Can Theories of Empire Explain the American Political Response to the Financial Crisis?

Introduction

The 2008 financial crisis led to the largest and deepest global recession in the USA since the 1930s. What began as a downturn in the American housing market cascaded into a structural economic crisis with banks and investment firms failing, credit markets freezing, and unemployment reaching its highest levels since the early 1980s (US Department of Labour Statistics, 2009: 190). Governments across the globe took unprecedented measures to prevent a global depression: banks were given government loans and recapitalized, major industries were partially nationalized, and stimulus measures were introduced to prevent a deflationary spiral. The Bush administration, which at least rhetorically touted fiscal restraint and free market discipline, introduced the Toxic Asset Relief Program (TARP), a US$700b government intervention in the financial sector. Many neo-liberal economic policies that had been adopted since the 1970s were cast aside in the face of a possible global depression. The crisis demonstrates economic vulnerability in the country often conceptualized by critical scholars as the central network in the global capitalist empire. The financial crisis serves as an event where central assumptions about empire can be empirically evaluated, particularly the response of the US government to a major structural threat to the capitalist system. The purpose of this article will be to evaluate three distinct theories of empire that each differ in the way they conceptualize the relationship between capitalism and the American Government: the first is that described by Michael Hardt and Antonio Negri, the second that of Leo Panitch and Sam Gindin, and the third that of David Harvey. I will conclude by arguing that David Harvey’s theory of ‘new imperialism’ offers the most convincing account of the USA’s response to the financial crisis due to the theory’s account of the tensions and contradictions between US politicians and capitalists in the lead up and response to the crisis.

I will begin by examining the American Government’s response to the financial crisis, and then I will outline several assumptions of each major theory of empire. Critical theories of empire are methodologically holistic, often examining a wide array of interrelated social phenomena such as production, material and immaterial labor, distribution, and political power. Although each of these is important in the broader theoretical context, it would be beyond the scope of this article to examine the broader theories in detail. Rather, I will place focus on one aspect of empire – the relationship between capitalism as a system and the actions of the US government – though I will at times examine how other factors interrelate. The purpose of this article is not to provide a systematic assessment or rejection, but a critical examination of a key assumption that varies between each theory of empire. The goal of this analysis is not to make a larger generalization about a specific theory of empire, but to elucidate the strengths and weaknesses of a central assumption that differs for each theory when trying to explain the actions of the US government in a time of economic crises.

The 2008 Financial Crisis: What Happened?

While there is a great deal of debate over the long- and short-term causes of the financial crisis, one of the most important determining factors was the downturn in the American housing market that began in 2007. The long-term causes of the crisis range from the American proclivity towards home ownership and the gradual loosening of regulations over finance and mortgage lending since the 1980s. A key institutional change passed by Congress in 1999, the Financial Services Modernization Act, eliminated the barrier between commercial and investment banks, leading to the securitization of mortgages – bundling together numerous mortgages for investors. The liberalization of mortgage terms led home owners to take out variable-rate interest mortgages in order to finance the purchases of a home; by 2004–5 nearly one third of all homes purchased in the USA had an adjustable-rate mortgage (Bellamy Foster and Magdoff, 2009). The popularity of these loans was mainly due to the availability of cheap credit, the lack of regulation over the term of mortgages and the seemingly endless rise in the value of the housing market. After the dot-com bubble burst in 2001, the American Federal Reserve decided to keep interest rates artificially low in order to prevent a recession, creating a glut of cheap credit. This had a dual effect: it led banks and investment firms to over-leverage, and it created an incentive for individuals to take out mortgages with the knowledge that they would likely be able to sell their home for a substantial profit. However, since profits were so high, it created an incentive for lenders, the government and home owners to expand the housing market by lowering the requirements for a mortgage. These home owners with poor credit were offered mortgages at variable or sub-prime interest rates – that is lending to people who were deemed medium to high risk. In 2002, sub-prime loans made up only 6 percent of overall mortgages; by 2007, nearly 30 percent of mortgages were sub-prime (Economist, 2007). In order to finance these mortgages, banks securitized, or bundled together, mortgages into Collateralized Debt Obligations (CDOs) and sold them to investors. From 2002 to 2006, the general value of houses in the USA increased, allowing everyone involved in the mortgage market to make a substantial profit. Beginning in 2006, an increasing number of foreclosures led to a downturn in the value of the housing market, causing a cascade of problems for the overall economy.

