Riding for a Fall

Peter G. Peterson

From Foreign Affairs, September/October 2004

Summary:  Three long-term trends are threatening to bankrupt America: the burgeoning costs of waging the war on terrorism, the U.S. economy's increasing reliance on foreign capital, and rapid aging throughout the developed world. Washington must understand that committing the United States to a broader global role while ignoring the financial costs of doing so is deeply irresponsible.

Peter G. Peterson is Chairman of the Council on Foreign Relations, the Institute for International Economics, and The Blackstone Group. He served as Secretary of Commerce in the Nixon administration. This article is adapted from "Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It," published by Farrar, Straus, and Giroux, LLC. Copyright (c) 2004 by Peter G. Peterson. All rights reserved

If nothing else forces a rebalancing of the global economy, demography will be the clincher, its impact slow but inexorable. In the longer term, low fertility will mean not just a vicious fiscal squeeze but also an accelerating population decline. This too will have profound consequences in developed countries. The rate of GDP growth can decelerate and even shift into reverse in those countries in which the rate of workforce decline exceeds productivity growth. Population decline will also surely reshape the politics of migration and protectionism, reorient geopolitical strategy, and recast the cultural mood. Outside the United States, the population of the developed world is peaking now. By the early 2010s, assuming no change in fertility, it will decline by about one million people per year; by the late 2020s, by about three million per year; and in the 2040s, by over five million per year.

The United Nations periodically publishes a list of the 12 most populous nations. Back in 1950, this list included six nations from the "first world" (the United States, Japan, Germany, the United Kingdom, Italy, and France) and one from the "second world" (the Soviet Union). By 2000, only four of these nations remained on the list. In the UN projection for 2050, only one "first world" country remains--the United States, still in third place. According to political scientist Samuel Huntington, "the juxtaposition of a rapidly growing people of one culture and a slowly growing or stagnant people of another culture generates pressure for economic and/or political adjustments in both societies." Over the next few decades, Americans will be asking just how these adjustments may reshape the geopolitical contours of tomorrow's global order.

MORE WILL THAN WALLET?

One demographic reality is already clear: no one can substitute for the United States' global role. Yet the United States cannot fulfill this role without facing up realistically to its full cost. Leading nations cannot indefinitely borrow massively from those they intend to lead. As the economist Benjamin Friedman puts it, "World power and influence have historically accrued to creditor countries." Equally, leading nations cannot subscribe to a foreign policy that has been aptly characterized by historian Niall Ferguson as based on "the Wal-Mart motto: Always low prices." Global security has never been guaranteed on the cheap--and that is unlikely to change in an age of fanatical passions and hand-held WMD.

A leader must be willing to assume burdens. A global leader must be ready to undertake continent-wide projects requiring great patience, larger resource commitments, a public sector unburdened by excessive political promises, and an economy whose long-term prospects are unquestioned either at home or abroad. To date, unfortunately, America's elected officials leave the impression that vaunted superpower status comes with few long-term costs or responsibilities. They imply that wars can be waged without a war budget and that great debtors can set great examples.

President George H.W. Bush once opined that "America has more will than wallet, but what we need is will." His point was that good intentions count for more in international affairs than mere material resources. This may be true some of the time, and for a short while, perhaps. But ultimately good intentions need resources to be effective; "will" must prove itself by persuading citizens to open their wallets and, if necessary, to forgo other outlays.

The United States would greatly benefit from a serious and realistic discussion of the total cost of its long-term security agenda. It is a discussion that would lend welcome urgency to efforts to control the federal deficit, and, in particular, to reform ballooning entitlement programs. It is a discussion that would reconnect the domestic and foreign policy communities by requiring every policymaker to make a tradeoff: "How much am I willing to pay in tax hikes or benefit cuts in order to fund my security priorities?" Most of all, it is a discussion that ordinary Americans would welcome. People know in their personal and family lives that they cannot call for new sacrifices or promise new benefits without carefully considering the consequences. Why, they wonder, should things be any different in national life?