After America Page 2
You can spend a month ploughing through the CBO statistics, but the numbers don’t matter because they all make the same point: under no likely scenario does America’s debt burden do anything but go up. Whether it’s Cloud-Cuckoo Land up or Planet Zongo up is mere details. Nothing is certain but debt and taxes. And then more debt. If the government of the United States had to use GAAP (the “Generally Accepted Accounting Practices” that your company and mine and the publishers of this book have to use), Uncle Sam would be under an SEC investigation and his nephews and nieces would have taken away the keys and cut up his credit cards. By 2010, the federal government was issuing about $100 billion of Treasury bonds 27 While India’s growing its economy, we’re growing our debt to match. We’re asking the world to dump the equivalent of a G7 nation into U.S. Treasury debt every Christmas.
So let’s take it to the next stage: we know American government has outspent America. What happens if it outspends the entire planet?
John Kitchen of the U.S. Treasury and Menzie Chinn of the University of Wisconsin published a study in 2010 entitled:Financing U.S. Debt: Is There Enough Money in the World—and At What Cost?28
The fact that sane men are even asking this question ought to be deeply disturbing. As to the answer, foreign official holdings of U.S. Treasury securities have usually been less than 5 percent of the rest of the world’s GDP. By 2009, they were up to 7 percent. By 2020, Kitchen and Chinn project them to rise to about 19 percent of the rest of the world’s GDP, which they say is . . . do-able.
Whether the rest of the world will want to do it is another matter. A future that presumes the rest of the planet will sink a fifth of its GDP into U.S. Treasuries is no future at all. But on Big Government’s streetcar named Desire we have come to depend on the kindness of strangers.
If something cannot go on forever, it can still go on long enough—especially if you enjoy bookkeeping advantages the government denies to the private sector. And the idea that “you and your colleagues will take action” to reverse it, or at least end it, or maybe just slow it down a wee bit, flies in the face of that Heritage graph. The one thing that can be said for certain is that the political class, whether led by Barack Obama, Harry Reid, and Nancy Pelosi, or the usual reach-across-the-aisle Republican accommodationists, or even the Gingrichite revolutionaries of 1994, will not take meaningful, transformative action.
That leaves Director Elmendorf’s alternative scenario. What was it again? Oh, yeah:Some collapse down the road.
And you’ll be surprised how short that road is.
TEKEL . . .
Two propositions. First, Adam Smith, after the Battle of Saratoga, in reply to a friend despondent that the revolting colonials were going to be the ruin of Britain:There is a great deal of ruin in a nation.29
Alternatively, Samuel Huntington in his final book, Who Are We?
A nation is a fragile thing.30
Who’s right?
Smith’s view is correct for a lot of European countries: The “deal of ruin”—incremental decay—is seductive. In some ways, the most pleasant place to live is a colossus in gradual decline. Great powers aren’t Sudan or the Congo, where you’re sliding from the Dump category to the Even Crummier Dump category. Genteel decline from the heights can be eminently civilized, especially to those of a leftish bent. Francophile Americans passing through bucolic Provençal villages with their charmingly state-regulated charcuteries and gnarled old peasants wholly subsidized by the European Union’s Common Agricultural Policy can be forgiven for wondering if global hegemony is all it’s cracked up to be. Okay, the empire busted up, but the capital still has magnificent architecture, handsome palaces, treasure 31 But not in your arrondissement. And not even on the Friday afternoon drive to your country place. What’s to worry about?
There may be a deal of it, but in the end ruin is the natural condition of the nation-state: three of the five permanent members of the Security Council have endured revolutionary upheaval and/or constitutional collapse since their “permanency” was established by the United Nations in 1945. Four of the G7 major economic powers have constitutions dating back barely half a century.
And, even if you escape (as most nations do not) coups, invasions, civil wars, and/or occupations, there arrives the moment when ruin comes to close the deal. Whether decline will seem quite so bucolic viewed from a Jersey strip mall rather than the Auvergne remains to be seen. But, either way, gradual decay is not the way it will go. American ruin will not be like France’s or Austria’s.
