I'm no extremist, but I do plead guilty to economic fundamentalism. I am firmly convinced that no nation can be a credible, durable world leader if it mismanages its domestic economy, runs up massive debts, and makes promises it can’t keep. America today is such a profligate country, and as a result our leadership in the world is at risk.
As a nation, we owe the rest of the world a net three trillion dollars and more. Our trade deficit pushes that figure higher by several billion dollars each day. Our budget deficit – once again spiraling upward as we go through our “rough patch” – adds to the burden and robs us of the means to pay for the kind of government we need. Consider that in FY 2007, nine percent of the budget went to interest payments while only two percent was spent on homeland security. If nothing is done, we’ll end up paying out more in interest than for national defense or non-defense discretionary spending (both 18 percent of the 2007 spending). By some calculations, the government has made a grand – really grand ! – total in excess of 57 trillion dollars in promises for future benefits. These are pensions, social security, Medicare and Medicaid benefits that folks are counting on. But where in the world are we to borrow that kind of money?
When Henry Paulson calls this economy “fundamentally sound,” I laugh out loud. But others seem to take the treasury secretary at his word. Just this week Chinese prime minister Wen Jiabao gave Condoleezza Rice some grandfatherly advice: “we hope the U.S. will quickly pass through the subprime crisis and stabilize the U.S. dollar; this is of great importance to the world economy.”
Would that it were so simple. When a nation has structural problems, it needs structural solutions. For starters, I propose:
1. urgent realignment of the world’s over- and under-valued currencies, including both the dollar and the renminbi.
2. adoption by the U.S. of a comprehensive national strategy to reduce our` foreign borrowing. That will require us to save and invest more, produce more, and export more. All good things that generate jobs. But jobs shouldn’t be the prime objective; production and saving should be. This is the only sure way to reduce our staggering debt without a big inflation.
3. acceleration of the inevitable tax reform as the key step in implementing such a strategy. Once we get our fiscal structure right, we can tackle health care, infrastructure, domestic energy development and other critical objectives.
When a baseball team starts to play badly, the manager often demands a return to fundamentals. It’s time for America to do the same.