Bush's spectacular failure: a former Clinton policy adviser argues the Bush team has failed miserably at global economic leadership

International Economy, The, Spring, 2004 by Jeffrey Frankel

WHERE ARE WE HEADED?

The big question is, are we eventually going to start paying a price for our neglect of the responsibilities of international economic leadership, and for poor economic policies mole generally? Britain's economic and political hegemony did not long survive the loss of its large international creditor position. The record of the United Kingdom in the 20th century (1914-1956) suggests that a great power that becomes a great debtor will, ,after a few decades, lose its dominance. The United States passed from largest net creditor to largest net debtor in the 1980s. With the re-emergence of the twin deficits, and prospects for continued widening, will we see adverse economic and political ramifications? In the 1960s, Germany was willing to offset the expenses of stationing U.S. troops on bases there so as to save the United States from a balance of payments deficit. In 1991, Saudi Arabia, Kuwait, and a number of other countries were willing to pay for the cost of the war against Iraq, thus temporarily wiping out the U.S. current account deficit for the only time in a twenty-year period. Repeatedly the Bank of Japan, among other central banks, has been willing to buy dollars to prevent U.S. currency from depreciating (late 1960s, early 1970s, late 1980s).

The dollar has fallen sharply over the last year in response to the widening U.S. current account deficit. So far, it has not spun out of control: U.S. interest rates remain very low and securities prices high. Will other countries be willing to help us out the next time there is substantial unwanted downward pressure on the dollar, without setting conditions in return? I fear not. Sometime soon, newspaper stories will begin reporting that central banks in Asia and elsewhere are diversifying out of dollars into euros, and that the dollar is in danger of losing its status as premier international currency. This will be the most obvious symbol of what is already clear: the Bush Administration has failed spectacularly the obligations of international leadership.

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Bill Clinton was able through hard work to achieve NAFTA, normalization of trade with China, and a number of other accomplishments. But despite a record-performing economy, his best efforts and his eloquence, he was never able to convince the American people and the Congress to give him fast-track negotiating authority. Clinton was unable to overcome the intransigence of Senate Foreign Relations Committee Chairman Jesse Helms (R-NC) over paying the arrears in U.S. dues to the United Nations, and unable to gain congressional support for the Mexican rescue package or a BTU tax or the Kyoto Protocol.

--J. Frankel

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What was President Bush's answer to the public's request for guidance after September 11? Encouragement to go to the shopping mall.

--J. Frankel

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Princeton Professor Paul Krugman and Nobel Prize winner Joe Stiglilz have bought the argument of some University of Chicago economists that the Bush fiscal policy is a subtly calculated plan to create a fiscal crisis in the future, and thus force future cuts in spending. That rationalization may not accurately describe thinking in the White House. If the Republican goal were actually to cut the rate of growth in spending, what better time to do it than now, when they control all branches of government? A simpler explanation is that the Republicans are doing nothing more than going after campaign contributions and electoral votes. They may not be sufficiently competent to think ahead and realize the magnitude of the fiscal crisis that they are probably creating for themselves later this decade.