The Unsustainable American State

The Unsustainable American State

The Unsustainable American State

The Unsustainable American State

Synopsis

The complexity of the American economy and polity has grown at an explosive rate in our era of globalization. Yet as the 2008 financial crisis revealed, the evolution of the American state has not proceeded apace. The crisis exposed the system's manifold political and economicdysfunctionalities. Featuring a cast of leading scholars working at the intersection of political science and American history, The Unsustainable American State is a historically informed account of the American state's development from the nineteenth century to the present. It focuses in particular on thestate-produced inequalities and administrative incoherence that became so apparent in the post-1970s era. Collectively, the book offers an unsettling account of the growth of racial and economic inequality, the ossification of the state, the gradual erosion of democracy, and the problems derivingfrom imperial overreach. Utilizing the framework of sustainability, a concept that is currently informing some of the best work on governance and development, the contributors show how the USA's current trajectory does not imply an impending collapse, but rather a gradual erosion of capacity andlegitimacy. That is a more appropriate theoretical framework, they contend, because for all of its manifest flaws, the American state is durable. That durability, however, does not preclude a long relative decline.

Excerpt

Lawrence R. Jacobs and Desmond King

The American economic and financial system is experiencing upheaval on a scale last seen in the Great Depression of the 1930s. A number of the largest and most established banks and investment firms have declared bankruptcy (including Bear Stearns and Lehman Brothers) or have been taken over at fire-sale rates (as was the case, for example, with Merrill Lynch). In the fall of 2008, Congress and the U.S. Treasury along with the Federal Reserve Bank committed more than $8 trillion in payments, loans, and guarantees of various sorts to prop up financial institutions (including the semi-government mortgage entities, Fannie Mae and Freddie Mac) as well as the country’s largest insurer, American International Group (AIG). The speed, number, and scope of these interventions lack historical precedent.

The immediate cause was the collapse of a new and largely unregulated “shadow” financial system consisting of over-the-counter derivatives including collaterized debt obligations, credit default swaps, and a little recognized (and underregulated) sector of the housing mortgage market—loans to so-called subprime borrowers who failed standard credit worthiness tests based on stable income or employment. The devastating impact of defaults in this financial system was magnified by the loosening of capital requirements for investments. (Government agencies acquiesced in the drive by financial firms to heavily leverage their assets until they accumulated $33 of debt for every dollar in equity.) By the end of January 2009, even before passage of the new Obama stimulus package, the U.S. government had assumed a potential maximum commitment of $8.5 trillion in rescue funds, of which it had deployed $3.2 trillion.

Despite the overwhelming focus on the mistakes made by Wall Street and key industries, the economic and financial unraveling is fundamentally a political crisis of the American state. The collapse of private markets both reflects and propels an unsustainable constellation of government administrative practices and claims to legitimacy.

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