x Abu Dhabi, UAEThursday 27 July 2017

Imperial America's reckoning day has only been delayed

Today, the value of total debt carried by the US economy is equal to 3.5 times the nation's GDP.

On February 21, 1947, the British government informed US president Harry Truman that it could no longer afford to subsidise Greece and Turkey in their resistance to communist movements. The British government appealed to Washington to assume Britain's burden at a cost of US$500 million a year in financial aid and a garrison of 40,000 troops. It was the end of Pax Britannica and the dawn of the American empire.

Today, the value of total debt carried by the US economy is equal to 3.5 times the nation's GDP. Its defence budget - at $680 billion (Dh2.49 trillion), roughly half of what the rest of the world spends on national defence - is larger than the economy of Poland. Factor in non-Pentagon security-related outlays - maintenance of the country's nuclear arsenal, for example, the department of homeland security or the US Treasury's military retirement fund - and America's real defence commitment expands to nearly $1tn annually.

That is equal to about 28 per cent of a total federal budget that is forecast to leak $1.4tn in red ink this year and another $1tn each year for the next decade. And now, Afghanistan. In his landmark address last week, Barack Obama, the US president, assured Americans he would not set national security objectives "that go beyond our responsibility, our means, or our interests". Mr Obama then set about listing policy goals that would do just that. The president's "to do" list in Afghanistan would, by any judicious appraisal, turn a generation of American taxpayers into wards of the Pentagon.

L'etat, c'est moi - "The state is me" - the 18th-century King Louis XIV of France famously said. If Congress concedes to the defence department its latest wish list for war, l'etat, c'est l'armee. The costs of the Afghanistan "surge" will, the congressional research service (CRS) says, extend the price tag for Washington's wars in Iraq and Afghanistan above $1tn. The White House estimates the annual cost of the new deployment of 30,000 new troops at about $1 million a head, although independent estimates put the total figure closer to $40bn. The request for new funding would increase the total bill for next year's US operations in Afghanistan to $100bn, up from $55bn this year and $43bn last year.

The CRS says that if troop levels in Iraq and Afghanistan were to average 75,000 over the next decade, the costs for both wars would total an additional $867bn - more than the hotly debated $848bn healthcare bill working its way through Congress. How will politicians finance what is now Mr Obama's war? Certainly not as a budgeted item. The president intends to foot the bill as an off-budget, supplemental expenditure, the same way his predecessor, George W Bush, paid for the two conflicts throughout his two terms.

When he assumed the presidency, Mr Obama to his credit reversed this accounting sleight of hand, insisting that the cost of war be reflected in the budget as an additional burden for a heavily indebted nation. Now, only half way into the current fiscal year, he is reversing. Will the costs of the surge be offset with spending cuts and tax increases? Not likely. Some members of Mr Obama's Democratic Party have proposed a small levy on a population that has, except for a tiny minority, been spared the pain and sacrifice of war.

But even their own party elders are unlikely to support such an idea, lest they be tarred by Republicans as "tax and spend" liberals. Republicans, meanwhile, are eager to underwrite any new military commitment the Pentagon might prescribe, assuming it is paid for with additional borrowings - that is, sales of public debt to the Chinese - or cuts in social programmes. This is the same Republican Party that controlled Congress and the White House for six of the last eight years while Mr Bush ran up record budget deficits, only to rediscover the virtue of fiscal restraint the minute Mr Obama was sworn in as president.

The end of the American empire has been the stuff of prophecy at least since 1987 with the publication of The Rise and Fall of the Great Powers, the British historian Paul Kennedy's meditation on how "imperial overstretch" would ultimately do the US in as a global supreme leader. Although Mr Kennedy's prediction may have been premature, his thesis - that global or even regional power can be sustained only through a prudent calibration of wealth creation and expenditure - remains sound.

By the late 1980s, the US economy had only just begun the process of inflating its way to prosperity after Reagan-era tax cuts and deficit spending. The US has not avoided the reckoning warned of by Mr Kennedy. It has only delayed it. @Email:business@thenational.ae