This week, as Washington navel-gazed its way into a shutdown, its actions didn’t go unnoticed abroad. In Turkey, Recep Tayyip Erdogan, the Prime Minister of Turkey, took the opportunity to gloat about the U.S.’s refusal to pay its federal workers, many of whom are on furlough because of the shutdown. “We are now witnessing the crisis in the U.S. We have never been a government that could not pay its personnel,” Erdogan said.

This is how America’s dysfunction at home is undermining its credibility abroad. The latest development: Obama’s desire to maintain laser focus on the Republicans for political gain has prompted him to cancel a pivotal trip to Asia to attend an Asia-Pacific Economic Cooperation meeting. But it’s not just the shutdown: it is a series of issues over the past decade, chief among them the financial crisis. For decades the U.S. had been espousing the virtues of free market capitalism, urging other countries to adopt the model. America’s exceptional economic success, the thinking went, allowed it to give advice about how other countries should build their own economies.

And then the bottom fell out. The crisis, spurred by lax regulations that were manipulated by the big banks, started in the United States, before its impact spread globally. An unemployment and debt crisis soon followed. So did a rush to rethink the way countries handle their economies. With the free-market system no longer sacrosanct, countries with other approaches were happy to second-guess the system. China’s state capitalist model became a viable alternative as it navigated the financial crisis much better than most. I’ll never forget my meeting with Chinese Vice Foreign Minister He Yafei in 2009, when he asked me outright, “Now that the free market has failed, what do you think is the proper role for the state in the economy?” The financial crisis was an opportunity to reopen the debate surrounding perceived global values — and to kick the U.S. system while it was down.

That’s a case study that points to America’s larger problem. All too often, America has been leading by rhetoric rather than example. In a G-Zero world — what President Obama described as a “vacuum of leadership” in his U.N. General Assembly speech — strong words do not qualify as leadership. It’s only credible when you call for reforms or actions that you actually stand behind — and reflect them in your domestic policy.

Whether it’s botched Hurricane Katrina relief efforts, a failure to close Guantanamo, or a disregarded redline on Syrian chemical weapons use, the discrepancy between America’s words and deeds opens it up to criticism from abroad. It’s hard enough to defend dysfunctional domestic policies — but when you are projecting those values on to the rest of the world, any mistake is that much more glaring.

On these leadership metrics, Barack Obama has proved to be better in theory than in practice. He certainly can give a stirring speech, but contradictions between the United States’ promoted values and its actions have undercut Obama’s leverage in diplomatic negotiations. Just ask Xi Jinping, whose meeting with Obama was neutered by Edward Snowden’s NSA revelations. I wrote a Reuters column back in June explaining the drawbacks of American exceptionalism — and how the Snowden affair was undermining any progress on cyber policy with the Chinese. Even if NSA surveillance and China’s cyberattacks on American intellectual property are apples and oranges, the Snowden affair makes for an easy pretext for China to bury the issue.

Recently, there has been a lot of discussion surrounding American exceptionalism, from Vladimir Putin arguing against the concept in his New York Times op-ed, to Obama strongly reasserting it in his U.N. speech. But exceptionalism is dangerous and counterproductive when America’s missteps make it an exception to the very rules it champions. Obama was correct in identifying the “vacuum of leadership” in the international system. He could have been more honest about the vacuum here at home. It’s one thing when a student dozes off in class — it’s entirely different if the teacher scolds the student, only to nap right after. As a shutdown leaves the U.S. government unable to perform its most basic functions, how can it presume to weigh in on what a political system should look like?

To be exceptional, the United States need not be the global policeman, nor an indispensable nation. What it needs is a leader who can clearly outline the principles that the administration and the country stand for, uphold them whenever possible, and take ownership of any failures to do so with honest accountability. Recently, America has fallen far short of that mark, and its exceptionalist rhetoric leaves the bar as high as possible. A little humility wouldn’t hurt.

PHOTO: U.S. President Barack Obama delivers remarks on the government funding impasse at M. Luis Construction, a local small business in Rockville, Maryland, near Washington, October 3, 2013. REUTERS/Jason Reed