Markets Call the Tune
By Thomas L. Friedman
I was talking to a friend on Wall Street about what impact the plunging Dow and Nasdaq might have on U.S. foreign policy, when he stopped me and said, "Look, the Nasdaq is America's Viagra — without it, we just don't feel quite so potent."
I wouldn't exaggerate the impact of the declining markets on U.S. foreign policy — we mounted the Persian Gulf War during an economic slowdown. Nevertheless, part of the expansiveness of U.S. foreign policy during the past decade — whether it was our intensive diplomacy in Northern Ireland and the Middle East, or our expansion of NATO, or our aggressive exporting of American capitalism, or our interventions in Bosnia, Haiti and Kosovo — was to some degree tied to the soaring U.S. Dow and Nasdaq and the sense they produced of boundless American power.
There were plenty of good reasons to intervene to halt mass killings in the Balkans, but the soaring markets made these and other interventions much easier. There wasn't great public support for many of these operations, but there also wasn't much opposition because the costs were not big enough to notice — and that was partly a function of how rich we felt. With the Nasdaq at 5,000, the public's attitude was that we could afford guns and butter, Arabs and Israelis, Northern Ireland and Nafta — whatever.
But with the Nasdaq's having fallen from 5,000 to 1,900, I sense that the public's attitude has gone from "Whatever" to "What did you say?" The same thing happened in Japan. When the Nikkei soared a decade ago, Japan was demanding a seat on the U.N. Security Council and sending peacekeeping missions abroad. With the Nikkei now in the tank, you don't hear much of that talk any more. With 50 percent of Americans now invested in the stock market and the markets collapsing, the public's tolerance for solving other people's problems has surely diminished. A broker friend called me to say that his mother had called him to complain that Alan Greenspan had lowered interest rates only 50 basis points, instead of 75. "Ten years ago my mother had never heard of Greenspan," the broker said. "Now she has an opinion on monetary policy."
But the soaring Nasdaq was not the only reason for American expansiveness abroad in the past decade. It also had to do with the fact that there is no more military draft, so none of the idle rich, no dot-com-ers, had to give up their stock options to serve in Bosnia or Haiti, and even more important, those who did go went with the assumption, and almost the promise, that these would be "zero-casualty wars." Americans had the same attitude toward the Nasdaq in the past decade that they had toward foreign wars: they were both no-lose propositions. You couldn't get hurt in either the Nasdaq or Kosovo, it seemed, so why not do both?
But now the laws of economics have brought down bloated tech stocks, and the laws of geopolitics — that nature abhors a vacuum and if NATO doesn't fill the vacuum in Kosovo the local Albanian nationalists will — have raised the stakes in the Balkans. Staying in both the stock market and Kosovo now has real costs.
Not only do we look at the world differently with the Nasdaq at 1,900, but the world looks at us differently. There's already a tendency among critics of U.S.-style capitalism to read the bursting of the Nasdaq bubble as an indictment of the American system and the vitality of our society. This is wrong and will be demonstrated as such when this business cycle ends. Meantime, one must agree with Jeff Garten, dean of Yale's School of Management, when he argues: "In the post-cold-war world the currency of a country's credibility is the strength of its economy. And to the extent that America was seen as having the magic formula, the rest of the world was willing to follow our lead. Now you will hear America's critics declaring, 'Who are these Americans to throw their weight around and tell us what to do?' "
Again, public moods alone don't determine foreign policy and would never stand in the way of wars of no choice. But the point about the post- cold-war era is that we feel it gives us more choices to intervene or not. And the markets, which have become the background Muzak of our lives, will affect the public's choices, especially if they turn costly. Background Muzak matters. If it didn't, companies wouldn't pay to put it in elevators.
[end]
Carl
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