Nation exhausted: how US consumers shopped until they dropped

It is a simple fact that McCain used his vote in the Senate to support George W. Bush's legislative program nine times out of 10 in recent years. They are both Republican, so why wouldn't he?

Yet in today's America it is also the most damaging confession he could possibly make. Bush is pure poison, the most unpopular president in the history of opinion polling.

He will leave office on January 20 with a record of presiding over two recessions, and starting two wars that he could not finish. This amounts to a record of failure unmatched by any president.

"You know, do you think President Bush really understands any of this stuff?" poses the late-night TV comedian Jay Leno. "Like today, he was asked about General Motors. And he said, 'I think he's doing a fine job in Iraq'."

General Motors, once the proud symbol of America's industrial might, is under threat of bankruptcy. It's holding urgent merger talks with Chrysler and seeking Federal handouts. Detroit was always shorthand for the US car industry; now it is shorthand for industrial rot and urban decay.

One national institution after another is in crisis in George Bush's America. Wall Street, as we knew it, no longer exists.

All five of the marquee Wall Street investment banks have been either wiped out or taken shelter under government guarantee in the form of a banking licence. Much of the banking system and the insurance sector has been nationalised.

The great institution of the American middle class, mainstay of the US economy and society, has suffered stagnant incomes in recent years and now has reached the point of exhaustion.

In the first six years of the Bush Administration, 2000 to 2006, the US economy grew in real terms by 18 per cent. And middle class wages? The real income for the median household fell 1.1 per cent. But for the richest 1 per cent of households, incomes trebled.

The middle class kept shopping nonetheless. How? Credit. But consumer credit has reached its limit. House prices have fallen an average 20 per cent, destroying $US3 trillion ($4.5 trillion) in homeowner wealth, and the crash in share prices has destroyed another $US8 trillion. All up, that is about one fifth of the cumulative stock of household wealth that has been wiped out. Families are poorer and banks are retracting credit lines.

The headline from this week's GDP numbers was that the economy had shrunk in the three months to September 30, marking the onset of recession.

But the numbers disclosed the first quarterly fall in consumer spending since 1991, and the biggest fall since 1980.

As the economy has fallen into a slump, the US consumer can no longer perform her customary task as spender of last resort, "like Atlas, bearing the economy on their backs" in the words of Josh Bivens of the Economic Policy Institute in Washington. "The American consumer shopped but has now dropped."

Yet another key institution, the military, has also come under tremendous stress in meeting the Bush Administration's decision to wage simultaneous wars in Afghanistan and Iraq.

The US under Bush has been at war longer than it spent fighting in World War II. More than 4100 US soldiers have been killed in Iraq and another 600-plus in Afghanistan.

And there is a heavy burden on the living. For US reservists on duty in Iraq, between 8000 and 12,000 every month are ordered to extend their tours beyond their standard 12-month deployment. This is a de facto conscription.

US commanders are concerned that their resources are perpetually overstretched. Dr Ira Katz, the head of mental health services for Veterans Affairs, estimated about 1000 veterans a month were attempting suicide, the highest number since records have been kept.

Because the military cannot afford to allow troops any more leave, about one in six US soldiers in the field is prescribed antidepressants.

The cumulative effect of all this loss, failure and exhaustion? The pollster Carroll Doherty of the non-partisan Pew Research Centre in Washington says: "The national mood is as bad as it's been in 30 years. Even before the financial crisis intensified in recent months, there's been an overwhelming sense of frustration.

"Bush has the lowest ever approval rating of 22 per cent, worse than Nixon's worst of 23. Bush has also had this very low popularity for an extended period. Nixon polled at that sort of level for a few months and then resigned" over the Watergate scandal. "Bush hasn't been above 30 per cent all year. There is just this enormous desire for change."

So another of the damaged institutions is the presidency itself. Bush phoned the triumphant baseball team, the Phillies, this week to congratulate them on winning the World Series, but, according to David Letterman, "the Phillies have caller ID, so it was OK."

No one wants to talk to the President. Instead of campaigning for the Republican candidate, Bush has been kept under wraps. This week he was allowed to visit Republican campaign workers, but he was not allowed contact with voters.

Both presidential candidates are campaigning on a platform of change, both campaigning as the anti-Bush. But this is much harder for McCain than for Obama.

"People are tired," summarises a professor of political science at Stanford University, Morris Fiorina. "Clearly we have major failure here, so there's a sense we need to try something new."

McCain, 72 years old, a senator for 22 years and on his second try for the presidency, is having trouble making the case that he is the "something new" that Americans crave.

Bush has unified Americans, but not in any positive sense. "When we ask people if they think the country's heading in the right direction, nine out of 10 say no," Doherty reports. "It's never been so high."

The closest it's ever come to this was just after the Clinton recession when, in 1993, about eight in 10 said they thought the country was off track.

