Archive for July 26th, 2012

The Fiscal Politics of Decline

by Terrence L. Chapman and Patrick J. McDonald

The current policy conflict over whether automatic cuts to the defense budget, negotiated as a commitment mechanism to ensure the fulfillment of the budget accord from last summer, should be implemented in January of 2012 illustrates some of the short term to medium term national security challenges associated with an era of budget deficits and increasing public pressure for fiscal restraint.    These cuts would reduce troop levels by approximately ten percent in both the Army and the Marines and entail sizable reductions in capital equipment, namely ships and planes, for both the Navy and the Air Force.  Secretary of Defense Leon Panetta has publicly described these cuts as “disastrous.”  The Chairman of the Joint Chiefs, Martin Dempsey, has warned that they risk hollowing out America’s forces, reducing the military advantage the United States possesses over other countries, while pushing the United States to be “less visible globally.”  Our research on the fiscal politics of power transitions and military conflict suggests that this internal fiscal struggle in the United States possesses much larger long term implications that bear directly on the possibility and consequences of American military decline.  In particular, we see the post-9/11 bipartisan support for tax cuts (except on upper incomes however defined) as a bipartisan choice for decline.

Our research examines how international order depends on the internal fiscal bargains within countries.  These bargains set the terms of revenue that can be extracted from society in order to fund military expansion, which in turn shapes the bargaining leverage of the state, and the structure or division of the larger international political status quo.  The spoils of international bargaining—like preferential trade ties, military basing rights in other countries, multiple alliance options, or the capacity to support/install democratic partners in other countries, benefit American citizens, but may do so unequally.  Key to the internal bargain is the degree to which those who foot the burden of increased defense spending are “vested,” or have a stake in, the international outcomes that that spending affects.  Also important is the ease with which those who fund public outlays can replace leaders who “overtax,” which influences the amounts governments can raise from society.

Decline is a relative phenomenon.  It involves a shift in the relative distribution of military power across countries.  These shifts can have two main consequences: they can reduce bargaining leverage of the declining state; and, as Martin Dempsey has suggested, possibly increase the casino risk of military conflict when countries seek to renegotiate the global status quo to reflect new and changing power relationships.

Domestic fiscal strength is a key determinant of international political strength.  As Leon Panetta said in his June testimony to Congress, there is no free lunch.  Governments generally have four means to meet revenue needs:  raise taxes, borrow, draw on publicly owned assets, or simply expropriate these assets from society (often by inflating away debt burdens or simply defaulting on debt as Germany did in the interwar period).  A politically independent Federal Reserve, a politically strong financial sector, a strong national skepticism of public ownership, and the presence of institutions that protect the rule of law have effectively taken the latter two revenue-raising strategies off the table.  The former two, tax power and borrowing, carry several tradeoffs.    Taxation reduces immediate consumption, on the other hand, but may be a more sustainable source of long-term strength, provided that citizens paying taxes are sufficiently “vested” in international outcomes, which may be reflected in the degree to which increases in U.S. power are redistributed through economic channels to fund economic growth at home.  Borrowing to finance tax cuts, wars, and greater government spending (as the U.S. has been able to do in roughly the last decade), avoids short-term sacrifice but invites a long-term problem of snowballing debt that delays tough fiscal decisions and makes fiscal power dependent on the borrowing costs for the state.  Most importantly, as the Greek crisis has clearly demonstrated, the capacity to borrow is intimately tied to a government’s political capacity and willingness to tax.

What is unique about the current American situation?  First, in the aftermath of the Soviet collapse and 9/11, the reach of American political and military influence has dramatically increased.  American troops now deployed around the world.  As a consequence, American forces are now part of the military and political status quo wherever they are deployed.  The withdrawal or diminution of these forces, in such places as Afghanistan, Pakistan, or the Horn of Africa, will generate political change as local groups whose influence had been limited by American forces press their concomitant growth in military power to their political advantage.  Second, the United States has built this position of influence without fiscal buy-in on the part of its electorate, instead drawing on foreign capital.  This raises serious concerns about the sustainability of America’s current global military position if the global community of lenders rapidly reassesses, as it been apt to do, the safety of U.S. debt.

