By way of introduction… I’ve been pondering a post along these lines for a short while now, but this isn’t going to exactly be the post I had originally envisioned. Rather, inspired by the ongoing financial crisis and some things I read this evening, a slightly different version has emerged. Now, onto the show:

A significant challenge for the next President will be dealing with the percipitous decline in American Hegemony since 2001. All three pillars of American power have severely eroded, leaving an open to mount a challenge to America’s international leadership. Following Iraq and Afghanistan, the US military is stretched thin. More significantly, the success of insurgency warfare coupled with the failure of non-proliferation policies in North Korea and Iran have shown the door to resist US military pressure–build a nuke or threaten to draw the US into a protracted guerrilla conflict that mitigates its conventional military advantage. Economically, the current credit crisis is now spreading globally, calling the US economic leadership into significant question. And, socially, the past 7 years have eroded the US moral authority and respect around the world.

The real question, though, is what will the next president do? These declines, while significant, are not necessarily the end of the American Era. My core argument is that Obama, unlike McCain, has the unique potential to restore American leadership in at least 2 of these critical foundations of US power.

Most importantly, Obama has the potential to restore America’s moral authority, its international standing and respect, and its legitimacy as a world leader. This is not to say that he’s the candidate that the Europeans like. Rather, this is to say that the idea of Obama represents such a shift for America’s image in the rest of the world that he offers the chance to restore America’s lost luster. Obama gains the moral authority as a world leader capable of speaking directly to the people of the world, inspiring them to follow a path with the US leading the way.

As the current economic crisis unfolds, I think this has incredibly significant economic implications. The post-War international economic order that persists to this day is one of Embedded Liberalism. As Ruggie has argued, this order reflected a social purpose emblematic of US national identity, shaping the world order in its own image. As that image has fallen internationally in recent years, so too has the legitimacy of the current international order.

Obama would find himself in a unique position to ask the world to update that order. Now, I happen to think that come February 2009, whoever is the next President will be asking the rest of the world for many of the same things. Take, for instance, Europe. Both McCain and Obama will probably be asking the Europeans for help in Afghanistan, as well with help in responding to the fall-out of this economic crisis. The Europeans can much more easily ignore McCain. Ignoring Obama is much more difficult.

More significantly, Obama has an ability that few US presidents have had–the ability to “go public,” going over the heads of the European leaders and speaking directly to the European public, mobilizing them on behalf of his agenda, putting pressure on potentially reluctant governments.

The proximate inspiration for my slight shift in thinking is an NYT article about the current financial crisis stoking fears of a global recession. As this crisis grows in scope and complexity, the existing institutions of the US established international economic order are increasingly on the sidelines, leaving fewer and fewer pathways to coordinated global action to address a growing global economic meltdown.

The trouble is, these institutions no longer have the resources or authority to lead such an effort. The I.M.F., which played a central role in the Asian crisis, has been relegated to the sidelines this time — its credibility tarnished by that episode and its skills ill-suited to a crisis in advanced economies. These days, it mainly issues lonely warnings about the impact on developing countries.

The Group of 7, which once functioned as a sort of command center for the global economy, is similarly depleted, according to critics. It no longer represents the world’s economic drivers, they said, and badly needs to be expanded to include rising powers like China and India.

“The globalization of the crisis means we need a globalization of responses,” said C. Fred Bergsten, the director of the Peterson Institute for International Economics. “But most of the responses will be national. For all the institutions we have, we don’t have the right institutions to do this.”

That is particularly true in Europe, which has an effective central bank but lacks a unified legislature or treasury to coordinate or finance a rescue of the banking system. So far, economists say, Europe’s response to the crisis in its banks has been mostly marked by denial and dissension.

Having the financial resources to respond to the crisis is a matter of material power. Having the authority to act is an element of social power, producing the legitimacy for an institution or material capability to command the respect of others.

This is vitally important when the heart of the current crisis is a crisis of confidence in financial markets. Additional funds can restore liquidity. Restoring confidence requires the social power to restore the legitimacy of the financial institutions in the economy. The Government (any government of any nation) does not have the money to back the entire economy of a nation. But, that government can restore confidence in national institutions with guarantees that bestow credibility and legitimacy. Similarly, credible and functional international institutions could potentially do the same for the global economy. As
Robert Reich points out:

Leadership isn’t just about passing a big piece of legislation. It’s about explaining and thereby gaining trust and confidence from a public — including a global public — that’s otherwise afraid and confused. A credible and powerful explanation is necessary right now — about where we’ve been, how we got into this mess, and how a particular plan (in this case, the bailout), will get us out of it.

The next president will need to exercise global leadership on two fronts. First, he will need to inspire the basic confidence in the global economy that it needs to function. Second, he will need to ask the countries of the world to reform the existing institutions in order to create something capable of dealing with such crises in the future.

A president able to legitimate such a project has the potential to renew America’s global leadership and American hegemony.

In my view, Obama has that potential. McCain does not.