The exception to the Smith rule, and something closer to Huntington, is this: for dominant powers, ruin comes by the express lane. Unlike AIG, Fannie Mae, Detroit, and Greece, the United States is big enough to fail, spectacularly—and big enough to drag much of the world down with it. Most citizens of advanced western democracies haven’t read Gibbon’s Decline and Fall of the Roman Empire, but they figure they get the general idea. The “decline” bit of the title suggests you’ve got a bit of time before
The question to ask is: What’s holding the joint up? A second- or thirdtier nation—Iceland, for example—is generally resting on modest assumptions about its resources and economic outlook. There is a deal of it in a nation, but a superpower relies on subtler stocks, like image and credibility. If you’re on a train going uphill and you’re out of fuel, you’ll still move forward—for a bit. By the time you notice you’re slowing down, the coal’s already gone. What comes next? You roll backwards, downhill, fast.
It starts with the money. For dominant powers, it always does—from the Roman Empire to the British Empire. “Declinism” is in the air these days, but we full-time apocalyptics are already well past that stage. In the space of one generation, a nation of savers became the world’s largest debtors, and a nation of makers and doers became a cheap service economy. Everything that can be outsourced has been—manufacturing to by no means friendly nations overseas; and much of what’s left in agriculture and construction to the armies of the “undocumented.” At the lower end, Americans are educated at a higher cost per capita than any nation except Luxembourg in order to do minimal-skill checkout-line jobs about to be rendered obsolete by technology.32 At the upper end, America’s elite goes to school till early middle age in order to be credentialed for pseudoemployment as $350 grand-a-year diversity consultants (Michelle Obama) or in one of the many other make-work schemes deriving from government micro-regulation of virtually every aspect of endeavor.
So we’re not facing “decline.” We’re already in it. What comes next is the “fall”—fast, sudden, off the cliff, if only because the Obama spending binge made what was vague and distant explicit and immediate. America
Even in its glory days, the Age of Abundance wasn’t exactly a Belshazzaresque party for most folks: since 1973, the wages of 90 percent of Americans have grown by only 10 percent in real terms, and consumption even of cheap Chinese goods was fueled by borrowing.33 But eventually even that mirage fades and you see the writing on the Wal-Mart.
When government spends on the scale Washington’s got used to, that’s not a spending crisis, it’s a moral one. The Irish have a useful word for the times—flaithiúlacht—which translates to ruinous generosity, invariably with someone else’s money. There’s nothing virtuous about “caring” “compassionate” “progressives” demonstrating how caring and compassionate and progressive they are by spending money yet to be earned by generations yet to be born. That’s what “fiscal conservatives” often miss: this isn’t a green-eyeshade issue. Increasing dependency, disincentivizing self-reliance, absolving the citizenry from responsibility for their actions: the multitrillion-dollar debt catastrophe is not the problem but merely the symptom. It’s not just about balancing the books, but about balancing the most basic impulses of society. These are structural and, ultimately, moral questions. Credit depends on trust, and trust pre-supposes responsibility. So, if you have a credit boom in an age that has all but abolished personal responsibility, it’s not h
ard to figure how it’s going to end.
The U.S. Bureau of the Public Debt (and no, that’s not a satirist’s fancy but an all too real government body) uses as its motto the words of Alexander Hamilton:The United States debt, foreign and domestic, was the price of liberty.34
But in the early twenty-first century, foreign and domestic debt piles up to the cost of liberty. As I wrote in America Alone, it’s not the “deficit”: these programs would be wrong if Bill Gates wrote a check to cover them every month. They’re wrong because they represent a transfer from the citizen to the state not of money but of power. And over time, as we see in the urge to expunge words like “default” and “foreclosure” and indeed any form of consequence from life, they have a debilitating effect. A society can cope with corroded infrastructure and a devalued currency more easily than with corroded liberty and a devalued citizenry.
