The prospect of hanging concentrates the mind

“The prospect of hanging concentrates the mind.” Samuel Johnson.

After decades of fretting over the low American savings rate, Americans are putting away their credit cards and hunkering down for a long, cold winter. And the rest of the world is trembling at the thought.

The anticipation phase of this financial crisis is coming to an end. In a world of six-hour news cycles, people are beginning to realize that nothing is going to be fixed quickly. Last week’s god, Hank Paulson, is this week’s afterthought.

No, he did not fix it. No, he does not know what we should do with the $700 billion. No, he does not know what AIG did with the $100 billion. And no, he does not know what to do next.

Soon, people will turn off the cable news circus. The election will be over, and there will only be the uncertainty of what lies ahead.

For a president Obama—willing to turn the page on the Neoconservative rhetoric that has dominated American foreign policy of late—the financial crisis will offer a dramatic opportunity to reshape international relations, in positive and constructive ways. After all, the denouement of the crisis that is slowly placing a vice grip on nations across the world has brought a new clarity to international relations. And as each nation now looks out over the precipice, the hubris that has characterized the past few years may give way to a new willingness to build bridges.

In the early moments of the financial debacle, our allies in Europe—to say nothing of those across the world resentful of our new militarism—could barely conceal their satisfaction as the dollar fell, the price of oil rose and the end of the era of US dominance loomed. But that moment was fleeting before the interconnectedness of the 21st century economy became the dominant fact of the new world order.

Within a few short weeks, new realities emerged. As stock markets around the world plummeted—from 40% across Europe to 60% across Asia to over 70% in Russia, Ireland and Iceland—the interdependence and integration of national economies, and the ease of migration of capital, undermined newfound notions of prosperity from Ireland to Russia.

In European capitals, the ascendant notion of an economic decoupling from the United States fell by the wayside as nations quickly sought to protect their own interests and the euro crashed. In Russia, the collapse of energy prices demonstrated the fragility of an economy that has failed to build legal institutions and will soon show what little protection Russia’s new financial reserves can provide in the face of an international recession.

At the same time, for the United States, two dominant doctrines of the post-Cold War era have been discredited. First, the consuming conflicts in Iraq and Afghanistan have demonstrated the limits of overwhelming military power to force change and democratization. Second, the financial crisis and final capitulation of Alan Greenspan have demonstrated the limits of unfettered free markets and the power of uncontrolled ambition and greed to foment global chaos.

Today, the reality of economic interdependence can transform political relationships, as evidenced by our relationship with China. Two years ago, as Europe was trumpeting the emerging decoupling, China demurred. China’s communist leaders grasped the implications of the integrated international economy better than her European counterparts, and understood—as good Marxists—that economic imperatives trump traditional political arguments. China tightly linked her currency to the dollar and, after decades of saber rattling, has now tempered her threats to take back Taiwan by force.

Our relations with China are a marked contrast to our relations with Russia. For years, we have dealt with China quietly and respectfully—despite domestic protests regarding Tibet and religious persecution. With Russia, nothing has been quiet or respectful, but rather our policy has been long on hubris and trapped in Cold War rhetoric, if not ideology.

In early October, Chancellor Angela Merkel visited Moscow, where she announced that Germany would oppose efforts to admit Ukraine and Georgia into NATO. Her announcement has offered the US an opportunity to step back and reframe our relations with Russia. A new administration will now have the ability to rebuild our relationships with Russia, as with many other countries, on principles that reflect the new economic realism of international economic integration and our own understanding of the limits of military power. Simply stated, Russia—as China has accepted—can no longer impose her will at the point of the gun, while we must lead with a tempered rhetoric in a world where tanks alone cannot achieve our goals.

The strength of the dollar in a time of global crisis has reaffirmed the critical role of American leadership—to say nothing of the importance to the rest of the world of a vibrant American economy—to others. At the same time, an end to American hubris and a touch of the humility that George W. Bush once embraced, may allow us to provide the leadership that the world now desperately needs.

For a new president who grasps how dramatically the world has changed in the past month, and who appreciates both the complexity of international economic integration and national identity, this will be a time of unprecedented opportunity.