Wall Street’s sudden collapse and the prospect of a global recession have now overshadowed every other issue in this year’s US elections. With less than a month to go, it seems increasingly clear that – barring a remarkable “October surprise” — the race will become a re-iteration of the 1992 campaign in which Bill Clinton’s staff famously whittled their campaign message down to the slogan “It’s the economy, stupid.” Six out of ten Americans believe that the economy should be the candidates’ top priority, no other issue comes anywhere close.
Tuesday’s presidential debate was a good example of how wide the ramifications of a slowdown in the US economy are likely to be. Many domestic issues quickly led into the candidates’ wider concerns about America’s role on the international stage. Both McCain and Obama explicitly conceded that America’s prosperity, or lack of it, cannot be separated from its ability to act in the wider world. Several of their answers also suggested an inverse proposition: that when America disengages itself from complex problems beyond its shores, the world is likely to become more dangerous and unstable.
The last few days have shown how quickly a loss of confidence in Wall Street can spread to other markets. A year ago, it was conventional wisdom to say that global stock markets had “decoupled”, leaving the major trading blocs less vulnerable to downturns in rival economies. While that may still be technically true, the internationalization of the credit crisis, and the ubiquity of bad investments in the Byzantine financial instruments that fuelled the American housing bubble have clearly shown how foolish it would be for any country to believe that is can withstand a sharp downturn in the US economy. Up to now Europe has reacted to its crises with a mixture of short-term fixes like nationalisation and increased deposit insurance, but if the crisis deepens this option may disappear. The Financial Times recently reported that there are at least 14 European banks with assets larger than the GDP of the countries that nominally control them. If a handful of these were to be in danger of failing they would require an international rescue effort that could only succeed if America was prepared to be part of the deal.
For the Caribbean, the largest and most immediate impact of an American recession will almost certainly be felt in the diminished flow of remittances. In April, Pamela Cox, World Bank vice-president for Latin America and the Caribbean, pointed out that “Remittances … represent about 70 percent of foreign direct investment flows [in Latin America and the Caribbean]. They help poor families increase their savings and keep children in school.” America’s immigrants have been such reliable sources of income for their families abroad that, in several cases, they routinely send home more than their countries receive in international aid. Last year, for example, Latin America and the Caribbean received about $60 billion from remittances. In recent times this figure has been increasing at a healthy clip: the Inter-American Development Bank (IADB) estimates that between 2001 and 2006, remittances from the US to Latin America rose from $15 billion to $45 billion. But the IADB also recently concluded (from a survey of 5,000 immigrants) that the slowdown in the US economy has meant that only half of America’s 19 million Latino immigrants regularly now send home money — compared to almost three-quarters just two years ago. Half of those surveyed also said that they were thinking about returning home, up from one in five in 2001.
Tourism will also suffer. The Caribbean Tourism Organization reports that 65,000 US tourists visited Barbados in the first half of this year and more than 500,000 visited Jamaica between January and May. A steep decline in either number will produce severe economic setbacks. But these now seem inevitable if, as expected, Americans run out of disposable income for their vacations.
For these reasons, the upcoming US election will be the most significant in living memory for many non-Americans. Absent exceptional political skill and a fair amount of luck, the current economic gloom may well constrain the next president to a single term of firefighting rather than the hoped-for eight years of reform and renewal. For whoever is unlucky enough to succeed President Bush will govern in the shadow of an 11 trillion dollar debt and the highest budget deficits for fifty years. The only upside of this sorry state of affairs is that the new president will probably have his hands too full to wreak as much mischief as his predecessor. Extricating the country from its costly foreign wars, overseeing its escape from the labyrinths of “casino capitalism”, and dealing belatedly with the myriad governance failures of the Bush years will leave little time for the small-bore politics which, sadly, has characterised the majority of the political exchange between the two campaigns so far.
