George Bush, the Tax cuts and the collapse of American Power

[el freako]

Well 'collapse' is maybe too strong a word, but I think that US power in 10 years time will be severely curtailed due to short-sighted actions now.

Since GWB came to power he has cut taxes with abandon - so much so that the US's structural deficit (i.e. the deficit that would happen if the economy was running at trend) had deteriorated from balance in 2000 to -4% of GDP now.

Now the tax cuts have been 'sold' by using a clever trick to make them seem less costly than they are likely to be, namely that they expire in 2011 - but can anyone seriously imagine that polititians (of any party) will recommend a massive tax hike in the year before the 2012 election?

So either spending has to be cut or taxes raised - the early 2010's is just when the baby boomers start to retire, so the chances of cutting social spending is slim (and what chance is there of reform to the system? - it doesn't seem to be on the politcal agenda).


As well as cutting taxes since 2000 Mr Bush has also lavished money on the military - spending has risen almost 30% in real terms and has gone from 3.8% to 4.8% of GDP.
Much of this flexing of military might has been sold to the american electorate as a needed precaution against international terrorism since 11/9/2001.

I think it's very likely that in 5-10 years time when the american electorate see the masses of red ink streaching into the future and threatening their social security checks they will look at the money spent on the military and see that terrorism has not been stopped by it (to give Mr Bush credit he never said it would, but the impression is certainly in the minds of Amercians that after, say, a decade of 'rooting out terrorism' they will have done it)

The prime candidate for cutting spending then will surely be the defence budget, with cuts of between 25% and 50%.
This would surely lead to a dramatic curtailment of US power around the world (as US power is disproportionately 'hard' power as opposed to the 'soft' power used by the Europeans).


Now maybe the average American will be willing to pay much higher taxes to fund this bigger military - but then again they haven't shown much desire to do that in the past as the only times that the US defence budget has risen significantly (in the Vietnam War and during the Reagan Buildup of the 1980s') it was funded by higher borrowing.


So which will it be Yanks? A strong military, Low taxes or Social Security?

[Whaleboy]

Well 'collapse' is maybe too strong a word, but I think that US power in 10 years time will be severely curtailed due to short-sighted actions now.

Agreed, and also that lil issue called China!

[Nubclear]

Originally posted by elijah


Agreed, and also that lil issue called China!

[el freako]

Yes, China is a (very important) issue.

But the fundamental choice remains - the US can't have low taxes, a strong military and pay for the baby boomers retirement.

Something will have to give - and the military budget will be the least painful in domestic political terms

[The Andy-Man]

alternativley, the US credit rating might bail 'em out

[The Andy-Man]

also i wish to add, britain in between wars was more or less completley broke, but managed to keep a massive army (considering its size).

For the US to fall away, a replacement is needed, and China isn't ready, and won't be till its internal market is full supplied and uissness MUST HAVE overseas markets.

[Whaleboy]

20 years, not 10 for china, but hey I can wait!

Britain's army was pretty lame until the mid-late 30's. Years of disarmament saw to that. Nonetheless, one cannot maintain a large army with a lame economy for very long. Its like a car running on empty.

[The Andy-Man]

Originally posted by elijah
20 years, not 10 for china, but hey I can wait!

Britain's army was pretty lame until the mid-late 30's. Years of disarmament saw to that. Nonetheless, one cannot maintain a large army with a lame economy for very long. Its like a car running on empty.

you negelct the navy.

also, china is a looong way off from full developing its market, it took the US 130yrs, and even then needed 2 wars to bring it out into the open, china is, relativley speaking, and economic baby, and has a very long time till its per capita GDP is anywhere near the US.

[pchang]

It is very likely that a highly contagious and lethal virus will emerge and spread like wildfire around the globe. A natural result will be higher death rates among the old due to their weaker constitutions. Thus, no more need to pay for baby boomer retirements. You need look no further than the heatwave deaths in France for an example of this.

Tax rates are highly volatile. Tax rates have varied greatly over the years depending upon the current fashion of the government (and to some extent the electorate). Tax rates in the future are likely to go up if there is any serious shortfall.

Americans like guns. For whatever reason, we seem to be really enamored with weapons and killing. In addition, history has shown over and over that might makes right. Notable exceptions like Ghandi only serve to highlight the general ineffectiveness of peaceful approaches to obtain freedom. Thus, it is highly likely that funds will be diverted to maintain a strong military, regardless of the cost.

