A foreign affair

Bush's borrow and keep spending policy doesn't make economic sense, and it will almost certainly come to haunt us.


Published: Wednesday, January 21, 2004 at 6:01 a.m.
Last Modified: Tuesday, January 20, 2004 at 11:29 p.m.
We're not sure if it is something to boast about or be ashamed of that America's borrow-and-spend orgy threatens to pull the rest of the world down with us.
In Washington, they continue to blithely cut taxes and increase spending on the strength of a borrowing spree that will run the federal deficit up to as much as $500 billion this year alone and into the trillions within a decade.
But don't worry, we are assured. President Bush has a plan to cut the deficit in half within five years.
But economists at the International Monetary Fund are worried. America's twin deficits - its fiscal and trade imbalances - have the combined potential to create international financial instability within the next few years, by which time this nation's total indebtedness could equal 40 percent of its total economy.
America, the IMF fears, will simply continue to do what it has been doing for the past four years: borrow its way out of the red. That will, in turn, cause higher interest rates and gobble up money that might otherwise be used for global investments.
"Higher borrowing costs abroad could mean that the adverse effects of the U.S. fiscal deficits would spill over into global investment and output," says the IMF's report on the international ramifications of what it calls "an unprecedented level of external debt for a large industrial country."
The reaction of Team Bush to that IMF report is to simply shrug it off. The deficit will be solved, we are told, by strong economic growth and by re-electing the president. But it's difficult to buy into such glib reassurances when the IMF - which has never been considered anti-American in its outlook - projects a $47 trillion shortfall in Social Security and Medicare obligations alone during the next seven decades.
The problem with Washington's cut taxes, borrow and keep spending policy is that it flies in the face of economic common sense. "Growth, in the end, is about giving up something now in order to invest in the future," Douglas Holtz-Eakin, director of the Congressional Budget Office told The New York Times last week. "If you look at the budget proposals, many of them are not about giving up stuff now. They are about getting stuff now."
America's self-indulgent credit card binge will almost certainly come home to haunt our children and grandchildren, who will end up getting stuck with the bills one way or another. But the IMF is warning that it also may help throw the rest of the world into economic insecurity. President Bush invaded another country on the strength of less provocation than that.

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