[FoRK] The Unbearable Costs of Empire: US can't afford to be a superpower much longer...

Jeff Bone 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  
II era.

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  
superpower ambitions.

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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