The Mountain Obama has to climb in his Second Term

With the re-election of Barack Obama for a second term, it is worth reviewing where the US is at as a society and why Obama needs to take some radical surgery to the country’s body politic to make significant progress.

First though, I should say, that if we had to have a global superpower, the US is about as benign as they come. It has been the global policeman for 75 years now, and has presided over a period of unprecedented global growth, prosperity, and largely without war (at least world war). Sadly though I fear this is all about to come to an end. With the rise of China, the US has significant foreign policy and military challenges, which will be difficult to address, especially with the current state of the US economy and what looks like a permanent realignment of relative might of the two super-powers.

Interestingly, there was recently conducted a study by Stanford University about the attitudes of senior American military officers past and present. Surprisingly, for a group you would normally expect to be strongly pro Republican, and pro military spending, nearly eighty percent of them came out strongly for deeply cutting defence expenditures and spending the money on rebuilding America, especially educational institutions, healthcare, infrastructure, and investing in innovation. What drove such a surprising result? Well one thing the US military is, it is not stupid. These officers fully realised, and articulated very forcibly, their long term future depends on a strong economy. Without economic strength, military might disappears viz; the Roman Empire; the British Empire; the Soviet Empire; the Ottoman Empire. These capable individuals realise this very much, and seemingly are willing to articulate the case for change

So far, Obama has been playing a “hands off” approach to foreign policy and when he has intervened to has been remotely i.e. using surrogate armies and/or heavy use of drone aircraft which allows US pilots to fight a war from the safety of their own US located Airbase. With China, both sides have been treaded warily as they size each other up in Asia, and Asia skirmishes have largely been between China and US allies, particularly over the islands in the South China Sea.  There will come a time though when the US will be forced to act in Asia e.g. North Korea, Pakistan, Iran. That will be Obama’s real test.

On the economic front, there is progress being made, much of it coming from market forces rather than government policies. The most significant of these is the historic comeback of the US as a global energy power, mostly off the back of technology change which has allowed access to huge oil and gas deposits from shale which previously was not possible. This means the US will be a larger producer of petroleum products than Saudi Arabia by 2020. Coupled with this, there are domestic regulations in the US which says that domestic gas demand has to be satisfied before exports can be made, and given the US’s highly developed domestic pipeline system, this means the whole of the US can be supplied from anywhere in the country. With gas now flooding the domestic market from shale, at 20% of the market price in Asia, this has given a huge boost to energy dependent industries which have all of a sudden become internationally competitive again. The lower US dollar has also helped in this. This has caused an improvement in employment rates, and with it, a pick-up in housing prices. It may be that 2013/14 will see America climb out of its self imposed trough US will become a significant exporter of gas in the next five years, no doubt causing a downward pressure on world prices, and therefore becoming a significant stimulant for the world economy.

This though will do little to solve the serious social inequity in the US which is significantly disenfranchising more than 50% of the population. For instance, less than 50% of the population pay income tax. This is not because they are cheating, it is because 50% of the population represents 3% of the national income and so simply do not earn enough money to pay income tax. This means the country as a whole is wasting large chunks of its manpower and brain power simply through lack of opportunity and a third rate education system. Coupled with health system which costs twice as much per capita than any other major OECD country, but gets fourth rate outcomes, this same 50% are poorly supported from a health perspective and from a social income perspective.