King Belshazzar’s wild party began with an act of desecration:Then they brought the golden vessels that were taken out of the temple of the house of God which was at Jerusalem; and the king, and his princes, his wives, and his concubines, drank in them. They drank wine, and praised the gods of gold, and of silver, of brass, of iron, of wood, and of stone.
Similarly, the statists took the vessels of the American republic and filled them up with Big Government happy juice. The United States joined the rest of a cosseted western world in voting itself a lifestyle it was not willing to pay for. The bad news is our children will not enjoy the American Dream. The good news is that under the next “stimulus” bill they’ll be eligible to apply for a position as a federally funded American Dream Awareness Assistance Coordination Program Grantwriter. If the political class plus their dependents in the underclass and their cheerleaders in the media and academy have
The “bubble” is not the property market or cheap credit. The bubble is twenty-first-century America itself, from the financial sector to a wretched education system culminating in languorous, undemanding “college” courses whose absurd soaraway prices were affected not a jot by the economic downturn. When you weigh America in the balances, it’s not just wanting, it’s wanting a sugar daddy—urgently: if Europe’s somewhat agreeable post-war decline was cushioned by America, who’s volunteering to do the cushioning for America?
There is no good answer to that question.
UPHARSIN . . .
By September 2010, America’s public debt was up to 94 percent of GDP. Hey, relax, says New York Times columnist and Nobel Prize-winning economist Paul Krugman. Back in 1945, it was 113 percent.35
That was also the year that America made Hiroshima and Nagasaki the first and to date only recipients of the world’s newest and most devastating technology. That’s a helluva bang for the buck. The America sliding ever faster to that 1945 debt burden and way past it has no such credibility—and, as every two-bit nationalist provocateur in any old dusty colonial backwater will tell you, for a superpower, credibility is essential. America hit 113 percent after a world war in which it vanquished mighty enemies of global reach and established itself as the dominant power on the planet.
What do Americans have to show for the debt this time ’round? Cashfor-clunkers? Stimulus funding for a stimulus-funding application-coordinator in Idaho? Take Your Child Bride to Work Day in Afghanistan?
As to worshipping false gods, even avowed secularists have their moments of evangelical fervor. There have been two competing theories at play in the twenty-first century. The first and better known is “globalization”—which is less a theory and more a religion with universalist claims. To its worshippers, globalization is some kind of mysterious metaphysical force that’s out there remaking our assumptions about the planet. May the Force be with you—because, if it’s not, you’re just a squaresville daddy-o receding in the rear view mirror of history. The high priest of this cult is the New York Times’ in-house thinker and beloved comic figure Thomas L. Friedman. Hardly a week goes by without the Times’ most frequent flyer filing from a state-of-the-art departure lounge on the other side of the planet and marveling at its complimentary wi fi, light-rail link, and the way his luggage was brought in by cheery native bearers in traditional dress playing some raucous Abkhazi-Nauruan hybrid of Gamelan gangsta rap on an affordable new xPod-iBox you can wear under your sarong made at a state-of-the-art plant by a small Uighur start-up backed by a Herzogovine hedge fund. All of which makes a forlorn contrast with the scene that greets him when he lands back at Newark.
The United States has two roles in a “globalized” world: it funds the transnational bodies, it keeps the sea lanes open, it’s there when an earthquake or tsunami strikes—at least until the debt and politically untouchable social programs necessitate sweeping cuts in military capability. Which, for great powers in decline, they always do.
That’s America’s first role. Its second is just as important: the burgeoning middle classes of China, India, and elsewhere improve their lives by making stuff to sell to us. America’s government is the guarantor of global order; its people are the guarantors of global prosperity. That’s the United States the world needs: in security terms, the order maker; in economic terms, the order placer.