The decline in the housing market gained speed in 2007 and began to have significant repercussions on the American and global economy. The initial problems started with the investment firms Bear Sterns, which required a bailout in the spring of 2008 and was eventually sold to JP Morgan. The downturn of the financial industry became even more evident when two government-backed institutions, Fannie Mae and Freddie Mac, which invested heavily in sub-prime loans, required government intervention in September 2008. By the end of 2008, many home owners that took out sub-prime loans had their interest rates rise, which led to greater difficulty in refinancing and selling, placing further downward pressure on the housing market. Those capable of making their mortgage payments were left with negative equity – the value of their homes were worth less than the mortgage, leading to a substantial loss of savings. As foreclosures increased, banks were left with homes that could not be sold and were steadily decreasing in value. Furthermore, many major financial institutions were over-leveraged in order to sell mortgages, making them even more vulnerable to a decline in the housing market. To make matters worse, investors, often afraid of losing money in an already fragile economic climate, were far less likely to invest in banks and institutions that had sold sub-prime mortgages, making liquidity increasingly scarce. These three factors interrelated with each other, leading what may have started as a downtown in the American economy into a global financial crisis.

Although the underlying problems in the housing market may have laid the foundations for a downturn in the US economy, the initiating factor for the global financial crisis was the bankruptcy of the investment firm Lehman Brothers. Like many other firms, Lehman Brothers invested heavily in mortgaged-backed securities. By September 2008, Lehman Brothers had $600b worth of sub-prime mortgages. These ‘toxic assets’ led to a decline in stock value, and the inability to secure private sector loans due to over-leveraging – it became increasingly evident Lehman would need a bailout like Bear Sterns and Frannie Mae and Freddie Mac (Walsh, 2008). As I will examine in detail later, the US government made a key decision that had repercussions for the entire global economy – the Treasury and the US Federal Reserve decided to break the precedent of bailing out institutions and let Lehman Brothers declare bankruptcy. The immediate reactions of both domestic and international markets were severe: credit markets froze as the market for commercial paper dried up (Sorkin, 2008). Banks would no longer risk lending to each other. The crisis went global and by the end of October most major stock markets were down by around 30 percent. According to the International Labour Organization (ILO, 2010), by the end of 2009, 34 million people across the globe had lost their jobs due to the recession that followed the crisis (a statistic which does not include those under-employed or already unemployed). The decline in the US housing market after the bankruptcy of Lehman Brothers spread to other countries: AIG, a global insurance industry almost went bankrupt due to insuring mortgages with Credit Default Swaps (CDS); Britain’s Northern Rock was nationalized; and the entire country of Iceland had an economic meltdown. These events led Britain’s Economist (2008a) to argue, ‘the world economy is “entering a major downturn” in the face of “the most dangerous shock” to rich-country financial markets since the 1930s.’ The reaction of the US government to the failure of Lehman Brothers and the credit crisis is an important event that will be used to evaluate the explanatory capabilities of the three theories of empire under consideration.

