Empire of Simplicity
Who's Afraid of Deficit Spending?
by JIA HU The means of balancing the books for the Bush administration-managing to finance a war with spiraling costs while still slashing the taxes Americans have to pay-has stymied many. The answer: Borrow, borrow, and borrow some more. In their new book Empire of Debt, William Bonner and Addison Wiggin trace the catastrophic implications of how the United States has moved from being the world's largest creditor to its greatest debtor in only half a century. Decadence of the Empire In their quest for the source of this debt syndrome, Bonner and Wiggin take a walk through history, identifying economic policies and imperialistic adventurism that have created a tradition of indebtedness which has been continued, but in no means initiated, by the Bush administration. They deride the financial reforms the U.S. government has enacted over the years, beginning with the imposition of the first income tax and culminating in the "idiotic" move to abandon the gold standard under the Nixon administration, all measures they say have caused profligate deficit spending. The authors also condemn the doctrine of American military intervention, arguing that Woodrow Wilson's decision to join the first World War kicked off an imperialist tradition that continues to bankrupt the nation today. Indeed, their irreverent writing style-sometimes witty, sometimes humorous, but always critical-offers no mercy to the litany of actors they claim helped establish the "Empire of Debt." Though Bonner and Wiggin may seem harsh in their criticisms, there is no denying the current economic ills of the United States . To name a few: microscopic personal savings rates of 1.2 percent, growth rates several times smaller than those of developing nations, an accounts deficit that leaves the United States at the mercy of Asian creditors, and of course, an overwhelming debt that is calculated to average $128,560 per person. Even more disturbing is the fact that Americans believe they are becoming wealthier as home equity values skyrocket, in a speculative bubble doomed to burst, while interest rates sit at the lowest level in decades, leading to increasingly hedonistic consumerism. The authors believe that a painful correction is imminent, one that will see American economic hegemony usurped by up-and-coming nations, such as India and China , coupled with a fierce domestic depression as the credit upon which people are living is lifted out from under them. No Economic Doomsday Although Bonner and Wiggin raise very serious concerns in their description of America 's indebted society, their argumentation is often overly simplistic. Federal debts are now the highest they have ever been, but as a percentage of GDP debt levels are at a relatively modest 40 percent. During the economic boom after World War II, an era that the authors laud as one of the peaks of American economic power, the debt-to-GDP ratio reached 109 percent. Growth rates are of course much lower than those of developing countries, but considering the per-capita incomes they are starting from-eight times less in China than in the United States -this comes as no surprise. Moreover, much of the current account deficit is comprised of cheap, easy-to-produce imports such as textiles and toys; America still hold an edge over most countries in the production of technologically sophisticated goods, and it is ultimately technology that fuels productivity growth, not how much a nation can cut its costs. These criticisms are symptomatic of the authors' general tendency to oversimplify vastly complicated economic issues, many of which are still hotly debated in economic circles today. The fact is, there is a reason that trained economists and financiers are not running for cover and, contrary to the contention that they have all been deluded by the trappings of the American empire, it is much more reasonable to believe that such a catastrophe is neither imminent nor will it be as disastrous as Bonner and Wiggin claim. Empire of Debt fails to tackle the complexities of the economy and consequently presents a misleading picture of the actual state of affairs. In the end, the authors take an excessively alarmist stance that is founded on an irrational fear of debt. The best reason to read this book is for the interesting historical anecdotes, not as an introduction to macroeconomics. |