In his first term, Obama made some significant progress on these issues against fierce opposition from the Republican congress, notably in Health care, but the US is still significantly behind other equivalent OECD countries. In my view, nothing exemplifies the parlous state of American politics and economics as much as the US health system. The US currently ranks about 15th in the table of health indicators in the OECD, yet nothing gets the Republican Party so worked up than when “Obama care” comes up. Even with the progress being made, there are still significant parts of the US population without adequate health-cover, and treatment will remain significantly more expensive than in equivalent countries until Obama takes on the doctors, and introduces a national health insurance scheme with all the economies of scale that represents.
One thing we can say though is that one of the most consistent things about America throughout its history is its ability to re-invent itself when all seems lost: slavery; the Civil War; the Great Depression; Pearl Harbour; the Cold War; Russians putting the first man into space; Vietnam. Unfortunately, now almost every statistic, financial and no- financial, shows the US in decline. And its political system is so badly broken, in spite of Barrack Obama’s best efforts. There has seemed simply an inability to do anything about it, particularly leading up to the last Presidential election. One of the outcomes of that election though is the naval-gazing that has caused in the GOP, and the willingness of least some in that party to consider modernising themselves. This has not yet seen any change in their politicians in Congress and compromise from their side still seems out of the question.
Let’s take a look at these key social indicators:

  1. 1.       US Social Indicators are going in the wrong direction.
    The Table below from the OECD shows just how badly the US is doing as a society. Nearly all its social indicators are in the bottom half of the OECD league tables.  What the table below shows is the distribution of social indicators across all OECD countries, and breaks them up into countries in the top two deciles, in the bottom two deciles, and in- between. The measures include:
    a. Household income (PPP)
    b. Ratio of employment to population 15-64
    c. Unemployment rate population 15-64
    d. Reading literacy scales
    e. Poverty rates
    f. Percentage finding it difficult or very difficult to manage on current income
    g. Percentage of average gross wage to meet poverty threshold
    h. Life3 expectancy at birth
    i. Infant mortality rate
    j. Rate of positive experience
    k. Percentage of persons satisfied with water quality
    l. Percentage of people expressing a high level of trust in others
    m. Corruption index
    n. Pro-social behaviour
    o. Voting rates
    p. Tolerance of Diversity

Net Score of top decile minus bottom decile scores by OECD countries

Countries Top Tweo Deciles Bottom Two  Deciles Net Score Net Ranking
Australia 8 0 8 3
Austria 4 0 4 10
Belgium 1 0 1 17
Canada 4 1 3 12
Chile 2 8 -6 27
Czech Republic 2 6 -4 24
Denmark 10 0 10 1
Estonia 0 9 -9 32
Finland 7 0 7 5
France 1 0 1 17
Germany 2 0 2 15
Greece 0 5 -5 25
Hungry 1 9 -8 30
Iceland 9 0 9 2
Ireland 5 1 4 10
Israel 0 9 -9 31
Italy 1 3 -2 21
Japan 5 2 3 12
Korea 2 5 -3 22
Luxenberg 5 2 3 12
Mexico 1 11 -10 33
Netherlands 8 0 8 3
New Zealand 6 0 6 9
Norway 7 0 7 5
Poland 0 7 -7 29
Portugal 0 5 -5 25
Slovak Republic 2 8 -6 27
Slovania 2 1 1 17
Spain 2 2 0 20
Sweden 7 0 7 5
Switzerland 8 1 7 5
Turkey 1 14 -13 34
United Kingdom 3 1 2 15
United States 2 5 -3 22

Source: Compilation from OECD Social Indicators in Society at a Glance 2011

There are many highlights in this information, but the most worrying from the US’s perspective is that it comes 22 out of 34, behind such advanced economies as Italy, Spain, Slovenia and equal with Korea. To be fair, it is likely that many of the European countries have gone backwards since the GFC and the Euro crisis(s), but so will have the US. It is likely that countries such as Korea and Israel will have gone ahead of the US since then given neither was greatly affected by either the GFC or the Euro crisis. This probably puts the US about 25th, a disgrace given it is the wealthiest country on earth, and is the most advanced technologically, militarily, and academically.
2. US Obsession with Religion: 
If you look at the measures outlined above, many of the social indicators where the US scores badly is what could broadly be called “social tolerance”. Much of this stems from the blind adherence to religious doctrines for much of the population, and much of its politics. The US is about the only country in advanced economies where it would be impossible for a non-believer to be elected to public office. Over 80% of the population goes to church on Sundays, where in the rest of the anglo world it is less than 10%. Even in the so called Catholic countries of Europe, such as Italy and Ireland, church attendances are less than 20%.
As a direct result of this social intolerance in the US, social measures are well below advanced countries norms. Take teenage pregnancies. With the exception of Russia (practices there are distorted by the championing of abortion as the preferred form of birth control under communism, and these practices continue today), the US has the worst record of teenage pregnancies in the OECD.



