- Have high government debt and a political system seemingly incapable of resolving disputes over fiscal policy undermined the U.S. ability or willingness to exercise international leadership?
- What fiscal policy actions might improve the situation?
The United States faces a dilemma. A persistently high level of government debt threatens future economic growth and constrains the ability of the government to act in pursuit of national interests, both international and domestic. Yet efforts to bring down the debt will further constrain government outlays and action — possibly for many years into the future. It has been asserted that the U.S. national debt constitutes the nation's biggest security threat, most obviously because of the effects on military spending and therefore on military strategy. The authors look at the current U.S. financial situation and its effects on the nation's ability to wield the economic instruments of U.S. power and to shape global conditions through other than military means. Noting that history suggests countries seldom grow their way out of burdensome debt, the authors stress that it will be necessary to increase government revenues or constrain expenditures. While there is undoubtedly room to increase government revenues, spending restraint will also have to play a major role. Constraining entitlement spending will minimize the need to reduce outlays that contribute directly to U.S. international influence — defense, international representation, and assistance — and that create future productive capacity — investments in infrastructure, research and development, and education. Unfortunately, current legislation is exactly the reverse of this. Preserving U.S. international influence will require a different approach.
Historically, the United States Has Been Able to Use Its Economic Strength and Influence Constructively
- In some cases, the United States has used its influence to encourage or induce other nations to support institutions, programs, and initiatives or has provided substantial financial support.
- In others, the United States had been sufficiently strong and self-confident to promote or preserve institutions or conditions through forbearance, tolerating less-than-ideal behavior from partner countries.
Its Ability to Do so Recently Has Been Mixed
- U.S. successes include organizing international sanctions against Iran; making significant contributions to financial regulation in the wake of the last fiscal crisis; and leading international efforts to enforce prohibitions against money laundering, illegal tax avoidance schemes, and violations of trade sanctions.
- On the other hand, the United States has not provided financial support to its struggling European allies or to Arab Spring nations. And European nations have bluntly rejected some U.S. advice and efforts, citing U.S. debt issues. Failure to come to grips with fundamental issues of government finance cannot be helping U.S. international credibility.
Fiscal Constraints Are Inhibiting U.S. Actions
- They may be undermining U.S. willingness to incur the risks inherent in international leadership and limiting the financial resources to back up international initiatives.
- They are clearly diminishing the U.S. ability to make necessary adjustments at home.
- Relying on economic growth is not enough. It is necessary both to increase revenue and decrease outlays, and current legislation is inadequate to the task.
- From the standpoint of preserving U.S. international influence, the preferred spending reductions would be for entitlement programs. This would leave more resources for the activities that contribute directly to U.S. international influence — defense, international representation and assistance — and that create future productive capacity — investments in infrastructure, R&D, and education.
- The Budget Control Act mandates restraint in discretionary spending only; spending for entitelements is exempt from cuts. Preserving U.S. international influence will require a different approach.
Table of Contents
A Brief History of U.S. Public Finances
Government Debt and U.S. Defense Spending
Fiscal Performance and the Economic Instruments of International Influence
Debt and Keeping the Nation Strong
What Might have happened
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