Not the best 10-year run

Patricio Navia

Buenos Aires Herald, January 5, 2011

 

Precisely because the past 10 years were not the finest hour for the United States, the challenge ahead for the American political elite is immense.  Unless Democrats and Republicans reach common ground to put the country back on track, the September 11 attacks will be a symbol of the moment when the U.S. took a turn in the wrong direction.

 

The 10th year anniversary of the September 11 attacks will be a contentious moment. Though the terrorist attacks were unwarranted, the reaction by the Bush administration might have backfired. The U.S. was a stronger nation in relative terms to the rest of the world 10 years ago than it is today. 

 

True, it is impossible to know whether the Bush administration made the U.S. safer against new attacks.  However, even if one accepts that claim, it is still fair to ask if the price paid for such security was too high.  A populist leader might in fact claim that the security of the U.S. against terrorist attacks is above any other consideration. But a more realistic approach would conclude that if the policies implemented to prevent new attacks weakened the U.S. in other areas and hindered economic development, the price tag might have been too high.  If you build a wall to protect the castle but the wall makes it impossible to live within the castle, the wall did more damage than good.

 

The wars in Afghanistan and Iraq, the economic policies which included tax cuts and increase in spending, combined with the 2008 crisis, led to a huge fiscal deficit. In 2001, the U.S. public debt amounted to 31% of the GDP.  At the start of 2011, the fiscal deficit has doubled to 63.7% of GDP. Projections on mandatory spending, including social security, Medicare, Medicaid and on semi-mandatory spending items, like defense, put the expected deficit close to 80% of GDP by 2015. True, there are always explanations—or excuses—as to why spending increased so rapidly. Yet, as Latin American leaders were told every time they faced a debt crisis, the key task is to find ways to solve it. It might be a political irony that the U.S. did not live up to a key tenet of the Washington Consensus—fiscal responsibility—but the economic consequences of fiscal irresponsibility are real. Without short-term solutions to achieve fiscal discipline, the U.S. will likely do exactly what it historically told Latin American debt-ridden countries not to do: keep on running fiscal deficits.  Unless the U.S. balances the budget in the next few years, one of the most important legacies of the past 10 years, “a September 11-reaction” legacy, will be the Latino-Americanization of fiscal policies. Fortunately, most Latin American countries no longer run fiscal policies that way. Thus,iIt would be a pity that that as the region de-latinamericanizes, the U.S. follows an economic model that led to repeated failure in the 20th century south of the border.

 

Another way to measure the mediocre performance of the U.S. during the past 10 years is by comparing its GDP growth to that of other regions. If we leave out China, India and other high performers of recent years and compare the U.S. to Latin America, we can see how the U.S. is falling behind. An admittedly discrete case of economic growth, Latin America’s GDP has grown faster than that of the U.S. in the past ten years. In 1970, the U.S. GDP was five times larger than Latin America’s. In 1980, the ratio was 3.83 times. In 1990, the distance had increased further to 4.52 times.  In 2000, the U.S. economy was 4.65 times that of Latin America. But in 2010, The U.S. economy was 4.09 times bigger than that of Latin America. If the 1980 was a lost decade for Latin America, the last ten years were the worst for the U.S. when compared to its southern neighbors. Not surprisingly, most American think the U.S. is on the wrong track.

 

The biggest problem for the U.S. is not what happened in the last ten years but instead what is likely to happen in the next few years. Despite the humongous challenges ahead, American political elites seem more concerned with short-term gains and partisan politics (a common phenomenon among Latin American political elites in the 20th century). Republicans and Democrats seems too willing to put the long term well being of the nation on the line to score a few points against their rivals.

 

Because in recent history, the U.S. has been a beacon of light and has been, with some unquestionable mistakes, on the side of democratic consolidation and promotion of growth-inducing market-friendly growth policies, it would be a shame that Washington’s leadership role losses appeal. If that were to happen, then the September 11 attacks will have represented a blow not just to the U.S. but to the entire community of democratic and market-friendly nations.