Editore"s Note
Tilting at Windmills

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February 17, 2004
By: Kevin Drum

GUNS AND BUTTER....Over at Tapped, Matt Yglesias points to this Fareed Zakaria column about problems with sustaining our foreign policy:

The greatest threat to America's primacy in the world comes not from its overseas commitments, explains the historian Niall Ferguson in his smart forthcoming book "Colossus": "It is the result of America's chronically unbalanced domestic finances." The mounting federal budget deficits that now stretch out as far as the eye can see will mean--if history is any guide--sharp cutbacks in American military and foreign-affairs spending. We will see a forced retreat of America's foreign policy similar to the years after the Vietnam War--only the cuts this time are likely to be much, much deeper and the resulting chaos far greater.

Matt has a quibble with this our finances have been "chronically" unbalanced only for the past three years of the George Bush administration but I have more than that. Zakaria's argument is completely nonsensical.

First, as even Zakaria points out, our overseas spending (primarily the defense budget) is actually fairly small in historical terms. It's about 4% of GDP right now, half what it was 50 years ago, and we certainly have the capacity to keep it there for as long as we want.

Second, although problems with Social Security and Medicare funding are serious, especially given George Bush's insane economic policies, they aren't that serious. Social Security can be fixed with a modest combination of cost-of-living reform, slightly increased retirement ages, and raising the cap on payroll taxes. On the healthcare side, even if we decided to move to a full-blown single-payer system it would probably cost us only about an extra 5% of GDP. (And of course "cost" isn't the right word anyway since we'd also save the 5% of GDP currently being spent on private healthcare.)

Put it all together and it means that total federal spending would rise from today's 20% of GDP to around 25-30% of GDP. That's a lot, but it's hardly a sign of the apocalypse. Despite what Zakaria says, not only can we afford all this if we want to, we can actually afford it rather easily.

Finally, who is he comparing us to? Even if our overseas budget does decline due to increased domestic requirements, the rest of the world is likely to be in even worse shape. Europe and Japan have demographic time bombs that make ours look like a mere firecracker, Russia is practically crumbling away as its population ages and its health infrastructure disintegrates, and China's average age will exceed America's within a couple of decades. No matter what happens in America, it's almost a dead certainty that for pure demographic reasons we will be more powerful relative to the rest of the world 50 years from now than we are today.

Despite Zakaria's solemn "if history is any guide" formulation, the fact is that America has never cut back on defense because of domestic spending. We cut back after World War II because the war was over. We cut back after Vietnam because the war was over. We cut back after the Cold War because the war was over. Domestic spending had nothing to do with it.

It's true that our finances are in a parlous state right now, and it's true that significant tax increases are inevitable over the next decade. It's also true that these tax increases will be much more painful than they otherwise would have been thanks to George Bush's reckless economic policies.

But in the end, there's not really much doubt that eventually either George Bush or somebody else will fess up to this and go ahead and increase taxes. If it's really what we want, America has plenty of money for both guns and butter.

Kevin Drum 5:24 PM Permalink | Trackbacks

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