The Unbearable Costs of Empire

Since September 11, 2001, the phrases "American empire" and "America as an imperial power" are being heard a lot more. But in contrast to the 1960s and 1970s, when such terms were brandished by an angry domestic anti-war movement or by developing nations in U.N. debates, the concept they represent has now at least partially entered the mainstream. However much it has incurred hostility throughout most of the world, including European and other countries usually allied with the U.S., the "new imperialism" has gained ground among the Establishment here.

The post-9/11 rationale is that America has terrorist enemies and rogue states that will do it serious harm – maybe even with weapons of mass destruction – if it doesn't police the world to stop them. "Being an imperial power is more than being the most powerful nation," writes Michael Ingatieff at Harvard's Kennedy Center. "It means enforcing such order as there is in the world and doing so in the American interest."

But what most analysts have missed –- whether or not they support the idea of an American empire – is that the U.S. simply can't afford the role of global cop.

The Real Debt

First, the U.S. is entering this new age of empire with a gross federal debt that is the highest in more than 50 years as a percentage of gross domestic product. For fiscal 2005, which begins in October, the U.S. gross federal debt is projected to be $8.1 trillion, or 67.5% of GDP. By the time 100,000 U.S. troops were in Vietnam in 1965, it was 46.9% and falling.

One technical point that's vitally important here: It's the gross federal debt and deficits that matter, not the smaller "debt held by the public" and "unified budget deficit" that are generally cited in the press. For example, the most commonly reported estimate of the annual federal budget deficit is $478 billion for 2004. But this number is misleading, because it doesn't include borrowing from federal trust funds – mostly Social Security and Medicare.

But the money the government is borrowing from Social Security and other trust funds will, with nearly 100% certainty, be paid back – just like the money it borrows when it sells bonds to Bill Gates or the Chinese government. The annual federal budget deficit is, therefore, $639 billion, according to the numbers from the Congressional Budget Office. This is 5.6% of GDP, a near-record level for the post-World War II era.

Borrowing from Abroad

America can –- just barely – afford this deficit right now, but that's about to change. First, the interest burden on the debt is currently manageable because of extremely low interest rates. But the Fed is expected to raise short-term rates to 2% by yearend. More important, long-term rates will almost certainly rise even more because inflation has accelerated to 4.9% over the last six months – a big jump from 2003's 1.9%.

If Kerry wins and takes back the tax cut for households earning more than $200,000 a year, as promised, that won't even reduce the deficit by 1% of GDP. And if he keeps his spending promises, then the monies realized by repealing the tax cut would be canceled out. The Bush budget, which the conservative CATO Institute's Chairman Bill Niskanen recently described as "a fraud" put together by "borrow and spend Republicans," would make the deficit and debt problem even worse.

Then there's the problem of the U.S. –- both the government and the private sector –- borrowing from foreign countries. Most government borrowing is now being financed from overseas – especially the central banks of China, Japan, and other countries. These institutions are deliberately buying dollars in order to keep their currencies from rising against the greenback. But they won't keep doing this indefinitely. The U.S. is borrowing more than $600 billion a year from the rest of the world, and it can't go on much longer.