Why? Primarily the opposition of the religious right, and the Catholic Church to both birth control and comprehensive sex education in schools (see table below);
Birth, Abortion and Pregnancy Rates for Developed Countries Ages 15-19 (per 1,000 population)

Countries Births Abortions Pregnancies
Russian Federation 45.6 56.1 101.7
United States 54.4 29.2 83.6
New Zealand 34.0 20.0 54.0
UK 28.4 18.6 47.0
Canada 24.2 21.2 45.4
Australia 19.8 23.8 43.6
Sweden 7.7 17.2 24.9
Denmark 8.3 14.4 22.7
Germany 12.5 3.6 16.1
Netherlands 8.2 4.0 12.2
Italy 6.9 5.1 12.0
Japan 3.9 6.3 10.2

*Note: pregnancies exclude miscarriages; data from mid-1990’s. SOURCE: The Alan Guttmacher Institute report on Teenage Sexuality and Reproductive Behavior in Developed Countries

Related to this, is the increasing trend in the US of children not been vaccinated for preventable diseases, mostly because of opposition from the religious right, who regard it as “ungodly”. The result, eminently preventable diseases such as hooping cough, measles and polio are on the rise there, when even in the developing world, partly as a result of the great work by that great American Bill Gates, and his Gates Foundation, rates are rapidly decreasing. In most of the developed world, these diseases are virtually eliminated by almost universal inoculations of the young.
3. The Paralysis of the American political system.
The US is not a Westminster style parliamentary democracy. Although difficult to believe in the current state of play, the US is not an adversarial system in the sense that Westminster democracies like Australia, the UK and Canada are. The way the US system has worked for 400 years is through compromise and consensus, with much of the power residing with the President. It depends on the legislature reaching compromises in order that the business of government gets done. Now, however, one side, The Republicans, have allowed their party to be high-jacked by extremists (the Tea Partyists), and not very bright ones at that, who regard compromise as a sin (a word used advisedly). Much of their ideology comes from the extreme right parties of Europe (Le Pen in France, the National Front in Britain, the successors to the Nazis in Germany, and One Nation in Australia). These parties generally are made up of disaffected working class voters, often extremely racist, and often under-educated. They carry with them an under-lying hatred of the way things are, and a frustration that they feel they are not getting their “fair share”. Usually, when prosperity continues these people remain in a small minority, but after the economic dislocation in Europe and the US in the last 5 years it has created an environment for extreme views to flourish, in much the same way that the consequences of the Treaty of Versailles and the Great Depression was directly responsible for the rise of Hitler and the Nazis. This time, however, the greatest victim is the US itself, where they have managed to successfully press the self destruct button. This will only be addressed by the moderates in the Republican Party recognising the need to modernise, and being able to convince the social conservatives led by the Tea Party. It is in the early stages of this playing out, but the GOP will rapidly become irrelevant without reform, and will probably lead to the emergence of a new party or permanently entrench the Democrats in the White House.
For the current state of play to continue, the US has almost become ungovernable. No matter how competent the individual is in the White House, and how much his/her heart is in the right place, there seems to be no way by which will emerge a means to bring in the desperately needed reforms which will reverse the poor social outcomes listed above, and restore the United States reputation, previously assumed by the rest of the world, as being the beacon for progressive thinking, social innovation, and sound economic management. The next three years will be critical to this, and Obama will either emerge in his second term as a reformist president in the Roosevelt or Johnston mould, or to be cast out as the biggest lost opportunity in US history.


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