Empire and the American Response to the Financial Crisis

Though the majority of this analysis will be an assessment of where these theories diverge, the theories of empire under consideration are part of a neo-Marxist epistemological tradition and share many assumptions about capitalism, states, and production. Hardt and Negri, Panitch and Gindin, and Harvey problematize capitalism as an international system of production and accumulation. Capitalism is characterized by an unequal distribution of economic resources that leads to the impoverishment of a vast portion of the world’s population (Callinicos, 2009). Marxist theories of empire recognize there are periodic crises that occur due to the contradictions within capitalism. Imperialism is often used as a way to mitigate crises: to sell excess products on new markets, through the privatization of public goods, and to open up regions for capitalist accumulation (Harvey, 2003). Capitalism requires political force in order to maintain and expand the system; this places pressure on governments to act in the interests of capitalists. At times this can be done through negotiation, as with the opening of China, while at other times it requires the use of military force. This reliance on violence places analytical importance on the USA as central to the global capitalist system. Even Hardt and Negri (2000) who emphasize the deterritorialization of Empire argue ‘the United States certainly occupies a privileged position in the global segmentations and hierarchies of Empire’ (2000: 384). America has been central to the perpetuation of global capitalism throughout the 20th century, using incentives when possible and the US military when necessary to open markets.

While there are certain commonalities between each theory, they do differ at how they conceptualize the relationship between the US government and the economic interests of finance capital. As I shall explain, there is sufficient evidence that Harvey’s theory of the new imperialism gives the most insight into the immediate response of the US government to the financial crisis. I will discuss how Harvey’s theory accounts for the initial response to the bankruptcy of Lehman Brothers, and the introduction of TARP which bought or insured most of the major investment firms. Also, Harvey provides insight into the events since the initial crisis: the conflict over the introduction of the Obama administration’s stimulus package, the underlying economic tension between China and the USA, and the difficulty in instituting international banking reform. While I will elaborate on the strengths of Harvey’s theory in greater detail, I will begin by discussing the deficiencies in alternative theories of empire.

Hardt and Negri offer one of the most significant contributions to the critical literature on empire. Their theory of Empire (intentionally capitalized by the authors) brings together Marxism, American constitutionalism, and postmodernism in order to describe the economic and political transformation of states and the capitalist system. The globalization of production has changed the nature of political sovereignty from the nation-state to a transnational juridical-political order. For Hardt and Negri (2000), ‘Empire is characterized fundamentally by a lack of boundaries: Empire’s rule has no limits. First and foremost, then, the concept of empire posits a regime that effectively encompasses the spatial totality, or really that rules over the entire ‘civilized world’’ (2000: xvi). The development of Empire is an inevitable part of human history – a sentiment lauded by almost all empires – and has expanded into new geographic territories. Empire has transcended the nation-state and is a process of accumulation and biopolitical production – in a synthesis of Marxist and Foucauldian thought (2000: xv). Empire regulates human interactions, the labor process and even social life through national and international institutions, laws and norms in order to control and exploit the labor of the global multitude (2000: xv). The significance of their theory is that Empire is no longer territorialized in a single nation-state; Empire exists in a series of network relations that are no longer limited by geographical and political boundaries.

Empire is new historical process – a series of relations that are transforming and regulating the global economy. The USA may have a significant role in perpetuating the contemporary capitalist system, but it is now one of many networks of Empire along with the World Bank and the International Monetary Fund (IMF). In Multitude (2004) Hardt and Negri argue there are three regulatory levels: the sub-national, the nation-state and global. Governments can, at times, enact policies to favor domestic corporations; however, the ‘tendency towards the formation of a global economic order is irreversible’ (Hardt and Negri, 2004: 172). For Hardt and Negri, Empire’s sovereignty is global in scope with nation-states as one of many networks that exploit the productive talent of the multitude. Although there may be contradictions between different levels of Empire, the transnationalization of production and sovereignty prevents international conflict arising from capitalism. Empire exists in a series of norms, institutions and practices that may otherwise be ignored in a conventional analysis, such as the role of international law, multinational corporations, the United Nations and global civil society. The USA, then, is an important network, but due to the globalization of production and finance it is constrained by the process of Empire.

