Damaging the U.S. Brand

I remember seeing a cartoon years ago that portrayed a group of people at a self-service gas station. The cashier yells out “You, with the U.S. license plates, you pay BEFORE you pump!”. The caption read “On a recent trip to Canada, Howard discovered the shame of being from a debtor nation”.

I thought of that cartoon last week when I was reading El Pais in the Spanish hotel where I was staying. The second page had a photo of President Obama coupled with sympathetic coverage of the U.S. likelihood of default. I cringed in embarrassment, imagining millions of people in a country that faces a genuine, unavoidable risk of default opening their paper and saying to their spouse “See, it’s not so bad here after all, the U.S. is as broke as we are”.

The story explained that we are not broke and that the debt ceiling follies are all about politics, but I suspect that distinction will be lost on many international media consumers who learn of our plight. The associations the mind draws between nouns and adjectives are rapid and typically unconscious. Marketing firms earn the enormous sums they do because they are masters at getting us to associate “Tasty” with such and so brand of cereal and “Bargain” which such and so brand of soap, and these brand associations shape our economic behavior whether we realize it or not.

Even if we resolve the debt crisis tomorrow, the U.S. brand has been damaged throughout the world. The debt impasse and the attention it has drawn have retrained an unknown number of minds to move from reflexively associating brand “USA” with adjectives such as “rich” and “stable” to adjectives such as “default-prone” and “bankrupt”. The aggregate impact this will have on the future willingness of people in other countries to invest in our country, buy our products, or stand by us when the going is tough is impossible to calculate and equally impossible to deny.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College Lonon. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over ten thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

12 thoughts on “Damaging the U.S. Brand”

  1. I kinda feel about people who wouldn’t “invest in our country, buy our products, or stand by us when the going is tough” because of the debt issue like I feel about people who judge me on my credit rating: who needs ’em.

  2. The United States does not have a “brand.” The United States has all sorts of things–it has a reputation, for example. But it does not have a brand. How long before this annoying terminological abomination dies off?

    Sorry. I know it’s hardly a significant point. But I’m sick of the businessificaiton of everything.

  3. Although Winston Smith’s point is a side issue I think it’s significant. Talking up how CerealA isn’t “Tasty” damages it’s reputation not it’s brand. But advertising Cereal B using Cereal A’s slogan would damage CerealA’s brand. Professor Humphreys has made a number of posts about the weakening of definitions — rightly so in some cases — and so I would hope he appreciates that people are learning from him. (Perhaps this was a test?)

  4. The aggregate impact this will have on the future willingness of people in other countries to invest in our country, buy our products, or stand by us when the going is tough is impossible to calculate and equally impossible to deny.

    No. The aggregate impact I think will be quite foreseeable if not entirely quantifiable. Which is to say zero in the long run — unless we actually default. But the particular impact on specific people would be impossible to calculate or deny.

  5. Tim,

    The aggregate impact I think will be quite foreseeable if not entirely quantifiable. Which is to say zero in the long run..

    For many things you are probably right, but maybe not so much for lending. The argument over the debt ceiling has established that US credit can be held hostage to ideological disputes. This is a very bad precedent, even if there is no immediate effect.

  6. The U.S. Treasuries market allows people to wager substantial money on future U.S. interest rates. Those long-term rates remain very low by historical standards (and no, it’s not due to QE2, which is over). If the damage is impossible to deny, then those low current long-term rates involve a significant profit opportunity. Why aren’t market participants taking it? The markets, while not perfectly efficient, have to be better than that.

  7. I thought Treasuries had fixed interest rates. It doesn’t work to buy them when rates are low and think you can sell them at a profit when the rates go up. If anything, if rates go up the ones holding the low interest bonds are the losers. What am I missing? (Clearly I’m not an economist or a broker.)

  8. Bernard Yomtov makes a very important point. What is the president teaching the Republicans? It seems to me the obvious conclusion is, hold out and he will give you the moon.

  9. Tim, you’ve assumed that the profit opportunity clayton mentions must be to buy the bonds. You are correct about the effect of a move in interest rates. Hence, if we know interest rates are going to go up, there is an profit opportunity if you short Treasuries. Remember, in finance, just because you don’t own something doesn’t mean that you can’t sell it.

    All that said, I think clayton underestimates the ability of market participants to delude themselves. Interest rates being still low indicates to me that the market (if we can personify it) still believes that someone here is bluffing. I disagree with that sentiment. I think that, between US default and the Euromess, we are staring at a real possibility of a catastrophe.

  10. Thanks J. Michael Neal.

    Regarding Bernard Yomtov’s & NCG’s comments: So the critical battle was lost when Obama accepted the Republican framing.

  11. The direct economic costs are that you would see less foreign investment into the US, and also less incoming migration, as foreigners come to expect the dollar to drop against other currencies (as it has been doing for a while), and US inflation to increase (that’s how the US government is going to pay its debt, given that it cannot agree on restoring revenues). Further down the line you would see a shift away from the US dollar as the world reserve currency. When this happens the US would lose one of its biggest economic advantages.

    More broadly, respect for the US is going down. Bush destroyed much of the respect for the moral leadership of the US. The current US financial and political crisis destroys much of the respect for the US economic leadership. Taken together, the fall in the US intangible power over the last decade has been extraordinary.

  12. By the way, Europe had an opening to capitalize on US incompetence, but true to form they blew it. If Europe had responded to the crisis better you would now see the Euro fast gaining on the dollar as a reserve currency, and the UK joining the eurozone. But this is not to excuse the US mistakes.

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