[el freako]

Originally posted by elijah
Nonetheless, one cannot maintain a large army with a lame economy for very long. Its like a car running on empty.

During the period 1920 to 1960 the US economy accounted for between 27% to 34% of global output - nowday's it's down to 20%.

In the early 1960's the US accounted for 30% of global GDP and nearly half of global defence spending.

Today, with it's share of world output having fallen by a third it still accounts for nearly half of global defence spending.


I would liken the position of the US today to that of Britian in the 1880's or 1890's - it can retain supremacy only untill the up and coming powers start an arms race, as such it has lost some of the global strategic initative.

Originally posted by pchang
Tax rates are highly volatile. Tax rates have varied greatly over the years depending upon the current fashion of the government (and to some extent the electorate).

Tax rates may have changed but the tax take of the government has been pretty stable at 26% to 28% of GDP (although it briefly reached 30% in 2000) since the late 1960's

Originally posted by elijah
also, china is a looong way off from full developing its market, it took the US 130yrs, and even then needed 2 wars to bring it out into the open, china is, relativley speaking, and economic baby, and has a very long time till its per capita GDP is anywhere near the US.

China doesn't need to equal the US's GDP per capita to rival US power as it has far more people.
Belgium had a higher GDP per head than Germany in 1914 and 1939 - did that save it from germany's larger economy?

[Odin]

Democrats: Tax and spend
Republicans: Borrow and spend

Pick your poison, capitalists.

We need to massively cut back on millitary spending and raise taxes, especially for the wealthy, and start taxing stock earnings again and raise the estate tax. Most people in the US are to ignorant to realize what those taxes do so they complain.

"honk if you hate tax hikes!"

*HONK! HONK!*

"THEN GET OFF THIS PUBLICALLY FUNDED HIGHWAY!"

[java4me]

Originally posted by The Andy-Man
also, china is a looong way off from full developing its market, it took the US 130yrs, and even then needed 2 wars to bring it out into the open, china is, relativley speaking, and economic baby, and has a very long time till its per capita GDP is anywhere near the US.

China is a very very long ways off. They may have almost 1/5 of the earth's population, but economically they have a very long way too go.

I hate to say it for those guys who would like to see China become a superpower, China isn't even near having the structure to become a superpower.

Not for atleast 50 years, they are looking for long term not short term.

[David Floyd]

I agree that China is no military threat to the US currently, and it would take decades for it to become one - assuming the US kept military spending at its current level and the Chinese began a MASSIVE arms buildup, especially in the terms of a capable bluewater navy.

If the US decided to keep pace, or even slightly increase, due to our exponential lead in naval power China would probably be behind for MUCH, MUCH longer. To get even MORE hypothetical, pre-emptive strikes could make US naval dominance indefinite, in relation to China.

[PLATO]

1.) Devaluation of debt in relation to GNP. Look for inflationary spikes in 2009 & 2010.

2.) Increase in age for Social Security elgibility. Look for it in 2013

3.) Chinese military dominance. Look for it in your dreams, 'cause that ain't happening.

[DanS]

I don't think you've got the right perspective, ef.

We won't keep this military tempo forever. Certainly not for the next 10 years, unless NK or Iran get heated up. We should settle into a range of 3.5% of GDP for the military. That's what's being bandied about here in Washington. Even among the hawks. By historical standards, that's not a high figure at all and shouldn't be too big of a drag on our economy. Certainly nothing that would create a serious guns or butter trade-off.

As for how much our economy is versus the rest of the world, the reduction in the proportion for the US has been both highly desirable and inevitable. Let's all get rich, OK?

As for taxes, don't forget the drift in the tax brackets. We'll settle into a lower structural deficit. Basically, federal taxes will be raised gradually to about 20% or 21% of the economy.

I think you've mistaken tinkering around the edges with serious overhaul.

[java4me]

Originally posted by PLATO
3.) Chinese military dominance. Look for it in your dreams, 'cause that ain't happening.

I couldn't have said it any better myself!

[The Mad Monk]

You know, can understand if people wanted US power to be "curtailed" by, say, the EU...but China?

[el freako]

It's funny how this has turned into a China vs US thread.

China will probably never want to be a global power like the US - it has too many unfriendly neighbours for that - But the US is struggling even now to occupy two poxy third world countries.