With the development of a global sovereign that exists beyond the traditional boundaries of the nation-state, the transition to Empire has implications on capitalist-led inter-state competition and conflict:

We [Hardt and Negri] think it is important to note that what used to be conflict or competition among several imperial powers has in important respects been replaced by the idea of a single power that overdetermines them all, structures them in a unitary way and treats them under one common notion of right that is decidedly postcolonial and postimperialistic. (2000: 9)

The historical development of Empire eliminates previous inter-capitalist competition through the creation of global institutions, norms and identities. Empire also harmonizes economic and political power under a larger transnational sovereignty (Hardt and Negri, 2000). This portion of Hardt and Negri’s theory can be examined on empirical grounds. If there has been a synchronization of economic and political power, then we would expect central networks of Empire to act in the interests of capitalists. Empire’s biopolitical power regulates the actions of politicians in the US government and eliminates geopolitical conflicts among the leading nation-states (Callinicos, 2009). Violent inter-state rivalries will have fallen by the wayside in favor of consensus and deference to the rule of law. If, however, meaningful international tension arises between developed states due to capitalist competition, either through the failure of major networks within empire or the reassertion of national self-interest over the interests of capital, then Hardt and Negri’s Empire may not be an accurate depiction of the contemporary international system.

The main criticism of Hardt and Negri’s theory of Empire is that a central network of power did not react according to the needs of finance capital in a crisis that threatened the stability of the entire system. There were clear tensions between major economic interests and political leaders in the USA, with the former requiring government assistance to remain solvent. After the collapse of Lehman Brothers, there was pressure on the US government to offer a bailout to prevent the freezing of capital markets – the failure of AIG, JP Morgan and Bank of America would likely have further repercussions in a global economy already in crisis. However, the US government did not act; the initial stimulus bill failed in the US House of Representatives, causing international markets to nearly collapse (Economist, 2008b). If the USA is a central network within Empire, it did not stabilize the capitalist system. Major transnational corporations (TNCs) relied upon the US government for bailouts. The US government did not act in accordance with the needs of Empire – it in fact acted contrary to the needs of international capitalism, showing a clear tension between politicians and the financial industry within the USA. Tensions also arose over the bailout in the USA with political leaders from both parties being challenged, and in some cases punished, for the support of the bailout of the financial sector. If Empire harmonizes both economic and political power, then at least in the case of the USA, the opposite seemed to be the case in its immediate reaction to the financial crisis.

Also, contrary to Hardt and Negri’s assumptions, since the financial crisis there has been a lack of international consensus over how to deal with the recession that followed the crisis. Hardt and Negri argue national interest has a role in determining the actions of states, but that Empire largely eliminates inter-state conflict in order to perpetuate order in the global economic system (Hardt and Negri, 2004). Initially, there seemed to be a broad consensus among wealthy industrialized countries on working together to deal with the financial crisis. The G20 meetings that took place in London and Pittsburgh were hailed as a success, and efforts began to forge ‘Bretton Woods II’ – a new major regulatory regime of global finance (Parker and Barber, 2008). However, since the initial consensus, there has been disagreement over whether to implement new financial regulations. Several key policy changes proposed by the USA have met with opposition from the international community. There are disputes over new regulations, such as a proposed $2t bank tax to pay for future bailouts, with Japan, China and Canada opposed, and the USA, the UK, and the rest of Europe in favor (Beattie and Braithwaite, 2010). While these conflicts may seem minor on the surface, each country is asserting its national interest based on its domestic economic situation and the degree to which it has been affected by the financial crisis. Banks in the USA and Britain were over-leveraged and overexposed, requiring substantial government funds for a bailout; the governments of the USA and the UK would therefore benefit from a proposed bank tax. Canada and China did not require a massive bailout of their banking sectors, thus a tax would penalize their intuitions. Contrary to the assumptions of Hardt and Negri, the crisis has led to governments reasserting the interests of domestic financial interests, leading to disagreement over the appropriate methods of regulation. As of yet, countries have been unwilling to coordinate a new international regime for banks, due to the uneven effects of the recession.