The situation today bears some similarity to the 1920’s, when the United States self-imposed a temporary decline from a theretofore zenith of global power achieved at the end of World War I.  Among other things, the U.S. aggravated the reparations struggle and helped to undermine the nascent political order in Europe by opting for tax cuts rather than war debt relief for Britain and France.  Quite simply, the military power and global influence of the United States rest critically on its fiscal power at home.  If there is no such thing as free lunch, the American taxpayer will, at some point, need to increase its stake in the current international political status quo in order to preserve it.  Given current federal tax levels, we worry that bipartisan support for delay in fiscal stabilization through taxation makes decline, and its attendant negative political consequences for international stability and American influence, more
likely.

Terrence Chapman and Patrick McDonald are both Associate Professors of Government and Distinguished Scholars at the Strauss Center for International Security and Law at the University of Texas-Austin

Catching the Winds of Power

by Adam Parker

In international relations, measures of power are usually relative. Depending on the measure or definition of power, however, this relativity can be quite different. This has important implications for any discussion of American decline. One way to think about this is to attempt to measure aggregate capabilities: what can a given state do? This is a relative measure because the answer to the question depends on the powers of other states (Liechtenstein can’t successfully invade Germany, for instance). The second way to think about power would be to compare these aggregate capabilities: what can a state do that another state can’t? These two measures are distinct, but discussions about American decline often fail to adequately separate them.

Thinking about the aggregate capabilities of the United States, it can be easily argued that American power is declining. Rising powers such as China, India, and Brazil are expanding their spheres of influence, thereby shrinking the area where the United States can exert its influence with impunity. Additionally, the rising influence of non-state actors—be they corporations, NGOs, or transnational terrorist or criminal networks—is further restricting the ability of the United States to unilaterally pursue its interests. Simply put, the United States does not (and will not) have the same clout it had in the unipolar moment after the Cold War.

Now, before the declinists declare victory and quit the field, let’s examine the relative aggregate capabilities in the international community. Here, it is far less clear that the United States is in decline. The decline of the importance of the state (which many gifted individuals have already said a great deal about) is not restricted to the United States. It is a universal problem that all states are confronting. More importantly, all states are confronting a full suite of problems—both domestic and transnational—relating to demography, resource management, and economics that will tax even the most capable among them. These challenges, particularly in their domestic manifestations, mobile casino will sap the ability of states to act beyond their own borders.

In facing these challenges, the United States possesses many unique advantages. Regarding demography, the United States occupies an important middle ground. U.S. population growth has reached the replacement rate.[1] Many other developed countries in Europe have dropped below this rate, while many developing countries such as India are struggling to meet the needs of their growing populations. Also, the United States is not aging as rapidly as Japan, Europe, or even China (despite all our concern about the retiring baby boomers). Demographically, the United States is well off compared to its near-peer competitors.

The United States is similarly blessed in the area of resources. Unlike China or India, the United States does not struggle to provide its citizens with energy. In terms of shale gas, the United States possesses near-limitless reserves and could conceivably become a net exporter of energy again. The American West and Southwest face impending water problems, but these too pale in comparison to China, whose leaders have conceived of the gargantuan South-North Water Transfer Project to address this issue.

Related to these points, the American economy is relatively strong in the long term. The Eurozone union, technically the largest economy in the world, may not be long for this world. At the very least, the feasibility of a monetary union without a fiscal union is in serious doubt. As evidence of the continued relative strength of the dollar, it has remained the world’s safe haven despite the inability of Congress to responsibly tackle the debt problem. China, while currently more fiscally secure, confronts a population of impoverished people numbering some 250 million. This places significant pressure on the Chinese budget as the government struggles to maintain stability. Finally, the United States continues to lead the world in creativity, research, and technological innovation.

For these reasons, it seems probable that the United States will see its aggregate capabilities decrease over the next 18 years while those of its peers and competitors decrease even faster. As the states of the world scramble to catch the fading winds of international power, the United States has the biggest sail. This raises an important question for discussion: should the United States content itself with being the fastest in a slowing fleet of ships, or should we try to maintain our present speed? The answer to this question will be of great consequence to the future of U.S. foreign policy.

Adam Parker is a second-year Master’s candidate at the LBJ School of Public Affairs at the University of Texas-Austin.