With a fall off in military spending the US will find it even harder to impose it's will.

Face it yanks, you can only run the world on a shoestring when noone feels like challenging you (see my point earlier about the parralells with the UK just over a century ago).

[DanS]

Face it yanks, you can only run the world on a shoestring when noone feels like challenging you (see my point earlier about the parralells with the UK just over a century ago).

How much of the UK's economy was devoted to the military a century ago? Besides, we have no desire to run the world (i.e., fvck it up) like the Brits did.

Well 'collapse' is maybe too strong a word, but I think that US power in 10 years time will be severely curtailed due to short-sighted actions now.

You and Hershell have influenced each other too much.

Anyway, this "soft power" stuff is hogwash. If Europe doesn't pay to keep up, it won't be listened to.

[el freako]

Originally posted by DanS

How much of the UK's economy was devoted to the military a century ago?

In the 1880's and 1890's around 1.5% (or 15% of government spending, which is the level the US is currently at).

By 1910 our spending (as a share of GDP) had tripled to 4.5% and yet we had much less of a lead than a generation before.

I doubt very much that the US can avoid this sort of scenario over the next 20-30 years.

The reagan buildup was using borrowed money - much like today - but where is the USSR that's going to collapse and save your (fiscal) bacon this time?

[PLATO]

Originally posted by el freako


In the 1880's and 1890's around 1.5% (or 15% of government spending, which is the level the US is currently at).

By 1910 our spending (as a share of GDP) had tripled to 4.5% and yet we had much less of a lead than a generation before.

I doubt very much that the US can avoid this sort of scenario over the next 20-30 years.

The reagan buildup was using borrowed money - much like today - but where is the USSR that's going to collapse and save your (fiscal) bacon this time?

Beijing

[DanS]

I doubt very much that the US can avoid this sort of scenario over the next 20-30 years.

Let's face it. It just depends on how others manage their own economic situations. China is growing very quickly, but is not managing its situation well in some important respects, such as its demographics. India might kick it into a higher economic gear, but isn't liberalizing its economy very quickly. Europe may surpass the US economy over the next couple of decades or it may be half of where the US is.

We just don't know where we'll be in 10 years. There are some important clues about where we're all headed. And it's generally favorable to the US. Maybe not "astride the world" favorable, but then would we want it to be that way? That wouldn't bring the most good to the most people worldwide. It wouldn't bring the most good to Americans.

[pchang]

I find it funny no one has commented on/complained about my assertion that some natural cause will arise that will greatly accelerate the death rate of old people.

[el freako]

maybe because noone took it seriously pchang?

and plato are you willing to put money on the collapse of the chinese economy within 10 years?

[DanS]

I have a standing offer to bet anyone $1 million dollars that India will have a larger economy than China in 50 years.

Any takers this time?

[pchang]

That's the present value of $1 million in 50 years (assuming a 4% inflation rate). So, who is supposed to have the larger economy? China or India?

[el freako]

by 2053?

hmm, that's a tough one.

It all depends on the relative productivity growth rates

India's working age population will be 15% bigger than China's by 2050 (it's currently 29% smaller) but india has lower productivity now and has had slower productivity growth over the last 40 years.

I'd say it was definately possible but I wouldn't put the odds of it at better than 3:1

My current long-term forecast is for China to have 90% of the US's GDP by 2050 and India to have 60% (they currently have 55% and 25% respectively)

[DanS]

So, who is supposed to have the larger economy? China or India?

India.

but india has lower productivity now and has had slower productivity growth over the last 40 years

I'm guessing that India's has been respectable over the last 20?

[Oerdin]

Originally posted by DanS
I have a standing offer to bet anyone $1 million dollars that India will have a larger economy than China in 50 years.

Any takers this time?

That greatly depends on if India ditches the socialist baggage or if they keep the slow growth due to red tape.

[Evil Knevil]

Lucky that the US government takes a much smaller bite of the economy than most Western Countrys. The US economy is going to be very hard to damage. Their productivity and investment levels are still extremely high compared to most European nations, and as long as there is appropriate investment in the up-and coming business sectors, they should do fine.

The communications/internet/biotech economies were largely driven by State, particularly Pentagon, funding. Hopefully these can stand on their own two feet now. I predict the next growth industry will be cheap explosives and high-technology firearms to feed your satanic war machine