Colossus (66 page)

72
. Hitchcock,
Struggle for Europe
, p. 419.

73
. Ibid., p. 412.

74
. See Siedentop,
Democracy in Europe
.

75
. Figures from Eurostat.

76
. Rosecrance, “Croesus and Caesar,” pp. 31–34.

77
. Epitropoulos et al. (eds.),
American Culture
, p. 5.

78
. Bobbitt,
Shield of Achilles
, pp. 677–95.

CHAPTER 8: THE CLOSING DOOR

1
. Gibbon,
Decline and Fall of the Roman Empire
, book I, ch. 17.

2
. Maddison,
World Economy
, p. 241, table B-10, p. 261, table B-16.

3
. Diamond,
Guns, Germs and Steel
.

4
. Pomeranz,
Great Divergence
.

5
. Platt,
Finance, Trade and Politics
, esp. pp. 95, 109. For an illuminating comparison of British and American approaches to informal empire, see Rauchway, “Competitive Imperialism.” As Rauchway notes, the British went quite far in Anglicizing those institutions over which they gained control, notably the Imperial Maritime Customs Service. The American approach was to assume that Americanization would happen spontaneously. For a more positive assessment, see Osterhammel, “China,” p. 643f.

6
. See Rodrik, “Feasible Globalizations,” p. 7f.

7
. See, for a recent review of Chinese performance, Hale and Hale, “China Takes Off.”

8
. Calculated from the various GDP statistics in the World Bank’s World Development database.

9
. Martin Wolf, “Rivals and Partners,”
Financial Times
, October 7, 2003.

10
. See, e.g., Mearsheimer,
Tragedy of Great Power Politics
, p. 362. Cf. Medeiros and Fravel, “China’s New Diplomacy.”

11
. See, e.g., Frank,
ReOrient
.

12
. Chang,
Coming Collapse of China
.

13
. Kennedy,
Rise and Fall of the Great Powers
, p. 689.

14
. Ibid., p. 681 and note.

15
. Keynes is supposed to have said: “If the facts change, I change my opinion. What do you do, sir?”

16
. Paul Kennedy, “Power and Terror,”
Financial Times
, September 3, 2002.

17
. Ferguson and Kotlikoff, “Going Critical.”

18
. Medeiros and Fravel, “China’s New Diplomacy.”

19
. According to one estimate, members of the allied coalition reimbursed the United States for $54 billion out of the total cost of $61 billion.

20
. Cf. Ignatieff,
Empire Lite
, p. 95.

21
. Rubin, Hamidzada and Stoddard, “Through the Fog of Peace Building.”

22
. Figures from
Statistical Abstract of the United States
, various issues.

23
. Calleo, “Power, Wealth and Freedom,” p. 10. Cf. David Wessel, “Several Signs Highlight War’s Effect on Economy,”
Wall Street Journal
, March 27, 2003; Rigobon and Sack, “Effects of War Risk.”

24
. Davis et al., “War in Iraq Versus Containment.”

25
. Thom Shanker, Bush to Focus on Benefits of Rebuilding Effort in Iraq,”
New York Times
, September 21, 2003. See also Donald Hepburn, “Nice War. Here’s the Bill,” ibid., September 3, 2003; Richard W. Stevenson, “78% of Bush’s Postwar Spending Plan Is for Military,” ibid., September 9, 2003.

26
. “We are spending $4 billion a month to run a country which has a monthly GDP of $2.5 billion,” a retired military official told the
Financial Times
this summer. “Something is wrong here”:
Financial Times
, August 29, 2003. Cf. Ali Abunimah, “Iraqs Chilling Economic Statistics,” March 18, 1999,
http://www.globalpolicy.org/security/issues/irq3–22.htm
.

27
. According to the Summers and Heston “World Tables,” Iraq’s real GDP
per capita
in 1980 was $6,900 in 1985 international dollars, compared with an American figure of $15,101. The World Bank’s
World Development
database gives figures for gross national income
per capita
in current dollars of $3,380 for Iraq and $11,850 for the United States. The Economist Intelligence Unit estimated Iraq’s
per capita
GDP in 1999 to be just $247, compared with an American figure of $32, 260–130 times as high.

28
. Max Boot, “A War for Oil? Not This Time,”
New York Times
, February 13, 2003; Peter Slevin and Vernon Loeb, “Bremer: Iraq Effort to Cost Tens of Billions for Iraq,”
Washington Post
, August 27, 2003.

29
. See, for an example, Seymour Melman, “Looting Our Lives,” Znet, April 22, 2003.

30
. The first owner of a commercial Hummer was the bodybuilder, actor and now governor of California Arnold Schwarzenegger.

31
. Kenneth N. Gilpin, “White House Foresees Deficit Reaching $455 Billion This Year,”
New York Times
, July 15, 2003. Cf. Edmund L. Andrews, “Leap in Deficit Instead of Fall Is Seen for U.S.,” ibid., August 26, 2003.

32
. All figures from Congressional Budget Office Web site,
http://www.cbo.gov.

33
. Gokhale and Smetters, “Fiscal and Generational Imbalances.”

