Bush & Co. Is Spending Us Into Pauperhood
By Daniel N. Shaviro
Daniel N. Shaviro is a law professor at New York
University and author of "Making Sense of Social
Security Reform."
January 20, 2004
What's the difference between Pete Rose and the George W. Bush
administration?
The main one is that at least Pete Rose has admitted he had a compulsion and
promises that if reinstated he will not act on it again. You may believe him or not,
but admission is a necessary first step.
The Bush administration isn't hooked on sports gambling. Instead, what it likes to
do is spend money in wild binges while also constantly cutting taxes and
pretending that nothing has to be paid for.
Eighty-seven billion dollars for a year in Iraq, with the occupation expected by
many to continue indefinitely? No problem.
A new Medicare prescription drug benefit, with no financing and an estimated
long-term cost of $12 trillion, or more than our entire economy produces in a
year? Why not?
A permanent space station on the moon, plus manned trips to Mars within a
decade? Sounds expensive, but who's counting?
Repeal any of the Bush tax cuts of the last few years? Unthinkable.
The administration is also, at long last, facing something akin to the baseball
commissioner, albeit lacking his powers: The International Monetary Fund. The
IMF - long the scourge of political leaders from Brazil to Kenya to Indonesia for its
insistence on budget discipline - has now trained its sights on American policy.
The IMF notes that, within a few years, our trade debts to the rest of the world
may exceed 40 percent of the size of our economy - and this before the Baby
Boomers' retirement puts our budget even more massively and permanently in the
red. It warns that our ever-expanding budget and trade deficits and national debt
endanger not just our own economy, but worldwide economic growth.
Only, unlike in Brazil or Kenya, the IMF cannot threaten to pull the plug on us,
because there is no plug to pull. We have not borrowed money from the IMF, or
at least not yet. Keeping the Bush administration's budget policies in place would
make about as much sense as letting Pete Rose manage the Cincinnati Reds
again and bet on their games as much as he likes. What happens if the federal
debt keeps growing and growing, with no end in sight?
A recent Congressional Budget Office report lays out this scenario: "Foreign
investors could stop investing in U.S. securities, the exchange value of the dollar
could plunge (as is already happening), interest rates could climb, consumer
prices could shoot up, or the economy could contract sharply.
"Amid the anticipation of declining profits and rising inflation and interest rates,
stock markets could collapse and consumers might suddenly reduce their
consumption."
Now for the bad news: That is only Step 1. At some point, if the United States continues to increase spending while cutting taxes, the government may no longer be able to sell enough bonds at any reasonable interest rate. At that point, with seniors clamoring for their Social Security and Medicare benefits and tax increases a political third rail, the temptation to keep things going a bit longer by printing money may become irresistible.
Continues:
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