THE global financial crisis, triggered by the meltdown on Wall Street, continues to dominate the headlines. It has rekindled debate about America’s global standing.

The crash, triggered by the sub-prime mortgage crisis, was seen by some as a short-lived event. Early in the crisis, it was argued that that 99 per cent of the drop in stock prices was driven by emotions. For a few months prior, Senator John McCain, the Republican presidential candidate, had been saying that the fundamentals of the US economy were sound. McCain’s view was echoed in The Wall Street Journal.

However, as the crisis deepened, the tide shifted and beached McCain. What appeared to be a lack of liquidity problem had morphed into an economic problem. The ‘R’ word loomed on the horizon, and not just in the writings of the Bush administration’s critics, prominent among whom was Paul Krugman, who recently won the Nobel Prize in economics. The new conventional wisdom is that the US has already entered a recessionary period. The only question is, how deep will it be?

The pessimists are drawing parallels with the Great Depression of the early 1930s. In a sign of the times, the economist John Kenneth Galbraith’s classic depiction of that period in American history has been reissued.

The optimists are saying this is just a periodic phenomenon that will last between six and 16 months. They have dusted off the iconoclastic work of Joseph Schumpeter, Capitalism, Socialism and Democracy. In that, the Harvard economist spoke of how “creative destruction” stimulated progress in capitalistic societies.

Bret Stephens is typical of the optimists. Writing in The Wall Street Journal, he finds comfort in that “Constantinople fell to the Ottomans after two centuries of retreat and decline. It took two world wars, a global depression and the onset of the Cold War to lay the British Empire low.”

But has he forgotten that the Byzantine and British empires had lasted for centuries before their decline set in? The US empire is largely a post-Second World War phenomenon, with a half-century of existence. And the other major empire of the 20th century, the Soviet Union, lasted for just seven decades.

Stephens notes wistfully that the fall in the price of oil is weakening Iran, Russia, and Venezuela — countries that pride themselves as being global counterweights to the US — while alleviating economic pressure on Americans. But the world price of oil won’t continue falling. In the long run its price will be governed by the laws of demand and supply.

As long as India and China continue to grow at a torrid pace, and as long as there are no viable substitutes for petroleum, oil prices will continue to gravitate upwards toward the hundred-dollar mark.

No one would dispute the presumption that the US is the world’s colossus. With only five percent of the world’s population, it accounts for a quarter of the world’s economic output and nearly half of its financial wealth. American universities remain the primary institutions of higher learning around the globe and its communities are the primary destination of choice for immigrants.

However, there is little doubt that American influence is waning. Even though the US spends more on its military than the next 20 nations combined, victory against rag-tag bands of militants in Iraq and Afghanistan remains elusive. The Israeli-Palestinian problem defies solution despite numerous visits by American officials from President Bush on downwards.

And Pakistan, despite billions in American aid, is on the brink of bankruptcy. Terrorists have seized not just the commanding heights in Waziristan but have set its future agenda.

Against this backdrop, the US government’s top intelligence analyst, Tom Fingar, has compiled a remarkable assessment of global trends. He leads the ‘2025 Project’ which is scheduled to produce its report soon after the November elections.

In a recent speech, Fingar argued that the US will remain the “pre-eminent” power globally, but its global dominance will be much diminished in the next decade and a half. Taking a long view, Fingar said that the post-Cold War period of overwhelming US dominance in the globe was “anomalous” and never constituted a long-term trend. In his view, America’s elevated status on the military, political, economic and possibly cultural fronts “will erode at an accelerating pace, with the partial exception of the military.”

Others, such as Harvard historian Niall Ferguson, have long argued that American power has peaked and decline has set in. Ferguson has authored two leading books on the decline of the British and US empires. Another historian, Paul Kennedy, currently with the London School of Economics who authored the classic study The Rise and Fall of the Great Powers, traces imperial decline to strategic overreach, of which clues can be found in the current American deployments.

What is driving America’s decline? One simple reason is that America’s infrastructure is decaying. It will take trillions of dollars to upgrade it to world standards. This and other domestic priorities (such as improving the standard of education in America’s elementary and high schools, providing universal health care and shoring up social security) will seriously impair America’s ability to fund economic development in foreign countries. Foreign aid, never a popular item domestically, will be hit hard.

Another reason is that during the past two decades, China and India, the world’s two most populous countries, have been growing at rates that are twice and thrice those of the US. China is expected to become the largest economy in the globe by 2030, two decades ahead of prior projections.

No wonder that Fareed Zakaria, a former editor of Foreign Affairs magazine and who has launched the newest Sunday morning talk show on US TV, envisions a post-American future in his new book. But while accepting that premise, Zakaria says that the end of dominance should not be a cause for alarm among Americans.

