The National Interest Lost in the Shuffle

 

During the First World War the United States surpassed England as a world power with Europe in debt to us. By 1940, England was near bankruptcy and guaranteeing the protection of countries it could not afford to defend. Its relatively short tenure as a world superpower ended there; the US became the next superpower manipulating its national debt for world dominance. 

--Bernhard Thuersam

The National Interest Lost in the Shuffle:

“Before the Glorious Revolution of 1688, Britain had been no more than a marginal military and economic power, with only a few tenuous colonies in the Americas. As late as the 1660s, the Dutch navy had dared to sail right into the Thames Estuary, where it burned five British men-of-war and seized the Royal Charles, the British ship-of-the-line that carried King Charles II home from exile in 1660.

Yet 100 years and 272 million [pounds] of debt later, Britain had become the linchpin of European politics, the Royal Navy was supreme around the world, and the sun had stopped setting on the British Empire.  The British economy grew strongly during this period as well, with national income more than doubling (although, to be sure, national income remained highly skewed toward the upper classes).  By 1790 the Industrial Revolution….was rapidly increasing the rate of its economy. It would, in the next half-century, make Britain the world’s first superpower, although the Napoleonic wars, which occurred at the same time, caused the national debt to increase to no less than 844 million [pounds] by 1819.

[The] British experience demonstrates that a national debt, properly funded and serviced, can be a potent instrument of national policy. The secret, of course, is in the funding and servicing.  [Britain] turned its tax [gatherers] into bureaucrats at the same time it had created a national debt in the modern sense, on e funded by long-term bonds (and some, called Consols, that never mature) that could be traded in the marketplace.  The effect was to greatly liquefy the national wealth, allowing it to flow more easily to where opportunity beckoned and to fund the costs of an expansionist foreign policy.

Thus no other country in Europe was able to match Britain’s ability to marshal so much of its national wealth for the purpose of waging war, while disrupting its national economy so little. For instance, because of Britain’s ability to raise cash, the government could hire foreign soldiers to fight many of the country’s battles (such as the Hessian’s who fought in the American Revolution). 

Today, nearly everyone, conservative and liberal alike, agrees that something is terribly wrong with how the US government conducts it fiscal affairs.  [From 1982-1997] have been marked by a more than 25% increase in federal revenues (in constant dollars) and the collapse of its only significant external military threat.  Yet in those years the United States spent as much of tomorrow’s money as it would have spent fighting a major war or new Great Depression, the primary cause of past deficits.  And yet in the past sixty-plus years, the United States has made no attempt whatever to pay down its debt and, more recently, has borrowed even more money as it there were no tomorrow, despite the fact that most of those years were both peaceful and prosperous. 

How did the world’s oldest continuously constituted republic lose control of so fundamental a responsibility of government as its own budget? The answer, as with most governmental policy disasters in a democracy, is one innocuous step at a time.  While politicians, economists – and many others – pursued their self-interests, the national interest largely got lost in the shuffle. The budget system has become ever more heavily biased toward spending, while the tax system has become ever more unable to yield increased revenue. 

Today the American debt has grown…to a point where, at $51.1 trillion (1997), it is incomprehensible to the average American.  In 1916, the richest man in the country, John D. Rockefeller, could have paid off the national debt all by himself. In 1997 William Gates and Warren Buffett together could not pay two months’ interest on it – about $50 billion – without going broke.”    

(Hamilton’s Blessing, John Steele Gordon, Penguin Books, 1997, pp. 2-9)