Unfortunately, neither role is sustainable. America is on course to be the first great power in history literally to shop till we drop. And the way to bet is one hell of a drop, and sooner than you think.
“Globalization” has the appeal of all inevitablist theories: it’s gonna happen. Why? It just is. Don’t sweat it. Likewise, Francis Fukuyama and The End of History: No nation can resist the pull of western liberal democracy, and so one day the entire planet will be Sweden and there will be no more wars. These days, even Sweden isn’t Sweden. Ask a Jew in Malmö, if you can find one.
Against this globaloney is the thesis put forward by the late Samuel Huntington in The Clash of Civilizations. Huntington’s view is less appealing because it’s less sedating. Globalization asks nothing of us, whereas the clash of civilizations puts a cold hard question mark over the future. Huntington posits that cultural identifiers count for more than economic ones. A man in a factory on the other side of the world may make parts for an electronic gizmo Thomas Friedman plays with while waiting for the VIP lounge to call his flight, but that does not mean they share anything like the same worldview. It seems sad to have to point out something so obvious. Which, after all, is more central to a man’s identity? The fact that he makes trinkets for Thomas Friedman? Or the fact that he’s an Indonesian Muslim? In 1996, Huntington identified ten world civilizations, including three major ones—western, Muslim, and Sinic.36 A decade and a half on, China—the Sinic power—is on the rise economically but is demographically weak, while Islam is surging demographically but is economically irrelevant, except for that portion of the Muslim world that sits on oil it needs foreigners to extract. Meanwhile, the West is in steep decline both economically and demographically. And as western civilization was the indispensable component in the construction of the modern world, that raises a question: What comes next?
Which brings us to the third line of the warning to Belshazzar, the geopolitical writing on the wall. Not a lot of Medes around these days, but the Persians are still in business, and the nuclear mullahs are eager to advance the finishing of the Great Satan and divide up what’s supposed to be a “unipolar” world. North Korea is assisting the Iranians with their delivery systems, and the Iranians are promising to share their nukes with
How long do you think that arrangement will last? As the Medes and Persians did to Belshazzar, the Russians, the Chinese, the new Caliphate, and others are looking forward to carving up the western world.
When money drains, so does power. The British learned that the hard way, even as theirs drained to the friendliest of successor powers across the Atlantic in Washington. Today, money is draining across the Pacific. They have our soul who have our bonds. Just as America had Britain’s money, so China has America’s. How will it use it to advance its power and influence? What might prompt the thr
eat of a little economic blackmail? American action against North Korea? Washington’s support for Taiwan? China is dangerous not (as many argue) because of its strength but because of its weakness. As I wrote in America Alone, the People’s Republic has a crude structural flaw: thanks to its disastrous one-child policy, it will get old before it gets rich, and, unless it’s planning on becoming the first gay superpower since Sparta, the millions of surplus young men whom the government’s One-Child Policy has deprived of female companionship is a recipe either for wrenching social convulsions at home—or for war abroad, the traditional surplus inventory-clearance method of great powers. That’s actually worse news than if China was cruising to uncontested global hegemony—because it means that Beijing’s calculations on how the Sino-American relationship evolves are even less likely to align with ours. China has to maximize its power before demographic decay sets in. In other words, it has strong incentives to be bold and to push, hard and fast. And, when it happens, Washington will be taken by surprise by something that was entirely inevitable.
Faced with a choice between unsustainable entitlements and maintaining armed forces of global reach, the United States, as Europe did, will abandon military capability and toss the savings into the great sucking maw of social spending. That, in turn, will make for not only a more dangerous
For Americans, the best-case scenario is that Washington’s ruling kleptocracy sleepwalks its subjects into smaller homes, smaller cars, smaller lives, and soft despotism so beguilingly they don’t notice it’s over until late in the day. A more likely prospect is a catastrophically convulsed America that descends into Balkanized ruin and social collapse on a planet with no global order in which the former hyperpower still makes the most inviting target.