Friday, March 28, 2008

It's The End of the World As We Know It

Unless you're over 70, you probably don't remember a time when the United States of America wasn't global top dog. The transition, well underway by the late 30's, was really cemented by WWII. When that one was over no one was in the slightest doubt of who was ruling the roost.

It's been a terrific run. The 50's, 60's and 70's were the grandest time to be an American, heralding real social, political and economic advances. Whatever was new today would be the basis for something newer next year. No one could even foresee that ending. But ending it is.

George w. Bush has caused enormous damage to his country. With the help of a Saudi guy, he's dragged the US to the far right and perched it precariously very near the end of the limb.

Six months ago there was very optimistic talk about how the next president would put America back on an even keel and, eventually, undo the damage left in the wake of a departing Bush. There was still time to set things right. It wouldn't be easy and it wouldn't be quick but there was still at least some time. Lately, however, it seems that hopeful optimism may have been misplaced.

Take Bush's tax cuts for the rich. When they were introduced, even John McCain opposed them. That was then. Now McCain favours making them permanent and even Clinton and Obama are talking about which cuts should be kept and new ones to be added.

Now the line is that these ruinous tax cuts are necessary to see America through its current fiscal crisis. Say what? Even the Washington Post which seems to oppose the tax cuts then goes on to make a bizarre claim:

"The direction of the tax debate is frustrating deficit hawks in Washington, who worry that none of the candidates is charting a course toward a balanced budget. Meanwhile, Bush and other politicians are telling voters alarmed by a sagging economy that keeping the cuts past their 2010 expiration date can help revive the nation's fortunes, a claim many economists say is nonsense."

Okay, the tax cuts are bad. But then the paper goes on to describe how wonderful the Bush cuts have been:

"The tax cuts, the signal economic achievement of the Bush administration, are among the three biggest federal tax reductions since the end of World War II, comparable in size to the Reagan tax cut of 1981 and the Kennedy tax cut passed in 1964, according to the nonprofit Tax Foundation. By the time the Bush cuts are scheduled to expire, it's projected that they will have saved taxpayers $1.6 trillion."

They will have "saved" taxpayers money? Only if you ignore the fact that these cuts have been funded by enormous government borrowing. America's taxpayers, particularly the working and middle classes, are going to have to repay that money, with interest, to foreign lenders - every last dime of it. And the longer this madness goes on, the more debt those taxpayers are going to carry, with interest, and the more they and their kids and grandkids are going to have to pay.

It's sad really. The American people seemingly can't be trusted to accept tough measures necessary to restore their country. If Chretien and Martin had shown as little faith in us they would never have embarked on the road to balanced budgets and debt reduction. Imagine the mess we would be in today.

I think one thing is obvious. If no presidential candidate runs seeking a mandate to reverse America's fiscal slide there'll be even less chance of reform coming through Congress. Debt is a disease that has spread through the United States at all levels and America will have enormous problems retaining its place on the global scene if it doesn't deal with this problem.


McGuire said...

For the record, the tax relief of the last 7 years has been an enormous success for the US. When adjusted for inflation & population growth, gov't revenues stand at an all-time high. It's the over the top spending that's the problem. Reversing them would be an abject disaster.

The Mound of Sound said...

I agree with your take on over-spending but a lot of economists disagree with your view on the utility of these tax cuts. You have a Guns AND Butter government that feels it can cut taxes for the most advantaged at the same time. That's sheer madness or, worse, complete indifference to the future of that country.

As for linking the tax cuts to government revenues, I'd like to see some proof of that before I'm willing to accept the causal relationship.

US governments always are awash in cash when there's a bubble underway. One of the greatest blessings to befall Bill Clinton was the enormous revenues that poured in to Washington during the "Dot Com" bubble. That let his government produce a balanced budget.

Notional wealth, such as the housing bubble, creates a terrific revenue stream for the central government.

WesternGrit said...

Very good post. I've posted about the "US Decline" in the past... America - like the UK in the 50s - is in a state of post-colonial decline. The US government believes tax cuts will help grow domestic investment and production... The HUGE problem is that no-one will invest in the US. Not when Mexico (and cheap labor) is right next door; or Canada (free medicare for workers) is next door; or production is easier when you go close to the two fastest growing markets (India & China)...