According to Panitch and Gindin’s theory of empire, the USA plays a central role in the regulation, expansion and perpetuation of the international capitalist system. The Americans have created ‘a global financial order with New York as its operational centre and with the American imperial state as its political carapace … [in] a way which finance and empire have reinforced each other’ (Panitch and Gindin, 2004: 18). The American state is inextricably connected with international finance – in the promotion of market liberalization, the use of new financial products, and to increase the ease of investment. The USA uses both its large consumer market, and the position of New York as a global financial capital to further its interests in the international system. The ‘deepening and extension of financial markets became more than ever fundamental to the reproduction and universalization of American power. The American empire is strengthened rather than weakened by its financialization’ (Panitch and Gindin, 2004: 19). The liberalization of global finance is dictated and directed by the US government, mainly for the benefit of the state vis-a-vis other states in the global system. In contrast to Hardt and Negri’s Empire, the USA is not merely one of many networks of power, but the central actor in the international capitalist system. The USA has the unique institutional position to punish markets and countries that do not operate under their rules of global finance. The USA has veto power over the policies of the IMF and the presidency of the World Bank. It is able to use these global institutional levers to dictate the terms of loans to indebted countries, and often requires the opening of an economy to foreign investment and a limit to government intervention. Thus, for Panitch and Gindin the USA is unmistakably an empire, using its power to promote the interests of global capitalism.

Panitch and Gindin argue that capitalism largely determines the behavior of states, with America as the global imperial agent. The USA’s financial system has the unique ability to attract capital due to its central position in the global economy. The US dollar serves as the global reserve currency, and American treasury bills are considered among the safest investments. Panitch and Gindin (2004) argue the increased intervention of the USA in the economy – particularly in the creation of too-big-to-fail corporations – expanded American control over the international economy. The US Federal Reserve and Treasury also periodically funded bailouts of the financial sector, setting the precedent that it would not allow major firms to fail. Furthermore, the US government did not regulate many of the tools used by the financial sector such as CDS. The repeal of the Glass-Steagall Act allowed deposit banks to engage in investment banking. Low interest rates were set and prolonged by the Federal Reserve, promoting over-leveraging for banks and an incentive to take on riskier assets. The government also gave Fannie Mae and Freddie Mac explicit targets for lending to lower income people on sub-prime terms (Roberts, 2008). These examples demonstrate the US government instituted many of the policies that for a time enriched the financial industry, but eventually led to the crash.

However, a major problem with Panitch and Gindin’s theory is the conflation of the centrality of the USA in the international economic system with its control over the system. The interconnectedness of the financial sector does often influence the government to introduce favorable policies, but as the failure of Lehman Brother shows, political leaders do not automatically act in accordance with the wishes of finance capital. If the US government followed the demands of finance capital, then it would not have let Lehman Brothers fail, which lead to a loss of trillions of dollars in further bailouts. Together with Albo, Gindin and Panitch argue (Albo et al., 2010) that the US government allowed Lehman Brothers to declare bankruptcy due to a newfound desire to enforce the discipline of the free market. However this ignores the fact that that US government had already set a precedent that the Federal Reserve was willing to bail out financial corporations, such as Long Term Capital Management in the 1990s, and more recently Bear Sterns, Fannie Mae and Freddie Mac. For the investment banking industry, government intervention had been the norm during times of crisis since the deregulation of the financial sector in the 1980s. Part of the reason the failure of Lehman Brothers was so catastrophic was due to expectations among global investors the American Government would serve as lender of last resort when needed. By not providing government assistance, when Lehman Brothers declared bankruptcy on 15 September 2008, the US government let the entire financial system fall into crisis.