[1] Roughly 2.2 children/woman on average, a rate which stabilizes the population

by Megan Reiss

The implications of US power decline are great. In the Global Trends 2030 report, three scenarios about the way the world could look in 2030 are introduced. The first is a reverse engines scenario, whereby the US becomes fairly isolationist, current conflicts erupt, the world economy slows, and even technology flatlines. In a fragmentation scenario, the lack of will to fix the current political, social, economic, and governance problems leads to a world with greater risk of conflict, but without the dire predictions of the reversed engines.  Finally, the utopian-like projections of the fusion scenario portrays an environment where political will to solve problems leads to a prosperous, cooperative world. Of these three scenarios, the report argues that the fragmentation scenario is the most likely to come to fruition, based on the current trends.

These futuristic predictions beg us to ask, will the US have the ability to manage or even shape scenarios, or will American power decline so managing outcomes is no longer feasible?  I can imagine an interplay of will and power may determine which scenario will result. The US may have power but no political will.  Though it may be tragic from an American perspective to waste the ability to lead the world community, latent power would allow the US to muster up the will in the future.  Power means that even if political will is initially absent, when a sufficient shock occurs or a window opens, the US could then muster the will to work to fix the economy, ease conflicts, solve governance problems. But if the US loses power, even with strong political will, there may be little means of affecting change.

Is the power of the US declining in the world?  This question seems like it should be fairly simple to answer by projecting trends into the future, as was done in various graphs in the Global Trends 2030 study, especially those on the Aggregate Power of Developing States. One graph measures power based on GDP, population size, military spending, and technology.  China and the US have equal power by the year 2030. By 2050, China overtakes the US in power by roughly 6 percentage points. But when the team adds health, education, and governance to the mix, suddenly China’s power is behind the US by four or five percentage points in 2030 and is only a couple percentage points ahead in power by 2050. By adding only a few additional elements, the estimated future of US power begins to look a bit rosier.

We could break the elements of these projections down even more to try get to the roots of actual power.  Data on the average age of the population, the social programs the population are guaranteed, the congruence of domestic opinion, the harmony of regional and distant State relationships, the epicenters of industrial booms, the salience of international organizations, and even the influence of nuclear weapons would mean the neat and tidy graphs would only get more complicated. Yet intuitively, each of these should factor in to power justin bieber new cd u smile lyrics where is justin bieber new cd from crashed trying to escape from the vehicle paparazzi chasing after his SUV. projections. Try to then picture accurately predicting the likelihood of innovation in fields we have yet to stumble upon and the power projections on a graph seem incomplete.

Predictions of power decline repeat across history. In the 50’s, the US prepared for nuclear war and predicted that the Soviets would threaten US power to such a great extent that the dominos would fall and many of our allies could succumb to communism.  The 60’s saw the US at the brink of a nuclear conflict and saw a massive escalation of manpower in conflicts over communism in developing countries. Domestic turmoil and a renewed arms race defined the 70’s.  The 80’s brought a series of conflicts in developing countries and another terrifying arms race to assure American power. The USSR (and its power) collapsed unexpectedly. Each decade sees projections of American decline, and this decade is no different.  With hindsight, we can point to the various reasons decline didn’t happen to explain why the predictions were inaccurate. However, we have to keep in mind that some of those making predictions about the power of the USSR and the likelihood of American decline were those people studying these environments. Traditionally, we simply have not been very good at predicting online casino American decline.

We need to know what confers power. While power is traditionally viewed through the size and skill of the military, in an era that is void of two or more States meeting face-to-face on a battlefield, the number of tanks a State possesses no longer seems like an accurate measure of power.  The US still has the strongest military, and yet we discuss possible decline.  There’s more to power than military, or even economics or population size.  If these were the only elements, we would be much better at predicting the future of American decline.

An idea associated with Milton Friedman is that it is not really important whether all the elements in a model accurately reflect the world, as long as the model ‘works’ by reflecting reality. We are traditionally quite bad at predicting American decline, as predictions about an American decline which never happened are repeated with frequency across decades. Various models attempting to assess power are changing for the very reason that the models are not working, they are not properly assessing power.

