[FoRK] The Unbearable Costs of Empire: US can't afford to be a
superpower much longer...
jbone at place.org
Fri Nov 5 14:47:10 PST 2004
Via jrobb, his "other blog" besides Global Guerillas. (Really it's a
paired set; you should read both.)
...the article in BusinessWeek:
By Mark Weisbrot
The Unbearable Costs of Empire
Establishment types are trumpeting America's role as global police
force. Too bad the U.S. just can't afford the job
Since September 11, 2001, the phrases "American empire" and "America as
an imperial power" are being heard a lot more. But in contrast to the
1960s and 1970s, when such terms were brandished by an angry domestic
anti-war movement or by developing nations in U.N. debates, the concept
they represent has now at least partially entered the mainstream.
However much it has incurred hostility throughout most of the world,
including European and other countries usually allied with the U.S.,
the "new imperialism" has gained ground among the Establishment here.
The post-9/11 rationale is that America has terrorist enemies and rogue
states that will do it serious harm -- maybe even with weapons of mass
destruction -- if it doesn't police the world to stop them. "Being an
imperial power is more than being the most powerful nation," writes
Michael Ingatieff at Harvard's Kennedy Center. "It means enforcing such
order as there is in the world and doing so in the American interest."
But what most analysts have missed –- whether or not they support the
idea of an American empire -- is that the U.S. simply can't afford the
role of global cop.
THE REAL DEBT. First, the U.S. is entering this new age of empire with
a gross federal debt that is the highest in more than 50 years as a
percentage of gross domestic product. For fiscal 2005, which begins in
October, the U.S. gross federal debt is projected to be $8.1 trillion,
or 67.5% of GDP. By the time 100,000 U.S. troops were in Vietnam in
1965, it was 46.9% and falling.
One technical point that's vitally important here: It's the gross
federal debt and deficits that matter, not the smaller "debt held by
the public" and "unified budget deficit" that are generally cited in
the press. For example, the most commonly reported estimate of the
annual federal budget deficit is $478 billion for 2004. But this number
is misleading, because it doesn't include borrowing from federal trust
funds -- mostly Social Security and Medicare.
But the money the government is borrowing from Social Security and
other trust funds will, with nearly 100% certainty, be paid back --
just like the money it borrows when it sells bonds to Bill Gates or the
Chinese government. The annual federal budget deficit is, therefore,
$639 billion, according to the numbers from the Congressional Budget
Office. This is 5.6% of GDP, a near-record level for the post-World War
BORROWING FROM ABROAD. America can –- just barely -- afford this
deficit right now, but that's about to change. First, the interest
burden on the debt is currently manageable because of extremely low
interest rates. But the Fed is expected to raise short-term rates to 2%
by yearend. More important, long-term rates will almost certainly rise
even more because inflation has accelerated to 4.9% over the last six
months -- a big jump from 2003's 1.9%.
If Kerry wins and takes back the tax cut for households earning more
than $200,000 a year, as promised, that won't even reduce the deficit
by 1% of GDP. And if he keeps his spending promises, then the monies
realized by repealing the tax cut would be canceled out. The Bush
budget, which the conservative CATO Institute's Chairman Bill Niskanen
recently described as "a fraud" put together by "borrow and spend
Republicans," would make the deficit and debt problem even worse.
Then there's the problem of the U.S. –- both the government and the
private sector –- borrowing from foreign countries. Most government
borrowing is now being financed from overseas -- especially the central
banks of China, Japan, and other countries. These institutions are
deliberately buying dollars in order to keep their currencies from
rising against the greenback. But they won't keep doing this
indefinitely. The U.S. is borrowing more than $600 billion a year from
the rest of the world, and it can't go on much longer.
THE BIG BANG. Sometime within a decade, and most likely in the next
couple of years, foreign investors will see that a steep decline of the
dollar is unavoidable and will begin to unload them and U.S. Treasury
securities. As with any bubble, it will be better if this one bursts
sooner rather than later, when it would be even bigger. But adjustment
and pain will still occur, including higher interest rates and
consequently slower growth.
Slower growth will also mean larger federal budget deficits. And one
event that will certainly slow growth and increase federal government
borrowing well beyond current projections is the bursting of the
housing bubble. Housing prices have seen an unprecedented run-up since
1995 of more than 35 percentage points above the rate of inflation.
That has created more than $3 trillion in paper wealth that –- just
like the illusory wealth of the stock-market bubble -- is programmed to
disappear. This, too, is almost certain to happen in the next few
The economic impact will be at least equivalent to that of equities
popping in 2000-02, which caused the last recession. Another slump is,
therefore, likely in the near future, and with it a further ballooning
of the federal budget deficit, as tax revenues fall and automatic
countercyclical spending rises.
CHINA RISING. The combination of unsustainable public debt and foreign
debt is a deadly and explosive mix by itself. Rising real interest
rates and a looming housing bubble bursting make it all the more
dangerous. Financial markets will exert the necessary discipline if
politicians refuse to do so, but either way the U.S. can't afford even
the $486 billion a year that it's currently spending annually on the
military and homeland security.
And even these spending levels are a lot less than would be necessary
to maintain America's power in the world. Over the next decade or so,
the Chinese economy will actually surpass the U.S. in size. America has
100,000 troops in East Asia. If the U.S. were to try to maintain its
current dominance of the region -- something that will probably prove
impossible -- it would boost our military spending even further.
The bottom line is that the American empire just isn't affordable.
Within a decade or so, the U.S. will be forced to be much less
preemptive and outward-looking and to engage in scaled-back foreign
policy -- even if the foreign-policy Establishment never changes its
views or ambitions.
REALITY CHECK. In the meantime, the segment of American society that
would like to see advances in health care, education, poverty
alleviation, or any other positive economic or social goals will get
bad news. The foreseeable future is a lot different from most of the
post-World War II era, during which the U.S. added such programs as
Medicare and Medicaid while spending literally trillions of dollars on
cold and hot wars.
This time, little or no federal money will be available for any of
these things until U.S. foreign policy changes. The most likely
scenario is that most areas of nonmilitary discretionary spending will
be squeezed relentlessly before anything gives in the realm of
The post-9/11 age of American empire will close not with a bang but a
whimper, suffocated by the laws of arithmetic, the constraints of
public financing, and the limits of foreign borrowing. What remains to
be determined is how much the U.S. will pay -- in lost and ruined
lives, as well as bills for future generations -- and how many enemies
it will make throughout the world, before coming to grips with reality.
Mark Weisbrot is co-director of the Center for Economic & Policy
Research, in Washington, D.C.
Edited by Patricia O'Connell
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