Suicide of a Superpower
Will democracy survive the debt and dependence it fosters?
By Patrick J. Buchanan | October 3, 2011
This generation of Americans has been witness to one of the most stunning declines of a great power in the history of the world.
In 2000, the United States ran a surplus. In 2009, it ran a deficit of $1.4 trillion—10 percent of the economy. The 2010 deficit was almost equal, and the 2011 deficit is projected even higher. The national debt is surging to 100 percent of GDP, portending an eventual run on the dollar, a default, or Weimar inflation. The greatest creditor nation in history is now the world’s greatest debtor.
In the first decade of what was to be the Second American Century, a net of zero new jobs were created. Average households were earning less in real dollars at the end of the decade than at the beginning. The net worth of the American family, in stocks, bonds, savings, home values, receded 4 percent.
Fifty-thousand plants and factories shut down. As a source of jobs, manufacturing fell below healthcare and education in 2001, below retail sales in 2002, below local government in 2006, below leisure and hospitality, i.e., restaurants and bars, in 2008—all for the first time.
In April 2010, three of every four Americans, 74 percent, said the country is weaker than a decade ago, and 57 percent said life in America will be worse for the next generation than it is today.
Who did this to us? We did it to ourselves.
We abandoned economic nationalism for globalism. We cast aside fiscal prudence for partisan bidding for voting blocs. We ballooned our welfare state to rival the socialist states of Europe. And we launched a crusade for democracy that has us tied down in two decade-long south Asian wars.
In 2009, Paul Volcker, former chairman of the Federal Reserve, told Congress the cause of the grave financial crisis was trade-related imbalances. Pressed by Sen. Chris Dodd, Volcker added, “Go back to the imbalances in the economy. The United States has been consuming more than it has been producing for many years.”
For decades, Japan’s trade surplus with the United States was the largest on earth. In the 21st century, China’s trade surplus with the United States began to dwarf Japan’s. In 2008, China exported five times the dollar volume of goods to America as she imported, and her trade surplus with America set a world record between any two nations—$266 billion. In August 2010, China’s trade surplus with the United States set a new all-time monthly record, $28 billion.
Nor was it all in toys and textiles. In critical items that the Commerce Department defines as advanced technology products (ATP), the U.S. trade deficit with China in 2010 hit a record $95 billion. China today has the trade profile of an industrial and technological power while the manifest of U.S. exports to China, aircraft excepted, reads like the exports of the Jamestown Colony to the mother country.
What was the impact of this tsunami of imports on employment? During the first decade of the 21st century, U.S. semiconductors and electronic-component producers lost 42 percent of their jobs; communications-equipment producers lost 48 percent of their jobs; textile and apparel producers lost, respectively, 63 percent and 61 percent of their jobs.
At every election, politicians decry America’s deepening dependence on foreign oil. But the U.S. trade deficit in manufactures, $440 billion in 2008, was $89 billion larger than the U.S. deficit in crude oil. Why is a dependence on the oil of Canada, Mexico, Venezuela, Nigeria, Saudi Arabia, and the Gulf a greater concern than a dependence on a rival power for computers and vital components of our high-tech industries and weapons systems?
As Auggie Tantillo, Executive Director of the American Manufacturing Trade Action Committee, argues:
Running a trade deficit for natural resources that the United States lacks is something that cannot be helped, but running a massive trade deficit in man-made products that America easily could produce itself is a choice—a poor choice that is bankrupting the country and responsible for the loss of millions of jobs.
The consequences of these trade “imbalances”: De-industrialization of America. A growing dependence on China for the necessities of our national life and the loans to pay for them. A loss of millions of the best jobs Americans ever had. A median wage and family income that have been stagnant for a decade. A steep decline in the global purchasing power of the dollar. A loss of national dynamism. A debt bomb that went off in our face in September 2008.
“It’s time to stop worrying about the deficit—and start panicking about the debt,” the Washington Post editorial began, “The fiscal situation was serious before the recession. It is now dire”:
In the space of a single fiscal year, 2009, the debt soared from 41 percent of the gross domestic product to 53 percent. This sum, which does not include what the government has borrowed from its own trust funds, is on track to rise to a crushing 85 percent of the economy by 2018.
Focusing on the “public debt”—that held by citizens, corporations, pension funds, and foreign governments—understates the true national debt, which is $14 trillion. But even that does not reflect the “structural deficit” the nation faces from legislated commitments to Social Security, Medicare, and government and military pensions.
According to David Walker, former head of the Government Accountability Office, these unfunded liabilities total $60 trillion, with Medicare accounting for $38 trillion. With the first wave of Baby Boomers reaching eligibility for full Social Security benefits in 2011, and the entire generation moving onto the rolls by 2029, an Everest of debt will begin to rise out of the sea and be visible to the world.
What are the risks of the exploding U.S. public debt?
Chinese, Japanese, and Gulf governments and sovereign wealth funds will suspect, as some already do, that they are holding U.S. paper on which America will one day default or cheapen by inflation. As their fears rise, our creditors will stop buying and start selling U.S. debt, or demand a higher rate of interest commensurate with their rising risk. The Fed will have to raise rates to attract borrowers, tumbling the economy into recession.
Once the vicious cycle begins, warns Walker, interest on the U.S. debt will become the largest item in the federal budget.
Is the new Congress aware of the peril? For the departed Congress was surely not. The lead story in the Post that same morning in December 2009 that the alarmed editorial on the national debt ran began thus: “The Senate cleared for President Obama’s signature on Sunday a $447 billion omnibus spending bill that contains thousands of earmarks and double-digit increases for several Cabinet agencies.” Total cost of the Senate bill—“$1.1 trillion, including average spending increases of 10 percent for dozens of federal agencies.”
Democrats claimed the gusher of money was needed to make up for the neglect of the Bush years. But the Bush years had been the fattest years for federal spending since the Great Society, and Bush had added his trillion-dollar wars and trillion-dollar tax cuts. By the end of his presidency, even conservatives were calling Bush our first Great Society Republican.
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