And the non-partisan political analyst Charlie Cook says that "it doesn't matter how voters feel about the Democrats - they care more about voting against Bush".

"Obama," says a prominent Democratic lobbyist, Tony Podesta of the Podesta Group, who has worked with the Democrat candidate, "is so dramatically different from Bush that he's the antithesis of Bush".

The main Republican criticism of Obama is that he is inexperienced, and he certainly lacks any experience of executive office. But Robert Louis Stevenson wrote that "politics is perhaps the only profession for which no preparation is thought necessary". And in this case, in a country seeking something entirely fresh, it may be an advantage for Obama that he is unknown and lacks a track record.

Bush has been so bitter an experience for Americans that he has discredited not only himself, but his party, and his party's ideology. He has primed America not only for a change of president, but for something bigger.

Obama said yesterday: "We need a new direction, we need a new politics, we need a new president."

The last of these - a new president - is actually the smallest element in this three-part formula for change. The biggest is the new direction, the sort of sea change that arrives in the US about once in a generation, the sort of change that carries with it a whole new ideology and conceptualisation of the world.

"Socially and politically, America is ripe for a broad historic shift to the left," one of America's foremost conservative philosophers, Francis Fukuyama, best known for his work The End Of History , told the Herald some months ago.

The last big shift in America was a rightward movement, the Reagan Revolution, which found its British tandem in the Thatcher Revolution. The Thatcher-Reagan revolutions put the market at the centre of public policy in a direct challenge to the statism of communism and socialism.

Even before the spectacular collapse of Wall Street this year, Fukuyama's diagnosis was that the conservative movement in the US had reached a kind of exhaustion: "All the gains from that agenda have been realised. And probably it's gone too far, gone over the line, in terms of tax cuts. You end up with a pretty explosive social situation and the time is now ripe for a swing back. The right is in a lot of trouble. We have rising inequality, bad health care and a failed foreign policy."

And since Fukuyama delivered that analysis, Wall Street has suffered its biggest and most devastating crunch since the Great Crash of 1929. The debacle in the banking system has discredited deregulation and laissez faire.

The regulator responsible, the former Federal Reserve chairman Alan Greenspan, was called to account by a congressional committee last week. Greenspan is the high priest of the free market, the dominant figure in world finance for his 18 years at the top of the Fed, so it was a turning point when he recanted.

His accuser, the Democratic congressman Henry Waxman, charged: "You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. Do you feel that your ideology pushed you to make decisions that you wish you had not made?"

The once great man conceded: "Yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact." He claimed to be in a state of "shocked disbelief" that the banking system and the credit markets had been unable to self-regulate.

The average American's personal investment account, known as a 401K account, has lost half its value of a year ago.

A cartoon in the magazine The New Yorker depicts a crestfallen man walking through a barren countryside clutching a toaster. The caption: "What I got to keep from my life's savings."

Fukuyama updated his observation in an article in Newsweek : "It took an economic crisis of massive proportions from 1929 to 1931 to bring a Democratic administration to power. Polls indicate we may have arrived again at that point in October 2008."

Fukuyama argues that the Reagan era will end next week. He is in a fast-growing club.

Many other commentators have chimed in with him in recent weeks as the market has collapsed and the Democrats have pulled ahead in the polling. Pew's Doherty again: "People are talking about this election as not just a change election but a realignment, a big sweep like Reagan had, and looking at the polling it's certainly a possibility."

One of the Republican lines of attack on Obama in recent days is that he is a socialist, or, as McCain called him, the "redistributor in chief". This is based on his policy to cut taxes for those earning under $US250,000 a year, but to increase taxes on those earning more.

And Obama proposes public spending increases that are certain to increase the share of government outlays as a proportion of the economy. But don't be misled by the "socialist" tag - it's still America. As Obama told a crowd yesterday: "I love rich people. I want you all to get rich. That's the American dream, that's the American way."

Elsewhere, Obama has cited Ted Turner: "In America, money is how we keep score." Besides, it's difficult to imagine any greater intrusion by the state than the nationalisation of much of the US banking system, as enacted by Bush.

If an ideological shift away from Reaganism is the change in direction, what is the change in the politics? Stanford's Fiorina reports the findings of a static sample of 5000 voters: "Since 2005, the percentage of voters who identify themselves as Republicans has fallen by 8 to 10 percentage points, and it's down across every demographic, young, old, male, female," while the percentage identifying as Democrats has risen by several points.

"It's across the board, and it suggests to me a disapproval of Bush, it's a revulsion towards Bush."

So if there has been an ideological shift and a voter realignment, the third and final part of the three-part formula for change is a new president. Bush has primed the country for change. All Obama has to do is seize the opportunity.

In sum, if Obama wins the election next Tuesday (Wednesday, Sydney time) - and every indication is that he will - the first person he should thank in his acceptance speech is George Bush.

Peter Hartcher, the Herald's political editor, is in Washington.