There was pressure on the US government by the financial industry to bail out Lehman Brothers, but this was ignored by the Federal Reserve and Treasury Department. Though many, including Albo et al. (2010), attribute the decision to let Lehman Brothers fail to a haphazard attempt to reintroduce ‘moral hazard’ in the banking system, this ignores that the discipline of the free market was already uncommon for major banks in the financial industry (Economist, 2008c). Yet, the US government allowed Lehman Brothers to declare bankruptcy. Panitch and Gindin do not delve into this seeming paradox in their theory. They acknowledge the US government had some idea how much Lehman Brothers held in mortgage-backed securities (though perhaps they had trouble pricing it or understanding its exposure), and the deep interconnection of the international financial system (Albo et al., 2010). However, despite the pressure of international and domestic finance, the sudden reassertion of moral hazard on a major investment firm was unprecedented for the US government, and contrary to a major assumption made by Panitch and Gindin about the relationship between international capital and the government. The bankruptcy of Lehman Brothers had broader consequences on the global economy leading to a credit crunch – the inability of even viable institutions to attain loans.

Another major contributing factor to the crisis that is largely absent from Panitch and Gindin’s analysis was the role of derivatives in exacerbating the crisis. Although they are correct to argue the decline in the housing market and the complexities of accurately pricing mortgage-backed securities was the initiating factor, derivatives turned the failure of one institution into a systemic threat to the entire global financial system (Albo et al., 2010). Derivatives are an economic risk mitigation product that is largely not regulated by the Securities and Exchange Commission (SEC). Also they are mainly traded over the counter (OTC) without being publicized on exchanges, hiding a firm’s exposure from the market. A form of derivatives, CDS, largely insured the mortgage-backed securities of Lehman Brothers. The derivative market linked together investment banks, mortgaged-backed securities, and insurance companies, making the failure of one institution a systemic threat to the capitalist system. The Bank for International Settlement in June of 2008 (BIS, 2010) estimated the values of derivatives to be $83t for the futures market, $594t for over the counter exchanges, and $57t in CDS. Derivatives are worth trillions of dollars, substantially more than the real productive economy, yet are only briefly mentioned as contributing to the global financial crisis by Panitch and Gindin.

CDS were central to the spread of the financial crisis to firms in Europe and South East Asia. Panitch and Gindin largely ignore the role of derivatives in the financial crisis. This is due to their belief the USA is central in perpetuating international financial markets. Albo et al. assert:

[t]he alleged withdrawal of states from the economy amidst the globalization of capitalism was a neoliberal ideological illusion … It was in fact the American state that played the most active role as the imperial guarantor, co-ordinator and fire-fighter-in-chief for global capitalism. (2010: 124)

If the US government is directing the global economy, and working to the benefit of corporations and financial interests, there is no reasonable explanation why it left this multi-trillion dollar market unregulated to the extent that it almost destroyed the global financial system. The US government had information about the possible detrimental effects of OCT derivatives and CDS; there was even internal pressure from the Treasury in the 1990s under the Clinton administration to regulate the derivatives market (Cho and Goldfarb, 2009). As early as 2002, Warren Buffet (2003), a financial speculator who made billions in the 1990s, called derivatives ‘financial weapons of mass destruction’ due to the increased incentive for financial institutions to increase the amount of risk and over-leverage. Panitch and Gindin argue the USA acts as coordinator of capitalism, and according to the report both within government and from investors, the derivatives market required some government oversight. However, regulation was rejected by the Federal Reserve as going against the basic tenets of the free market. This of course indicates the Government could have regulated derivatives well before the crisis and was aware of their destructive capabilities, but chose to ignore these warnings.

