An op-ed in Tuesday’s New York Times by Kwasi Kwarteng, a member of the British Parliament, makes the case that the financial crisis and America’s debt problem signal the end of American empire. Mr. Kwarteng joins a long list of declinists warning about, if not exactly lamenting, that America is a spent force.
“America’s position today reminds me of Britain’s situation in 1945,” Kwarteng writes. “Deep in debt and committed to building its National Health Service and other accoutrements of the welfare state, Britain no longer could afford to run an empire.”
Kwarteng goes on to discuss the limitations of America’s foreign policy misadventures and to decry imperialism, which the native of Ghana says is doomed to fail. But his earlier comparison to Britain’s National Health Service may have been closer to the mark.
At a time of historic economic vulnerability, the Bush Treasury Department pushed through a $700 billion emergency TARP program to prop up American financial institutions and the Federal Reserve pressed the pedal on our money printing presses. The incoming Obama administration then pushed through a $787 billion stimulus program followed by $1.76 trillion (based on revised CBO figures) on the ironically named Affordable Care Act, aka Obamacare.
As if on cue, the European debt crisis exploded, as it became clear that the welfare estate approach to economics is a house of cards that would eventually crumple under the pressure of added spending. In an era before trillions became the new billions, many were alarmed by the Bush administration’s $400 billion prescription drug bill, whose cost, like Obamacare, turned out to be far higher ($534 billion) than earlier estimates.
There are times when emergency spending may be warranted, to be sure. The TARP program and the initial monetary easing undertaken by the Fed in the heat of the crisis may be examples of this. But most spending done by politicians of either party is undertaken for the advantage of a few key constituencies at the expense of the many.
Former FDIC chairwoman Sheila Bair made this point particularly eloquently in a modest proposal published in last Friday’s Washington Post. The Bair plan calls for every American household to receive a $10 million loan at zero interest to invest, as they see fit, in Portuguese bonds yielding 12% a year. Why not allow the 99% to enjoy the same benefits of big banks and hedge funds playing the “carry trade” of parking free Fed money in high-yielding securities, Bair asks.
The former FDIC chair says she saw no problem getting this plan through Congress “so long as lawmakers don’t have to come up with a way to pay for it. Just look at the way the Democrats agreed to extend the Bush tax cuts if the Republicans agreed to cut Social Security taxes and extend unemployment benefits. Who says bipartisanship is dead?”
Kwarteng may be correct that America’s “imperial” appetite is bigger than its stomach, and Blair is certainly correct that spending has been the consensus choice of America’s political class for too long. But America is not Europe, yet, and can survive this era of trillions. That will take making grown-up decisions matching our social and foreign policy goals with only the means at our disposable.