Because of this, tax-cuts are a big black hole that neo-cons are getting sucked into. Along the way, they are tossing away their infrastructure, their standard of living, and their ability to be competitive.

The Mound of Sound said...

Hi WG. It's tragic really to see what my generation (boomers) and the one following did to unravel the promise created by previous generations. A blinding sense of exceptionalism and a nearly theological aversion to restraint seems to have led to a squandering of all the advantages America once possessed.

You're right about them "tossing away their infrastructure, their standard of living, and their ability to be competitive." It's as though they truly believed they could defy gravity.

I had hoped that the post-Bush president, even a Republican, would have seen the need to steer that ship out of the path of the iceberg. Instead McCain is talking about further reducing regulation of the financial sector when it was the lack of regulation that led to the housing boom and subprime crises that America is just beginning to confront.

Even Clinton and Obama are now in on the tax cut mantra, arguing only about which ones should be enshrined in permanence.

Jim said...

I have to agree, all the tax cuts in the world, as wonderful as they are, will not help until the US fed controls it's spending. Wars on two fronts certainly aren't helping.

That being said, it is not just Bush's fault, the Americans and us to a lesser degree have been guilty of not preparing for the onset of the global economy. for decades now, we have been self absorbed, buying patio furniture and speedboats, all the while screaming at our unions to get us more money so we can support more debt...well, welcome to the backlash.

Look for a reversion to isolationalism and protectionism from the US...which of course will only speed their demise.

Sad times indeed for a once great nation.

The Mound of Sound said...

Hi Jim. Wish I didn't have to agree with you but you are right. America's economic troubles are a plague on all of North America, even the world.

The hard part is putting this in perspective as just one part of a quilt of pressing global challenges from global warming to desertification, deforestation to resource depletion,overpopulation and food shortages, nuclear proliferation and species extinctions, on and on. It's one great big awful furball and we're just going to have to cough it up. Brace yourself.

Anonymous said...

Assume when you write, "Bush", surely you don't mean that vacuous, turd who's scared of horses because he's just the front guy; appropriately stupid and malleable.
(though completely reminiscent of his Canadian counterpart, eh?)
There's a Gang of Seven in that White House somewhere.

Jim said...

Yep, it must suck to agree with me.;)

Yes, America's troubles are a pox on the world, but remember, they are the world's largest consumer...the world didn't get to be where it is without someone spending money. They are stuck in a spending/credit meltdown, and the moneychangers are laughing all the way to the NWO.

And the Chinese, who hold scads of US debt, have not collapsed the US economy...North Americans are completely willing to by Chinese stuff!

As for the second part of your reply....

Lighten up! It isn't ALL your fault. ;)

R. Christopher Edey said...

To WS:

The HUGE problem is that no-one will invest in the US.

Stock of total Foreign Direct Investment (FDI):

1. USA $1,818 Billion
2. UK $1,135 Billion
3. Hong Kong $769 Billion
4. Germany $764 Billion

As for the countries you noted, their total combined FDI: $1,401 Billion

But look out! Those numbers are from the CIA world factbook and have obviously been fudged.

In 2006, the US was the largest recipient and source of FDI

To MoS et al.,

Sorry to rain on the dirge of declinism here, but the sunset of the United States has been predicted many times and while it has sold a lot of books and newspapers throughout the years, it has been a consistently poor bet.

The United States has been the world's most dynamic, adaptive and inventive economy for the past century and while past trends are no guarantee of future performance, the people who invested almost 2 trillion dollars in the American economy obviously believe that they are getting a non-declining asset for their money.

I do not underestimate the problems that the United States currently faces, but this nation has survived the depression, WWII, the Soviet Union and many past economic challenges... Remember when Japan was going to swamp and buy out America? How did that work out?

Have some faith gents. The future is bright.

WesternGrit said...

R. Chris... If you take the numbers you just listed, and adjust them per capita, you'll see that the US amounts are trifling, compared with tiny countries (both population-wise, and area-wise), with very few resources. The simple fact is that America has just not performed up to it's potential recently. It's a crying shame.