Crushing Debt and U.S. Foreign Policy

By Paul Sullivan

Standard and Poor’s recent downgrade of the United States’ credit rating and the resulting tumult is only the most recent reason to halt the unceasing surge of U.S. debt. This debt is not only for current and past expenditures, but for future obligations of the government to its citizens—inaptly referred to as “entitlements.”The inability of the U.S. government to get a handle on our debt problem will restrict its foreign policy options, leaving Americans with a vexing set of choices. Do we choose to take care of our elderly at the cost of funding foreign aid projects, defense, and intelligence services? Or are we willing to lower our entitlements to keep supporting our foreign affairs strategies? Conversely, we could either vastly increase taxes and continue on the same spending path, or keep taxes low and hurtle even faster towards financial disaster. If we cut back our international activities we will save money, but potentially bring the risks of increased organized crime; a more vicious drugs problem; a greater threat from terrorism to our shores; possibly more risky transport of oil and other cargos on the sea, land, and air internationally; and greater risks to our allies and others, amongst many other deleterious effects.

The national debt clock depicts some of the federal and state debts owed in present terms, but also those dangerous debts that cover future expenses. Pay close attention to that $54 trillion in the middle—not surprisingly, some experts believe we are already bankrupt. Economist Laurence Kotlikoff of Boston University has written extensively on the subject. He examines the gap between what we can pay and what we can owe, finding it not to be $54 trillion (already enough to keep one up at night) but more than $65 trillion.

If the U.S. were a private company, its stock would have fallen long ago. In the past, the hard work, inventiveness, cleverness, risk-taking, and determination of Americans has always kept our “stock” value high. The U.S. practices rule of law, has fairly good institutions at many levels, and has, at times, boasted the best intellectual and physical infrastructure in the world. However, I would agree with The McKinsey Global Institute’s recent assertion that the economy and many parts of the physical and intellectual infrastructure need to be reinvented—and soon.

Recent bickering among the parties in the Senate, House and Executive Branch have made clear the dysfunctional nature of our political elite—although it seems like common sense, it is worth stating the importance of a functioning political elite in maintaining a properly functioning economy. If those in power cannot keep U.S. economic security in order, foreign policy and national security strategies are at risk as well.

In the near future, these entitlements will squeeze the budget tight enough to force either their reduction, or a considerable increase in taxes. Both of these mathematically and logically necessary changes appear, so far, to be politically impossible. That political impossibility will lead to economic sclerosis in the long run, and cuts in defense, foreign affairs, and other discretionary expenditures in the short-term. Entitlements are mandatory —discretionary expenditures are decided annually and are regularly laid on the chopping block.

Entitlements are 10 percent of GDP; defense is 5 percent. The foreign affairs budget is smaller than that of the Department of Defense’s budget and will likely continue to shrink. The 2012 DOD budget request is far lower than in 2011; national defense is now just 19 percent of the budget. Foreign aid is but 2 percent, while entitlements are over 58 percent. We are soon likely to face a difficult trade-off: taking care of our older people and providing other necessary services, or keeping up defense spending. As baby boomers retire and start to draw on social security, entitlement spending will only expand, either pushing out discretionary spending or pushing taxes through the roof.

Given the dysfunction on Capitol Hill, not to mention the fractured political views of the country as a whole, one could easily expect pressure to cut back on defense and foreign aid. This could, however, greatly limit what we can do overseas—who we might provide aid or humanitarian assistance to or even what wars we could fight. Initially, one might see these limitations as a good thing. We would be less likely to get into “wars of discretion” or spend another $3 trillion in places like Iraq and Afghanistan. However, gutting our DoD and foreign affairs budget could cripple our ability to effect change in several important foreign policy areas such as maintaining and building positive relationships with other countries through the provision of aid and remaining able to defend ourselves from organized crime and terrorism originating outside of the U.S.

The U.S. government has (through USAID, DoD, and the foreign affairs budget in general) has funded thousands of programs that not only help people in the developing world, but work to maintain vital transnational relationships. To name just a few, these programs work to: fight the spread of malaria and HIV; build clinics and schools; improve water and sanitations systems; and train teachers, police officers, and other professionals.  The foreign affairs budget also funds scholarship and exchange programs that bring foreign students and community leaders to the United States to study, network, and engage in cultural exchange. It also supports significant programs to combat drug trafficking, terrorism and organized crime worldwide—the FBI, CIA, and Coast Guard together act as a protective umbrella for many countries in many parts of the world. What would happen if that were taken away?

International criminals, terrorists, pirates might be happy to take advantage—however, the people who have benefited from our help, training, and protection would be at great risk. There is also some question about what this might do to global stability, especially in the areas of security. What would happen in places like Israel, Egypt, or the Sudan if we stopped all contributions and assistance to them? What would happen if stopped contributing to NATO, the UN, INTERPOL, and the like? What would happen if we effectively said we would abrogate many out of thousands of treaty obligations concerning everything from energy to crime to international security because we simply could not pay for them? What would the world be like if the U.S. curled up upon itself and became isolationist again?  

We need to implement national dialogue examining and reiterating our priorities. Do we want to be able to support baby boomers and provide essential services, or do we want to defend ourselves and provide development aid as we have in the past? Are we willing to pay more taxes to support our priorities? If not, then maybe they are not our priorities after all.



Paul Sullivan is a professor at Georgetown University and The National Defense UniversityAll opinions expressed are his alone and do not represent those of the National Defense University, or any other organization he may be associated with.

[Photo courtesy of Flickr user bernardoh]

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