Respond to this Article September 2004

Decline of American Greatness

By Elaine Kamarck

At the root of all power is wealth. With sufficient wealth a country can afford a strong military while still making the domestic investments (in roads, schools, medical care, scientific research, etc.) that keep citizens productive and the economic pie expanding. High taxes choke off growth, but so do high deficits. Living off your credit cards is as bad for your country as it is for your family. In the long run, there is simply no way around it--bad fiscal policy is bad economic policy, and a threat to a nation's power.

Most American presidents have understood this. Ronald Reagan raised taxes to quell the mounting deficits caused by his previous tax cuts and defense increases. Further budget discipline by Reagan's successors, George H.W. Bush and Bill Clinton, left America at the end of the 20th century with a booming economy, unrivaled military and diplomatic power, and revenue surpluses.

Then along came George W. Bush.

In one term, he has wiped away one of the Republican Party's most appealing characteristics--its concern for fiscal discipline. Bush and his advisers firmly believed that taxes should go only and always in one direction: down. And they were determined to exploit America's military dominance more fully. Neither the recession of 2001-2003, which drained away much of the surplus, nor the 9/11 attacks altered this view. Instead of focusing our military and diplomatic resources on al Qaeda and Afghanistan, the president chose to invade Iraq without broad international support and against the advice of much of the national-security establishment. Instead of reversing the tax cuts or even raising taxes, as all previous presidents had done in wartime (and most patriotic Americans would probably have supported), Bush continued to cut them. And instead of imposing spending discipline, the president allowed the GOP-controlled Congress to abandon the "pay-as-you-go" budget principles revived by his father and failed to veto even the most pork-ridden spending measures.

These reckless fiscal and military policies are destined to undercut America's wealth and power for years to come, regardless of who wins in November. But if Bush garners a second term, we could be in for something far worse: the beginning of the end of American greatness.

No amount of dire warnings or severe criticisms dissuaded the president from pursuing reckless fiscal and military policies in his first term. Therefore he is unlikely to suddenly change his mind if the plurality of voters validate those policies by supporting him in November. He will no doubt interpret a second term as a mandate to make their tax cuts permanent and, in all probability, to reduce to zero taxes on capital gains.

How, then, will he respond when the deficits skyrocket even more? In three ways, none of which inspire confidence.

First, he will try to reintroduce the "reform" agenda he began in his first term but largely put aside. This agenda, as more than one Democrat has pointed out, is really about unraveling social insurance. From privatization of Social Security to tort reform to Health Savings Accounts to a variety of innocent sounding changes to small business--what holds the Bush reform agenda together is a desire to undo the social safety net. These changes would further undercut the middle class and put our future at risk as health and education outcomes deteriorated for more and more people.

In a second Bush term, however, Democrats will not be as shell-shocked as they were in the first two years of the first George W. Bush administration, and they will block most of Bush's reform agenda. Professor William A. Galston, a veteran of the Clinton White House and many Democratic campaigns says, "I can't imagine that Democrats will do business with Republicans after WMD, No Child Left Behind, prescription drugs, etc." A second-term Bush administration, then, would probably be no more able to enact radical changes to social programs than the first one was.

The next option to control spiraling deficits would be to enact large budge cuts across the board. This would wipe out many discretionary spending programs and push all sorts of costs--Medicaid, juvenile delinquency, mental illness, and education for starters--down to the local level. Property taxes would either rise way too quickly creating a middle class revolt--or governors and mayors would hold the line and radically cut services for the most disadvantaged. The political fallout from these severe cuts in social spending would be enormous--which is why no Republican, from Newt Gingrich to George Bush, has ever been able to make big cuts in the programs they claim to dislike so much. Thus, it is highly unlikely that a second-term George Bush could create cuts in spending sufficient to do something significant about the deficit.

That leaves option number three: Carry on the tradition of the first term and simply assert that massive spending cuts are not needed because tax cuts will be sufficient to grow our way out of the deficits. But robust economic growth eluded the Bush team for most of his first term. Job creation has been slow and the recovery halting--giving rise to great cynicism about George Bush's campaign claim to have "turned the corner."

In a second term, growth will be even more elusive because it will be affected by something the American presidency has no control over: the accelerating growth of the gargantuan Chinese economy driving up global demand for oil. The rate of growth in global demand for which will have doubled by the end of 2005 in just one decade compared to the rate of growth in the 22-year period before it. Demand-driven increasing energy costs will not go away. Expensive energy makes everything we make and buy and drive expensive, too. And yet the Bush administration can't see beyond oil. I don't buy into the conspiracy theories of the left, that Bush and company are out for the oil money. But it is clear to me that the mindset of oil men is totally inadequate to leading us out of an oil-dependent economy. If Bush is reelected, the failure to wean us from dependence on foreign oil will rank high in the reasons why the Bush administration presided over the beginning of the end of America's wealth.

In short, there are no signs that George Bush in a second term would be able to correct the fiscal mess he created in the first term. Moreover, the Bush deficits will run up against another looming financial crisis. Sometime in the decade after a second Bush term, the Social Security Trust Fund will begin to pay out more than it takes in. Everyone knows this is coming. Another Clinton era veteran, Rob Shapiro, predicts that by the end of the second term the market's horizon will begin to take in the Social Security and Medicare crisis. With huge additional spending burdens in the context of a huge deficit, the capital markets will presume that Washington policymakers will take one of two economically detrimental paths: inflate their way out of the bind or raise taxes. One Wall Street Democrat predicts a 25-basis-point increase in interest rates every three months well into the future.

By the end of a second Bush term, our nation will be poorer, and poor nations have trouble leading the world. So do nations that no one believes. Preemption is not necessarily a flawed strategy; it is only flawed if the judgment about the immediacy of the threat is wrong. The public, the press, and the Democratic Party--all of whom gave the president the benefit of the doubt on Iraq--will be hyper critical and suspicious of further claims that some nation is about to do us harm. The failure to find WMD and the suspicions aroused by recent announcements of "new" terror threats that turn out to be three years old are beginning to have a boy-who-cried-wolf effect. Who will believe President Bush when he tries to mobilize the country to go to war against an aggressive and nuclear Iran? Or an out of control Kim Jong Il?

Once devalued, trust is hard to regain. Even a President John Kerry will face suspicion if he finds that he has to take the country to war. But no one will face suspicion the way a second-term President Bush will and that could lead us into a situation where we don't fight when we should.

America started the 21st century with great wealth, great power, and great moral authority in the world. But in the blink of an eye, Bush took us from budget surpluses to budget deficits, from a military that was feared to a military that is exhausted and stretched to the breaking point, and from a country that could lead the world to a country that invokes suspicion at home and abroad. We are at the beginning of what may be a long war on terror. This means that we need all aspects of our power--our military power, our economic power, and our moral power--in tact. Bush has squandered all of them in his first term. We can't afford a second term.

Elaine Kamarck is a Lecturer in Public Policy at the Kennedy School of Government, Harvard University. She served in the Clinton White House from 1993 to 1997, where she created and managed the administration's National Performance Review


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