David Harvey’s theory of empire has significant differences from both Hardt and Negri and Panitch and Gindin. The conceptual distinction of Harvey’s new imperialism is that the needs of politicians and capitalists are largely compatible, but at times their interests can lead to conflict and tension. In his book, Harvey (2003) discusses the characteristics of each group at length:

The capitalist operates in continuous space and time, whereas the politician operates in a territorialized space and, at least in democracies, in a temporality dictated by an electoral cycle … capitalist firms come and go … but states are long-lived entities, cannot migrate and are … confined within fixed territorial boundaries. (2003: 27)

For Harvey, economic and political power is less harmonious than initially theorized by Hardt and Negri and Panitch and Gindin. The politicians whose main goal is to remain in office will usually seek to enrich their constituents; this often correlates with the interests of local capitalists and investors. However, money has few barriers – capital is not fixed in a territory, nor is it accountable to a democratic electorate. Thus the interests of capitalists and politicians can be distinct in numerous ways. It is in a politician’s interest to keep an economy growing and prevent recessions, especially when it is time for re-election. In contrast, capitalists are interested in making a profit, which can benefit their home country, but the global scope of capitalism and finance means that a home country’s economy can be detrimentally affected by the investment choices of capitalists. Moreover, a politician must consider geopolitical security and competition when making decisions. Capitalists are primarily concerned with securing their investments and a return, and do not, generally, take politics into consideration unless it threatens profitability. So for Harvey’s theory of new imperialism, the USA may work in the long-term interests of capital, but significant short-term tensions exist between capitalists and politicians over policy.

Unlike the other scholars, David Harvey in his theory of new imperialism presents an accurate depiction of the relationship between the US government and actors in the financial system during the 2008 crisis. This is exemplified by the initial failure of Lehman Brothers. The US government set the precedent since the 1980s that it was willing to bail out investment firms as lender of last resort. There was considerable pressure from the financial industry for a bailout of Lehman Brothers, yet when it became evident that bankruptcy would be declared the government refused to grant a loan. Furthermore, when passing TARP, both Democrats and Republicans faced pressure from constituents not to bail out the financial industry. Thus Congress did not pass the first bailout package in September of 2008, which made the problem much worse. If the Government was working in the interests of domestic and international capital – as theorized by Hardt and Negri and Panitch and Gindin – Congress would not have acted contrary to their demands. However, politicians were afraid of the possible voter backlash in the coming 2008 election, so despite the pressure to save Lehman Brothers and other financial institutions, they chose not to support legislation to unfreeze credit markets. The US government met the interests of its constituents and contrary to the immediate demands of finance capital, supposedly some of the most powerful capitalist interests in the world.

Eventually the economic downturn and the prospect of a prolonged global recession put enough pressure on the government to initiate new legislation but even those policies show a clear tension between the interests of politicians and capitalists. TARP failed initially and Obama’s stimulus plan was influenced largely by the political concerns of a Democratic Congress rather than the needs of the economy or the financial industry (Economist, 2009). Moreover, TARP and Obama’s recovery plan have been criticized by a wide variety of academics and journalists for not stimulating the economy enough to prevent a longer-term recession. Nobel Prize winning economist Paul Krugman (2009) argued Obama’s stimulus package does not go ‘far enough’ in order to get the US economy growing again and much more spending is required. The economic situation has gotten marginally better but still remains unfavorable: according to the US Bureau of Labor Statistics (2010) unemployment reached more than 9 percent, and the American economy grew by only 0.25 percent in 2009. Despite the economy being in a deep recession, passing further stimulus measures remains politically difficult – even before the Republicans took back Congress, there was significant pressure both inside government and from Tea Party groups to tighten government spending. The actual policy outcomes of the Government are not solely motivated by the financial industry. As Harvey theorizes, politicians may act in order to promote the interests of capital, but in the case of TARP and the Obama stimulus plan, political concerns have taken priority.

