. And that was about it.

None of those criminally feckless executive went to prison. They are still very rich indeed: “too big to fail” became “too powerful to gaol”.

According to the government’s Special Investigator for the Troubled Asset Relief Program, the American taxpayer is on the hook for $16.8 trillion in ongoing costs. Because raising taxes – particularly on the corporate sector – is anathema, most of that cost was covered by debt. Between 2007 and 2013, US government debt as a proportion of GDP increased by 62%. Another crisis – the pandemic – arrived in 2019 and there was another bailout. By 2023, that debt pile was 89% higher than it was before the GFC.

Other countries were in similar situations, though only Japan and Greece were worse hit than the US. Governments and big businesses throughout the developed world bear responsibility for what happened, but none bear as much as America. Like so much during the American Century, this was born in the USA.

The GFC coincided with the high-point of globalisation, a move toward outsourcing the manufacturing industries of the high-wage western countries to low-wage Asian nations. The idea of competitive advantage – that each country should do what it does best and import the rest – was a new and sweeping application of the old liberal doctrine of free trade. Globalisation produced a revolution in China that was more transformative – and certainly more benign – than the Communist revolution of 1949. It made an enormous amount of money for corporations in many countries and great price reductions for goods consumed in the west.

But there was a price to pay, and that price was paid by millions of people who worked in industries that had been sent to the other side of the world.

The impact can be seen best in the manufacturing sector. China, like Britain in the 19^th century, is now the workplace of the world. In most other countries, manufacturing employment has fallen dramatically. The trend began in the 1980s but in just 23 years between 2020 and 2023, the significance of manufacturing as an employer almost halved in Australia, Canada, Britain and France. So far, Germany has retained much of its manufacturing base. In the US, the main shakeout happened long ago.

Throughout the developed world, overall employment has grown but almost all of that growth is in service industries, which tend to be much lower-paid than those in manufacturing or construction. Employees who once worked in relatively well-paid jobs are now out of work or working in the unskilled service sector: restaurants, kitchens, cleaning, shelf-stacking.

The US, in line with liberal orthodoxy, has failed to provide an effective social safety-net. Health insurance tends to go with a job, particularly in highly-unionised industries. Manufacturing workers usually had both; low-skilled service workers usually lack both.

The minimum wage in America ($US7.25 an hour) is below the poverty threshold calculated by the federal government. A full-time worker on the minimum wage currently earns $15,080 annually. Anyone trying to support a family is in trouble.

All of this is in line with basic, classical liberalism. Where there is an oversupply of workers and inadequate government intervention, wages tend to fall to the subsistence level. It is in the interest of employers to keep their workers from starving to death, but paying any more than that hits the profit results.

At the other end of the income and wealth spectrum, there’s a radically different situation. People in the bottom 10% or 20% typically have either no wealth at all (their debts outweigh their savings) but for the top 1%, it’s accumulated wealth that really counts.

In the US, the top 1% owns 35% of total personal wealth.

The rich also pay less tax. They can use many methods of tax minimisation that are effectively denied to most wage-earners: various tax shelters such as trusts, and by keeping their money in companies rather than in their personal accounts. Companies pay much less tax than individuals.

But the top 0.1% is doing even better, particularly when you look at accumulated wealth. According to the Forbes Rich List, the United States has 889 billionaires (in US dollars), ranging from Elon Musk at the top ($424.7 billion) to the little-known Stephen Ketchum, an investor, on a mere $1 billion.

Together those  account for just under $7 trillion. If that looks like a lot, it looks even more when it’s written in full: $6,993,400,000,000.

That’s $234 billion more than the US federal government spent in 2024 and 24.8% of US GDP.

Even that looks less unequal than it is. The top 20 rich-listers hold $2.7 trillion in personal wealth. The bottom 50% of the population hold 12.5% less: $2.4 trillion.

Detaching from America

Madeleine Albright, Bill Clinton’s Secretary of State, described the United States as “the indispensable nation”. It was a questionable boast even then; today, it would seem almost ridiculous. If the American Century began with Franklin Roosevelt in 1933, it ended with Donald Trump in 2025.

