by Donald Douglas
Niall Ferguson, last November, published a pessimistic piece on the weakening economic foundations of U.S. power, “An Empire at Risk.” I’m an optimist, of course, and I’ve commented here recently on my confidence that the next U.S. economic expansion will improve the nation’s long-term prospects dramatically (balance of payments, chronic budget deficits, and the federal debt overhang). But this is a pretty staggering analysis:
The deficit for the fiscal year 2009 came in at more than $1.4 trillion—about 11.2 percent of GDP, according to the Congressional Budget Office (CBO). That’s a bigger deficit than any seen in the past 60 years—only slightly larger in relative terms than the deficit in 1942. We are, it seems, having the fiscal policy of a world war, without the war. Yes, I know, the United States is at war in Afghanistan and still has a significant contingent of troops in Iraq. But these are trivial conflicts compared with the world wars, and their contribution to the gathering fiscal storm has in fact been quite modest (little more than 1.8 percent of GDP, even if you accept the estimated cumulative cost of $3.2 trillion published by Columbia economist Joseph Stiglitz in February 2008).