He is right. The citizens of Canada and the Scandinavian countries score higher on many indices of happiness than Americans. In the year 2025, the American cowboy may not be able to call the shots on the world stage. But back home, Americans will have the opportunity to find contentment and good health.

The author is an associate of the Pakistan Security Research Unit at the University of Bradford.

faruqui@pacbell.net.

DISASTERS seem to occur more often now than in the past. Any acute and sudden event which is collectively experienced as traumatic may be classified as a disaster. It can be natural (earthquakes, floods) or man-made (terrorist attacks, traffic accidents).

Disasters have both short-term and long-term health consequences. These health consequences cannot be studied without focusing on the role of the mass media. The significance of the media in everyday life has increased dramatically. Last month, people all over the country watched the horrifying images of a truck exploding at the Marriott in Islamabad, guards who were struggling to extinguish the initial fire being killed a few seconds later and the petrified remains retrieved from the carnage. So what are the effects of these media messages on the well-being of the public?

In a disaster situation, the perspectives of the media and those concerned with public health are different. Journalists highlight conflict. They strive to assess the loss of life and property, to determine if the damage could have been prevented and who is to be held responsible. They are drawn to danger and drama, looking for pictures that tell the most compelling story, even when the images are disturbing. This is in contradiction to the public health view which promotes absence of conflict, minimises loss of life, and emphasises prevention, reassurance and recovery. So how could the media disseminate accurate information and still help prevent mental health difficulties?

Generally, there is a popular thirst for dramatic news. Sometimes journalists ‘produce stories’ instead of merely reporting news. Even some inherently staid stories may be presented in a manner where they quickly attain scandal status. Some, obsessed with talk of cover-ups, may sincerely believe that they are providing a balanced view. Even slight misreporting constructs a representation of reality for public consumption. It cannot be assumed that a story will be interpreted as intended or that all the interpretations of any one story will be the same.

Sometimes journalists personalise the story of human tragedy to make it more meaningful. Unusual or shocking events may also be hyped by the media. This means that the event is pushed forward mainly by self-reinforcing processes within news production that is hunting for ‘newer’ news on the topic. We know that media coverage affects public opinion and action. In terms of covering a disaster, what can and can’t be shown?

The media believes that the public demands to know the truth, and as such it is the responsibility of the media to engage in unbiased reporting during a critical time even if that means providing a gallery of grisly images.

Some believe that atrocities related to terrorism and the havoc of disasters are downplayed by censoring information whereas stark images catalyse public reaction. However, there is an argument that the persistent use of shocking pictures can induce an analgesic effect and desensitise the public.

Over time, people get used to horrifying images and the desired acknowledgement of horror is replaced by “It’s another suicide bombing.” With the growing use of cellphones and digital cameras, there is no shortage of pictures and movies from the disaster zone. The media itself is gradually becoming more graphic as the terrorist acts go on and the visual impact is unforgettable.

A picture of a bloodied dead person or a child amputee could be a powerful image. Sometimes the media selects safer pictures. For example, instead of images of carnage, shrouded bodies awaiting burial are shown. Are these white sheets supposed to disguise the ghastly consequences of a disaster?

Journalists are interested in hospital settings, to keep track of the injured or officials visiting the injured. Most victims are dazed, overwhelmed by their traumatic experience and not really ready for appearing before the camera. It is not uncommon to see a woman, not fully covered, being dragged into or out of an ambulance. What about personal space? How do their families feel? Is preserving their dignity less important than reporting their arrival at the hospital?

Then there is the matter of government officials (supposedly public servants) visiting hospitals. Why are they followed by a madding crowd of journalists carrying mikes and cameras? All medical care is suspended, wards are cleaned up and administrators suspend their day’s work to receive the officials. Do hospitals have a media policy?

Health-related concerns about the role of the media extend beyond the context of reporting disasters. For instance, media coverage is seen as a risk factor vis-à-vis suicide. Media reports of suicidal behaviour may have potentially negative influences and facilitate suicidal acts by people exposed to such stimuli. This is most likely when a method of suicide is presented in detail, when the story is portrayed dramatically, and when suicides of celebrities are reported. Younger people are most vulnerable to the influence of the media. The media oversimplifies the causes, attributing the act of suicide to factors such as poverty, marital difficulties or unemployment. The most common factor leading to suicide is mental illness which is often overlooked.

So what is the solution? The media can operate in different modes. The media can follow but it can also lead. It can play a leading role in the social construction of the problem after a disaster. Broadcasting ongoing events and disseminating accurate information, raising awareness of the need for disaster management and mass counselling are all part of quality media. The media can have a huge impact on the way a disaster and the risk issues involved are defined and perceived by the public as well as the authorities. The media should struggle to define what happened and why, and what can be expected in the future.