Trump has hastened the decline but did not create it. It had been happening for a very long time. He was elected because of the anger and desperation of millions of Americans who felt they had nothing to lose. They wanted to blow the place up and Trump promised to do just that. Whether they believed in the details, or even if they heard the details, what the hell?

Of course, Trump’s answers are no answers at all. As H L Mencken famously pointed out, for every complex problem there is an answer that is clear, simple, and wrong. But the spores of decline and decay can be traced all the way back to 1789 and that brave but deeply flawed constitution.

It gave all executive power to one person: the president was the king in all but name. The much-lauded checks and balances built into the constitution fail to make the president accountable for any action taken within the law. The president is elected not by popular vote but indirectly by an electoral college. Hillary Clinton won the vote in 2016 by three million votes but Trump was elected. In all, there have been 19 elections when the candidate with the most votes did not become president.

The electoral system is abysmally compromised. Immense power was given to an appallingly unrepresentative Senate, in which Wyoming with 597,000 people has as many senators as Illinois with 12.7 million, New York with 19.9 million, and California with 39.4 million. Elections for the House of Representatives are routinely rigged by state legislatures which can, and do, gerrymander federal districts.

The courts have become hopelessly politicised. The Supreme Court is, like the rest of politics, divided into parties based on ideology and interests.

Above all, the constitution is almost impossible to change.

This compromised system lends itself to takeover by powerful interests. It takes so much money to fight an election that huge corporate donations must be sought and won. An ecosystem has developed in which the President and the Congress are effectively owned by a string of ultra-wealthy special interests. The country is run for them, not for the people. That extends to the relationship of the US with other countries, its role in foreign affairs and trade and its desire to export its values and its system of government around the world. But the world can now see where those values, and that system of government, lead.

America’s primacy made sense during the Cold War, when there was a real and present threat from an aggressive Soviet Union. Today’s Russia cannot even defeat Ukraine. “I will never forget a focus group that we did outside of Moscow,” recalled Madeleine Albright, “where this man stood up and said, ‘I'm so embarrassed. We used to be a superpower, and now we're Bangladesh with missiles.”

Europe can defend itself. China does not pose the threat to the world that the Soviet Union once did. America is not, any more, the indispensable nation.

It is quickly becoming dispensable, too, in the global economy. The “exorbitant privilege” forced through by a triumphalist American delegation at Bretton Woods in 1944 is now unravelling. That settlement turned the US dollar into the world’s reserve currency, taking the place of gold. That has led to US government bonds becoming the ultimate safe-haven investment: money has flooded in, lowering borrowing costs and underwriting massive budget deficits that would cripple any other nation.

But that reserve status has passed its best-before date. “The dollar has not exhibited its usual safe haven status in 2025,” wrote analysts the J P Morgan Private Bank. Trump’s disordered assaults on trade and the dollar, apparently designed in part to lower the currency’s relative value, are causing havoc. Investors are staying away.

“It will take a long time to de-dollarise reserves,” wrote a Westpac analyst, Martin Whetton, “but the path, which had started slowly at first, is now moving all at once. Giving that hegemony, that authority, that liquidity and reserve status up, perhaps not willingly but flippantly and without due consideration, is not something you just get back.”

We are heading for a multi-polar world. America will still be there, but much diminished. China’s rise has been seen as inexorable, but they face enormous difficulties. Centrally-planned economies work well in the early stages of development but eventually the economy becomes too complex: central direction becomes a liability. But the Chinese Communist Party will not relinquish control and, unless it does, China will not escape the middle-income trap to realise its true economic potential. Europe is going through a period of revival and has found levels of assertiveness and purpose that have been missing for too long. But that does not mean it will dominate the globe as America and Britain did in their time.

There are many dangers ahead, as there always are, but the move away from quasi-imperial hegemony is a momentous and hopeful trend. The empires which ran the world for over 200 years were ruled by wealthy, powerful elites who were able to run the world for their own benefit. For this, the harsh principles of liberalism served them well. If the nations of the earth now find their own way, with the interests of their own peoples in mind, tomorrow’s world has a decent chance of being far better than yesterday’s.