34
. Details in Lawson,
View from No. 11
, p.37.

35
. Gabriel Stein, “Mounting Debts: The Coming European Pension Crisis,”
Politeia
, Policy Series No. 4 (1997), pp. 32–35.

36
. Interestingly, the others are nearly all ex-British colonies: Australia, Canada, Ireland and New Zealand. According to international comparisons done in 1998, each of these countries could have achieved generational balance with tax increases of less than 5 percent: Auerbach et al.,
Generational Accounting Around the World
. The catch is that solving the public-sector pensions problem may simply have created a comparably large private-sector pensions problem; there is alarming evidence that many company pensions schemes are woefully underfunded and are unlikely to deliver what they have promised to company employees when they retire.

37
. The proposed reform effectively bribes the elderly to join Health Management Organizations by offering them a drug benefit. But this will increase rather than reduce expenditure inasmuch as it will cost between $400 billion and $1 trillion over the next ten years. The scheme also retains the traditional and very expensive fee-for-service Medicare system and permits the elderly to switch back to it whenever they like. Unfortunately, they are likely to switch back just when they are becoming expensive to treat. Finally, the HMOs are free to shut down and ship their customers back to the traditional plan whenever they become too expensive.

38
. As Laurence Kotikoff has argued, one way to do this would be to close down the old system at the margin and enact a federal retail sales tax to pay off, through time, its accrued liabilities. What workers would otherwise have paid in payroll taxes would now be invested in special private retirement accounts, to be split evenly between spouses. The government would make matching contributions for poor workers and would contribute fully on behalf of the disabled and the unemployed. Finally, all account balances would be invested in a global, market-weighted index of stocks, bonds and real estate.

39
. Alison Shelton, Laurel Beedon and Mitja Ng-Baumhackl, “The Effect of Using Price Indexation Instead of Wage Indexation in Calculating the Initial Social Security Benefit,” AARP Public Policy Institute, July 2002.

40
. See most recently Catão and Terrones, “Fiscal Deficits and Inflation.”

41
. Figures from Economagic (Federal Reserve Bank of New York). In the middle of 2003 there were some signs of a slight upward shift in investors’ inflationary expectations. The yield on ten-year treasuries jumped to 4.3 percent, party in response to expectations of higher economic growth and higher share prices, but also party in response to the government’s and the CBO’s revised deficit forecasts. The yield curve, which had become more or less flat by the late 1990s, was showing signs of sloping more steeply upward. At the end of 2000, the spread between ninety-day and thirty-year interest rates had been slightly negative (minus 42 basis points). By August 2003 it stood at over 400 basis points. Finally, the spread between yields on ten-year bonds and index-linked bonds with the same maturity widened slightly, from around 140 basis points in October 2002 to over 230 basis points in late August 2003. Yet this still seemed a relatively modest reaction, given the size of the fiscal crisis facing the United States. Figures from
Bondsonline.com
, Economagic.

42
. See Shiller,
Irrational Exuberance
.

43
. See Robert J. Shiller, “Will the Bond Bubble Burst?,” Project Syndicate (June 2003).

44
. For a popular introduction to the subject, see Mark Buchanan,
Ubiquity
.

45
. In Germany in May 1921—to give an extreme example—it was the announcement of a staggering postwar reparations burden of 132 billion marks that convinced investors the governments fiscal position was incompatible with currency stability. The assassination of the liberal Foreign Minister Walther Rathenau in July of the following year delivered the coup de grâce, sending both interest rates and exchange rates skyrocketing: Webb, “Fiscal News.”

46
. Chet Currier, “Deflation-Defense Strategy Uses Treasuries, Cash,”
www.bloomberg.com
, April 26, 2003.

47
. David Leonhardt, “Greenspan, Broadly Positive, Spells Out Deflation Worries,”
New York Times
, May 22, 2003.

48
.
Statistical Abstract of the United States, 2001
, table 552.

49
. Bonney, “France, 1494–1815,” pp.131ff., 152f. Cf. Bosher,
French Fi-nances
.

50
. Maddison,
World Economy
, table 2–26a.

51
. Calleo, “Power, Wealth and Wisdom,” p. 9. The Bank for International Settlements estimates that the U.S. current account deficit is equivalent to almost 10 percent of the rest of the world’s savings: John Plender, “On a Wing and a Prayer,”
Financial Times
, July 3, 2003.

52
. Hugo Dixon, “Is the U.S. Hooked on Foreign Capital?,”
Wall Street Journal
, March 6, 2003.

53
. Päivi Munter, “Foreign Holdings of U.S. Treasuries Hit Record 46%,”
Financial Times
, September 11, 203.

54
. International Monetary Fund, “Transcript of the World Economic Outlook Press Conference,” April 9, 2003.

55
. That is the only way to explain the fact that the United States consistently receives higher investment income from its investments abroad than it pays out to foreigners who have put their money into American assets, even though the capital value of American-owned assets abroad is significantly smaller. I am grateful to Alan M. Taylor for this point.

56
. David Hale, “The Manchurian Candidate,”
Financial Times
, August 29, 2003.