Contrary to the expectations of Hardt and Negri, the economic crisis has led to an increase in tension between states during the crisis. Though many scholars point to the reliance of America on China to purchase its Treasury bonds, this ignores the underlying economic tension between these two countries. Due to the bailouts, the USA has spent trillions of dollars and requires foreign investors to purchase its debt. According to the US Treasury Department (2010), Chinese investors currently hold $895.2b in US Treasury bills, making them the largest foreign debt creditors. This creates a unique relationship between the two countries: the USA relies on Chinese investors to buy public debt, and China depends upon American consumer consumption. The seemingly symbiotic relationship obscures that China and the USA are doing this for reasons of national interest and considerable economic tensions exist between the two countries. One issue of disagreement is over the value of the yuan – China wants to keep it low to make its exports cheaper, while the US government is working to increase its value. Due to the crisis, much of the pressure from the USA has been muted, a recognition of America’s relative weakness, with the Treasury Department even delaying a report to Congress on international exchange rate policies (Politi, 2010). There are few domestic political benefits to preventing the release of the report and its delay seems to be motivated both by the G20 meeting in June 2010 and by a desire not to anger the investors the USA has come to depend upon. However, since the American economy has been recovering, Washington has renewed its demands for Beijing to increase the value of the yuan (Economist, 2010). The Chinese government, recognizing that it is no longer in the same position of relative strength as it was immediately after the crisis, has started to allow the yuan to rise in value. This, again, points to the strengths of Harvey’s theory: the policies of governments in the international system are motivated by economic self-interest. Inter-state conflict has not been eliminated by capitalism, but in fact is a driving force behind the tensions between the USA and China over the value of their currencies.

Conclusion

This analysis has several implications more broadly and for the literature on empire. First, during times of economic crisis, politicians do not always act in the interests of capitalists; in fact they can act contrary to capitalists’ immediate demands. Policy decisions during crises tend to be a catch-all shaped by domestic political considerations and ideology, and only partially by the needs of the economy. Secondly, the American Government does not exclusively either direct or control its own or the international economy. Although its wealth and central market position give it certain unique characteristics, there are aspects of the international economy, like derivatives and CDS, that the SEC does not regulate. This makes it difficult to argue that government is directing financial markets when these tools cause an economic meltdown. However, this is not to deny the US government often works in concert with the interests of finance capitalists. There is a clear symbiotic relationship between the Treasury Department, the Federal Reserve and Wall Street that is well documented and widely criticized (Krugman, 2010). Tensions can arise between these institutions when the needs of politicians and the needs of the financial sector diverge. The 2008 financial crisis was one of those times. Two seemingly contradictory outcomes of this crisis have been to place further pressure on the US government to cater to the interests of finance capital, while simultaneously, causing more conflict between politicians, the financial industry and the American public. One consequence of TARP and the Obama stimulus package that gave Wall Street firms billions of dollars of public money in bailouts and tax breaks is that it incensed small-government conservatives and libertarians. With the Republican takeover of the US House of Representatives in the 2010 mid-term elections, and the uncertain re-election prospects for Obama, it remains uncertain that the government would be willing to act as lender of last resort if the financial industry yet again went into crisis.

Also, the USA is an important and central network in international capitalism, but it too can face numerous economic problems beyond its control. This case demonstrates certain theories of empire cannot adequately explain the response of the US government to the financial crisis. Hardt and Negri do not give a satisfactory account of the reassertion of national interest by various governments, nor the inability of the capitalist system to determine the behavior of central networks of Empire. Politicians often act in the interest of their constituents and not in the immediate demands of capitalists, showing the disunity of political and economic power. Moreover, while Panitch and Gindin argue that America acts as the global power in the interests of capitalists, this ignores that in a time of crisis the government acted contrary to the needs of some of the most powerful financial interests in the world. Also, their theory does not take into account the substantial tensions and conflict between capitalists and politicians. Thus, at least in this case, David Harvey’s new imperialism offers the best insight into the political response of the USA to the bankruptcy of Lehman Brothers, the problems associated with the TARP bailouts and the underlying tension between America and China. Though it is likely the USA will continue to be a key player in the perpetuation of international capitalism, it is capable of being at the center of an economic crisis. America is just as vulnerable to the rapid flows of international finance and speculation as any other state in the global system. What these events portend for future of the the American Empire remains to be seen.