Critics of House Speaker Mike Johnson’s recent $1.2 trillion funding package have compared Congress to a drunken sailor, which is an insult to intoxicated swabbies everywhere. After all, they stop spending once they burn through their earnings. The U.S. government however has easy access to credit and therefore spends wildly in excess of its income. The numbers should be sobering for anyone not working on Capitol Hill. According to the Congressional Budget Office, we are likely to add $1.6 trillion to our national debt this year. Our debt-to-GDP ratio exceeds 120 percent, a level not seen since the end of the Second World War. Bear in mind, as recently as 1990, our debt was about 50 percent of GDP. This is roughly where it was in 1940, when we had the fiscal space urgently needed to defeat Nazi Germany and Imperial Japan simultaneously.
Our adversaries await, and anticipate what may well be an unavoidable contraction of American power.
That space is now gone, blown away by bi-partisan tsunami of deficit spending, just as the possibility of expanded conflict in both Europe and the Pacific looms larger with each passing month. Wars are hideously expensive; it is always more prudent to spend on effective deterrence to prevent them. Yet the U.S. may not have the fiscal space to maintain our existing military commitments around the world, much less bolster them. To match the Chinese fleet will require us to add over 100 ships; to support Ukraine and our NATO allies will require untold billions as well as more manpower and hardware devoted to a potential land war in Europe. (READ MORE from Karl Pfefferkorn: The US and Gaza Mission Creep)
Can we deter major wars given our parlous finances? Former NATO Secretary General Anders Fogh Rasmussen writes in the Wall Street Journal that “the West needs a war footing” but such a massive industrial transformation also requires massive levels of government spending. The customary answer in Congress is to borrow the funds needed, but we are approaching the end of our ability to borrow at preferential rates. Demand for U.S. bonds is already softening amid the recent flood of new debt. Buyers will soon demand higher interest rates, which makes additional spending more expensive and eventually unsustainable. Any attempt to inflate away our debts will only exacerbate this trend as well as wreck the domestic business climate. Productive investment ceases if returns cannot be calculated because of rampant price inflation. See Argentina or Venezuela for the end point of this particular policy.
Creating the long term fiscal space for a “war footing” will require a combination of spending cuts and higher taxes. Raising income taxes is anathema to the average Congressman staring down an election never more than two years away.
Cutting benefits is equally fraught. Washington has never in this century asked Americans to pay taxes equal to the government spending we enjoy; we get our government at a discount to its actual cost. The difference is cheerfully shifted by Congress into the future, onto the shoulders of the young and the not yet born. Reversing this convenient practice and compelling Americans to pay more for reduced benefits so that we may devote their tax dollars to the deterrence of a notional attack on our allies is far beyond the political powers of our current leaders. Absent a highly persuasive leader intent on altering this trajectory, we will continue to live beyond our means until the bond market tells us we cannot. At which point America’s reign as the dominant superpower will end.
You may reasonably imagine that our adversaries have already sized up this quandary facing American policy-makers. Military strength derives from the fiscal capacity of the state, and ours is approaching its limits. Unlike President Xi and Putin, we do not enjoy an authoritarian’s power to extract funding for military adventures without democratic opposition. Would Americans sacrifice their Social Security, their Medicare, or their Obamacare subsidies in order to defend Taiwan or the Baltic states? The current difficulty getting Ukrainian aid through the House of Representatives suggests they wouldn’t.
We may already be at the budgetary limits of our global military presence even before we impose the demands of a “war footing.” Reducing our commitments to align them with our fiscal prospects may be done intelligently through greater burden sharing with our allies in Europe and the Pacific. Or it may be done catastrophically, with allies abandoned. A populist moment coupled with a budgetary crisis could enshrine American isolationism as our prevailing foreign policy. Defending granny’s Social Security from budget cuts is much easier than defending Filipino fishermen from the Chinese Navy. (RELATED: The Heartbreak of the Brideshead Republicans)
It will be easy to decry the coming of populist isolationism as the work of small-minded opportunists. But any success this movement has in reshaping America’s global commitments will derive from the consistent failure of our elected representatives to guard our fiscal strength. Over the past 25 years, we have accumulated debts comparable in GDP terms to those needed to fight the Second World War. But unlike our 1945 predecessors, we have no victory in sight. Our adversaries await, and anticipate what may well be an unavoidable contraction of American power.
