Maybe being the leader of the free world isn’t the best investment

Filed under: Hazlehurst |

Dropped by the bank this morning, and picked up a little cash for the weekend. Since I’m planning a trip to Cripple Creek, I withdrew several hundred bucks, which will, I hope, not be too seriously diminished by the one-armed bandits.
There’s something about having a few crisp hundred-dollar bills in your wallet, isn’t there? It’s real, it’s tangible, it’s actual money. If I lose it, I’ll be acutely conscious of the loss; if I add a few more hundreds to my stash, I’ll be happy.
Other forms of money seem abstract by comparison.
My meager 401(k) bounces up and down, and I don’t pay much attention to it. My equally meager salary is another abstraction, at least the part of it that is withheld, deducted or otherwise unavailable.
But compared to governmental budgets, my salary is very real indeed. Is the cost of the Iraq war $300 billion or $3 trillion? Who knows? And does it matter? After all, as Vice President Dick Cheney said a few years ago, “Reagan taught us that deficits don’t matter.”
If you believe that, then the cost of the war is just a mildly interesting bookkeeping entry. Billions, trillions, schmillions — who cares? Somehow, it’ll all work out.
But it isn’t just a bookkeeping entry.
Because of the war, and because of our generally profligate ways, we have to borrow $2 billion every day from the rest of the world. The Cheney assumption — that deficits don’t matter — only holds true when the rest of the world is content to keep their dollars in low-yielding government securities.
For many years, that was the case. No longer.
Thanks to a stagnant economy, and artificially low interest rates that are designed to stimulate that stagnant economy, those ungrateful, rascally furriners are using their depreciating dollars to buy American equities, not government debt.
As Warren Buffett wrote a couple of weeks ago, “There’s been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S.”
We need to deal with this new reality, Buffett said, or “otherwise our $2 billion daily of force-fed dollars to the rest of the world may produce global indigestion of an unpleasant sort.”
But there’s another question here, one that has little to do with the ebb and flow of international investments.
Think back to the decline and eventual collapse of the Soviet Union. Most commentators ascribe that collapse, at least in part, to unsustainable military spending which fatally undermined a fragile and inefficient economy.
According to that scenario, by trying to match America’s might over many decades, the USSR became a garrison state, whose economic base was unable to support a bloated military superstructure.
Are we, thanks to Iraq and to our vast, worldwide security commitments, headed down the same path? Are we, by accepting a permanent role as the world’s policeman, undermining our economic future?
That’s a complex question, for which there are no easy answers. But it’s interesting to note that our principal economic rivals — think China, India, Russia, Europe — have adopted a kind of neo-colonial mercantilism.
The Chinese are happy to deal with any government or quasi-governmental entity as long as they can profitably do business. They don’t care about human rights (the Sudan), or nuclear proliferation (Iran) or environmental degradation (Africa and Latin America). They don’t think that they have any global responsibilities — just opportunities.
The Chinese don’t even pretend to justify their international trade policies, nor do the Russians. Nations such as France and Germany talk a good game but when their vital trade interests are involved (Iran), reality beats rhetoric.
Europeans have relied upon the United States as both their protector and as the guarantor of global security. Three quarters of a century after the end of World War II, we still maintain troops in Europe as a symbol of our commitment to that continent’s freedom and prosperity.
Given Europe’s economic strength, you’d think that they’d be able to fend for themselves — and maybe they can, but we seem unwilling to cut the umbilical cord.
But even if we did, it would scarcely matter.
We have forces stationed in 130 countries, at more than 800 posts and bases, manned by more than 250,000 troops. This doesn’t count Navy ships cruising the world’s oceans or planes in the air patrolling America’s borders.
Half of the government’s discretionary spending goes to the military, even excluding Iraq.
Is it time for what John Foster Dulles once called “an agonizing reappraisal” of our foreign policy? Do we need, and can we afford to be, the world’s chaperone while everyone else just wants to party?
Maybe we should pay attention to the wisdom of Winston Churchill when, a few months before the end of the war in Europe, he was informed by an aide that the communists, led by Marshall Tito, were on the verge of taking power in Yugoslavia. Surely, the aide said, the allies ought to take steps to prevent such an eventuality.
Churchill glared at the aide, and growled: “Sir, I do not intend to live in Yugoslavia after the war. Do you intend to live in Yugoslavia after the war?”
John Hazlehurst can be reached at John.Hazlehurst@csbj.com or 227-5861.