Its goal ought to be to define the problem, engage in causal interpretation and moral evaluation, and offer problem-solving recommendations. Soon after a recent tragedy, the BBC pointed out the lack of firefighting equipment and efforts to save trapped persons while some other channels were lamenting about the missing government functionaries.

The media should adopt policies designed to portray reality and to protect the viewer. It must not forget the fact that it is reaching a large audience of varying demographics including children. Policymakers, public health professionals and media personnel should collaborate on formulating an effective and safe policy and defining clear guidelines.

The BBC’s editorial guidelines say that when covering scenes of death and injury “pictures should not normally be close up and should not linger too long.” It speaks of the need for warnings, with particular care demanded for daytime and early evening reports.

To begin with, simple measures like broadcasting repeated details of horrifying scenes could be limited to late-night bulletins. Finally, safer and positive journalism should be promoted through training courses for media personnel.

The writer is a consultant psychiatrist.

asmah@comsats.net.pk

DIFFICULT to say if John Kenneth Galbraith, were he alive today, would chuckle at the coming true of his ominous forecast concerning another, inevitable Wall Street tumbledown or whether the disaster would have brought a dark frown to his prescient brow. Probably both.

Taking his cue from the Great Crash of 1929, in the eponymous book published in 1954, Galbraith says with stunning clairvoyance: “An angry god may have endowed capitalism with inherent contradictions. But at least as an afterthought he was kind enough to make social reform surprisingly consistent with improved operation of the system.”

Is he talking here of the Paulson rescue plan?

With more prophetic vision in his other celebrated work The Affluent Society (1958) Galbraith holds that private businesses will enter a mad race to enhance consumer avidity through a myriad of hitherto unheard of sales promotion gimmicks. This will create a magical world of what may seem to be paradise on earth as it will provide access for an ever-increasing number of consumers to superfluous new products and technologies they can, God knows, quite comfortably live without.

That this consumers’ paradise, a reality today, is the twilight of illusion Galbraith was referring to, the current international financial bedlam amply proves, should proof really be needed.

One blatant example in this freewheeling early 21st century affluent society of ours is the ease with which under-teenagers are lured into possessing high-tech products like cellphones — and on their magical screens, the latest video games and video clips, including porn. Their parents on the other hand, at least until the fatal, inevitable crash under our purview, benefited from the sub-prime bonanza that came with an additional five per cent cash payment — to help families equip their kitchens with the latest technologies, or so said the benevolent banks!

For better or for worse, the disaster is here. As doubts are already being raised whether the $700bn Paulson salvage scheme will prove to be a long-term remedy, those who understand these things a little better than us ordinary mortals have their own apprehensions. While Nobel prize-winning economist Joseph Stiglitz says all that has changed is that Wall Street now has a big, fat slice of the American taxpayer’s money in its pocket, US billionaire George Soros is certain that in a few years’ time, when the economy has recovered, the banks won’t need to turn to the government for capital nor would they owe it anything. Wow, whaddayaknow!

Here in Europe experts tend to minimise the catastrophe even when they are not altogether denying its existence. It isn’t as bad, they say, as the Japanese real estate blowout in the early ’90s when Tokyo had to come up with $1,500bn to salvage the situation. They seem to turn a blind eye to the staggering figure of the EU’s own rescue operation: 1,700bn euros, so far.

Then there are those who distinguish in the cataclysm of today portents of significant improvements in the world order of the future. One such harbinger of change is Immanuel Wallerstein, a disciple of the legendary French historian Fernand Braudel and a force behind the international anti-globalisation movement. “What we are witnessing today”, he told Le Monde recently, “is the end of a political era that had put the United States at the helm of the modern world. Power will now extend from Brazil, China and India to Europe with the US still playing a major part but no longer the role of hegemony as of yore.”

When world figures call for a new financial and monetary order, as does the French president and current head of the European Union Nicolas Sarkozy, they inevitably refer to the dismantling of the world according to Bretton Woods.

Bretton Woods?

As 735 delegates from 44 countries gathered together between July 1 and 22, 1944 in this sleepy little town in New Hampshire at the invitation of President Franklin D. Roosevelt, it was meant to be a daring enterprise; the Allied troops had landed at Normandy Beach only three weeks earlier and neither the Germans nor the Japanese had capitulated yet. Nobody knew where exactly this new world map they were supposed to draw would be situated. The Europeans who were present at the conference had been advised never to let go of their lifejackets while they were traversing the Atlantic aboard SS Queen Mary for fear of German torpedo attacks. Ragtime images following the 1929 Wall Street meltdown were still fresh in everyone’s memory and no effort was spared to create a foolproof economic system for the benefit of future generations.