I can not say for certain whether America is in decline or not. Intuitively I do not believe it is because I do not see America losing the ability to influence or affect change.  While it’s nearly impossible to predict success and innovation in new arenas, the US is repeatedly at the forefront of innovation and there’s no obvious reason to believe this trend will stop.  Although we have growing competitors and a disagreeable domestic situation, we have the luxury of the dollar as the world’s main currency, the top universities, a strong military, nuclear weapons, and a huge GDP.  I can say with certainty that Americans need to muster up the political will to use our power to shape the world into the best possible scenario, but we won’t be able to start until we follow the repeated examples of American history in times of domestic discord and create some semblance of political unity at home. Finally, while we’re trying to ease tension at home, we can keep trying to pinpoint those historically elusive elements that do predict power decline.

Megan Reiss is a doctoral student at the LBJ School of Public Affairs at the University of Texas-Austin.

A Demographic Morning in America

by Gustavo O. Fernandez

When considering the question of American decline, one could point to yawning budget deficits, unaffordable entitlement programs, a creaking infrastructure, or the coming ‘fiscal cliff,’ comprised of tax hikes and budget cuts, as domestic factors contributing to an American power in retreat. Internationally, one could cite China’s rise as a potential threat, and another indicator of possible American decline. Yet, when one looks at the country’s demographic projections through 2050 the United States has a strong, positive outlook that will make solving these challenges manageable.

The United States has always been a country welcoming to immigrants, who have been enticed by the power of democracy, opportunity, and the promise of a brighter future for their children. This promise continues to manifest itself with strong population growth. For example, over 90 percent of U.S. population growth since 2000 has come from immigrants or the children of immigrants. Because of this trend the population of the United States is predicted to increase by an additional 30 percent between now and 2050.

A growing population means that the base of citizens that can be taxed will increase, making it relatively easier to fix our deficit, and with less pain, since it will be spread across more people. It also means that we will have the resources to continue to staff our military, and that we will have a robust working population that will support our retiring baby boomers. Most importantly, as the United States grows and becomes more racially and ethnically diverse, it will lead to more innovation, and more entrepreneurship. For example, between 1995 and 2005, 52 percent of American start-up companies were founded either casino pa natet by immigrants or their children. This is the kind of innovation that we need in order to meet the challenges that we face today.

Strong population growth will also help the U.S. internationally. China is often cited as one of the central potential threats to American power. Yet when we compare fertility rates we get a different picture. China’s fertility rate, at 1.56, is below replacement. This means that China’s population is, in fact, shrinking. In contrast, the U.S.’s fertility rate, at 2.08, shows a population that is growing. This will be a challenge for China, and one that will limit its ability to project power internationally over the medium and long-term.

Some readers may greet with skepticism the news that China’s shrinking population is a problem. After all, China is a huge country of over one billion people. It is true that a shrinking population is not necessarily bad. The challenge that China faces is that its population is both shrinking and aging very quickly. China’s population will begin to shrink after 2026, and by 2050 the size of the working The California health free health insurance quotes marketplace open October 1st, 2013. population will be 50 percent smaller than today. This means that the country will have fewer working-age people taking care of their abundant older relatives, and with no comprehensive, functional pension system in place, China will struggle to meet the needs of its quickly greying population. This will be a significant strain for China, and will demand the attention of the country’s leadership. And while China turns inward to deal with its “senior tsunami,” the United States will continue to enjoy the benefits of strong population growth.

Population growth will continue to shift the ethnic makeup of the United States. The ethnic makeup may be evolving, but the idea of America, what makes our country exceptional, is alive and well. And that’s good news. The positive demographic numbers mean that we will have the people, ideas, time and energy to find innovative solutions to the problems that worry our country today.

Simply having a positive demographic outlook won’t solve all of our problems, but it is a very good start. Demography may not be destiny, but it does put us in a strong and advantageous position moving forward. It is now up to our political leaders and policymakers to craft and implement the correct forward looking policies to effectively harness the demographic advantage that the United States is set to enjoy for the next 40 years or more. Hopefully our leadership is up to the task.

Gustavo O. Fernandez is a graduate student in the Master of Global Policy Studies program at theLyndon B. Johnson School of Public Affairs at The University of Texas-Austin.