Among the participants was an ailing John Maynard Keynes who would contribute literally the last ounce of energy left in him and would die of a heart attack 22 months later aged 62. The International Monetary Fund and the International Bank for Reconstruction and Development, more popularly known today as the World Bank, proved to be among the many brainchildren of these deliberations. That the Bretton Woods accord survived the decision by President Richard Nixon in 1971 to free the US dollar of its bondage to the gold value goes a long way to explain its sound foundations and its pioneering spirit.

In his concluding address, Keynes had described the agreement as “an end to the nightmare”. But it seems today’s nightmare is very different from the one Keynes was talking about and some experts are not hesitating from qualifying it as the end of capitalism itself.

The author of The Great Crash, for one, was never convinced of foolproof systems. According to him fools are destined to be separated from their money sooner or later. But unfortunately they are trailed by those who, though not idiots themselves in the true sense, remain nonetheless convinced of their own infallible financial flair.

This is how it has been for many centuries and this is how it will be for many more to come, vaticinates John Kenneth Galbraith in one of his essays.

The writer is a journalist based in Paris.

THE spooky coincidence of Friday’s renewed meltdown in share prices with the 79th anniversary of the Great Crash of 1929 will do little to allay fears that we may now be heading into an economic contraction of severe and — in terms of its cost to livelihood — devastating proportions.

Technically, the UK economy is not yet in recession, for to meet the official definition requires two successive quarters of shrinkage. But the contraction announced on Friday for the third quarter was much worse than even the most bearish forecasters were predicting. Nobody believes that this marks the bottom. In the last few weeks in particular, activity has fallen off a cliff, and it now seems inevitable that economic output will continue to fall well into next year and possibly beyond.

This was the week in which both Mervyn King, Governor of the Bank of England, and Gordon Brown, the Prime Minister, admitted for the first time that Britain is facing recession. Despite Mr Brown’s often repeated claim to have abolished boom and bust, he must now reconcile himself to the fact that he has failed to buck the economic cycle as promised.

Nor can he hide behind the claim that this is a global slowdown which began in America, factually true though this undoubtedly is. Regrettably, the downturn looks as if it will be worse in Britain than in America and large parts of Europe.

That this would be the case was always obvious to everyone other than the government itself. High reliance on credit-fuelled consumption, the housing market and financial services has long made the British economy more vulnerable to a downturn that began in these sectors. What’s more, the already high budget deficit makes it harder for the Government to spend its way to economic salvation.

There are two things that Britain is said to have going for it. One is its flexible labour market, which may make it easier to spread the pain of the downturn, and may also ensure that British companies survive it rather better than those in economies with more rigidly fixed costs. The other is the floating exchange rate, which is able to adjust in a manner that makes British goods and services more competitive.

However, both these weapons are double-edged swords. Flexibility in the labour force makes it easier for companies to sack workers, which means that in the short term unemployment may grow more rapidly than otherwise. The adjustment to sterling may moreover turn into a fully blown rout, similar to what we are seeing with some emerging market economies. There were unnerving signs of that happening on Friday, with the pound experiencing its worst one-day fall against the dollar in 37 years.

A currency crisis is just what we don’t need at the moment. It is what makes it more difficult to cut interest rates, and adds to inflation while increasing the government’s cost of borrowing. Once the skids are under a currency, it’s hard to stop the rot. After a while, the flight of capital becomes self-fulfilling as foreign investors dash to get their money out.

This is already happening in a number of developing economies, necessitating outright rescue by the International Monetary Fund, always assuming that the Fund’s managing director, Dominique Strauss-Kahn, isn’t still too busy sorting out a payoff for his lover.

How ludicrous it is that just as the IMF is called on to perform its duties it should be making headlines for entirely different reasons — that its managing director has been having an affair with a subordinate. Until a month or two back, emerging markets were the one ray of hope in the gathering gloom.

Now they too are being hit by the doomsday machine of global capital markets. Shares in banks previously thought resilient to the mischief of the credit crunch because of their high exposure to still growing emerging markets — HSBC, Standard Chartered, Santander, and so on — are now bombing, along with everyone else. There’s no justice in the world, for the main beneficiary of international capital’s flight to safety is the greenback, the currency that gave us the credit crunch in the first place.

All the same, Britons need to prepare for a long, hard workout after all those years of living high on the hog. It still looks unlikely it will end in a humiliating flight to the IMF, as it did in the 1970s, but for an awful lot of people, it’s going to be grim. Living standards will be impaired even for those who keep their jobs, while everyone, in the private sector at least, will have to work longer to earn a decent pension. No more boom and bust?

In a world where there is less demand, it simply becomes a lot more difficult to make bumper profits from ordinary business activity.

For nearly five decades now, with only brief interludes, equities have yielded less than government bonds to reflect the perceived potential for growth in equities and the supposed income protection they offer from inflation. That relationship has recently reversed again. Is this just another aberration, as occurred in the post-dot.com meltdown, or is it something more permanent?

— © The Independent