Niall Ferguson's "Law" Re Interest on National Debt Exceeding Defense Spending

[johnkarls]

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https://www.bloomberg.com/opinion/artic ... or_2151773


The Second Cold War Is Escalating Faster Than the First
To understand what is at stake in the fight against the axis of China, Russia and Iran, just read “The Lord of the Rings.”

By Niall Ferguson - The Milbank Family Senior Fellow at the Hoover Institution at Stanford University and a Senior Fellow at Harvard U’s Kennedy School of Government (he had been a Harvard Professor 2004-2016 before leaving for Stanford)
April 20, 2024

NB: For “Ferguson’s Law” any great power that spends more on debt service (interest payments on the national debt) than on defense will not stay great for very long – please scroll down to the material bounded by lines of asterisks.


In J.R.R. Tolkien’s great epic, The Lord of the Rings, it becomes apparent only gradually that the forces of darkness have united. Sauron, with his baleful all-seeing eye, emerges as the leader of a vast axis of evil: the Black Riders, the corrupted wizard Saruman, the subhuman orcs, the malignant courtier Wormtongue, the giant venomous spider Shelob — they are all in it together, and Mordor is their headquarters.

Tolkien knew whereof he wrote. A veteran of World War I, he watched with dismay the approach of a second great conflagration. Sipping pints of bitter and puffing his pipe in “The Shire” — his idealized Middle England — he could only shudder as Nazi Germany, fascist Italy and imperialist Japan came together to form their Axis in 1936-37, and mutter, “I told you so,” when Hitler and Stalin joined forces in 1939.

We, too, are witnessing the formation and consolidation of an Axis. I was vividly reminded of Tolkien by a tweet published by the conservative broadcaster Mark R. Levin on Tuesday. It is worth quoting: “Appeasement is escalation. Our enemies are on the move. Our allies are being encircled and attacked or soon attacked. … Conservatism and MAGA are not about isolationism or pacifism. They’re not about appeasement or national suicide. … It is up to us, patriotic Americans, to step into the breach and get this done now.”

The significance of Levin’s intervention — penned from Israel, which he has been visiting — is that it so clearly puts him on a collision course with the isolationist elements within the Republican Party, such as Representative Marjorie Taylor Greene, who last week threatened to oust House Speaker Mike Johnson if he pressed ahead with a bill that would restore US aid to Ukraine. “We are going to stand for freedom and make sure that Vladimir Putin doesn’t march through Europe,” Johnson declared. “We have to project to Putin, Xi, and Iran, and North Korea, and anybody else that we will defend freedom.”

To the likes of Greene and Levin’s former Fox News colleague Tucker Carlson, the war in Ukraine is just “a quarrel in a far-away country between people of whom we know nothing,” as British Prime Minister Neville Chamberlain infamously said of Czechoslovakia in September 1938. They appear quite unembarrassed to serve as Russian President Vladimir Putin’s “useful idiots,” in direct lineal succession to Hitler’s and Stalin’s apologists in the 1930s.

And not only Putin’s. For, as State Department spokesman Matthew Miller pointed out last week, behind the Russian war effort stands the vast economic resources of the People’s Republic of China. “What we have seen over the past months is that there have been materials moving from China to Russia that Russia has used to rebuild [its] industrial base and produce arms that are showing up on the battlefield in Ukraine,” Miller told reporters on Tuesday. “And we are incredibly concerned about that.” In Beijing earlier this month, Treasury Secretary Janet Yellen warned her Chinese counterpart that there would be “significant consequences” if China continued to support the Russian war effort in Ukraine.

Despite their protestations that they wish to act as peacemakers, China’s leaders gave the invasion of Ukraine their blessing on its eve — what else did the mutual pledge of a “no-limits” partnership mean? — and President Xi Jinping’s support has been crucial to Putin’s survival ever since his invasion force was repelled from the outskirts of Kyiv two years ago.

By the same token, one cannot treat Iran’s war against Israel in isolation. Tehran supports Russia’s war against Ukraine, supplying thousands of drones and missiles similar to the ones unleashed against Israel last weekend. Russia, in turn, is likely helping to strengthen Iran’s air defenses. China is not only one of the main buyers of Iran’s oil; Chinese Foreign Minister Wang Yi called Tehran immediately after the attack on Israel to praise rather than condemn his Iranian counterparts. Chinese propaganda has been consistently anti-Israel since Hamas’s murderous attacks of Oct. 7 last year.

The emergence of this new Axis was foreseen by Zbigniew Brzezinski, President Jimmy Carter’s national security adviser, as long ago as 1997. In his book The Grand Chessboard, Brzezinski wrote:

Potentially, the most dangerous scenario would be a grand coalition of China, Russia, and perhaps Iran, an “antihegemonic” coalition united not by ideology but by complementary grievances. It would be reminiscent in scale and scope of the challenge once posed by the Sino-Soviet bloc, though this time China would likely be the leader and Russia the follower.

Brzezinski was prophetic. Looking back over the past three years, however, it is hard not to conclude that his successors in the Biden administration have done a great deal unwittingly as well as wittingly to make this coalition a reality, beginning by abandoning the Afghans to the tender mercies of the Taliban in 2021, then failing to deter Russia from invading Ukraine in 2022, and finally failing to deter Iran from unleashing its proxies against Israel in 2023. Yes, Biden stepped up to aid Ukraine and Israel when they came under attack, but an earlier show of strength might have avoided both emergencies.

Levin and Johnson have realized, as former Secretary of State Mike Pompeo has long argued, that some quarrels in far-away countries must ultimately concern us. They are parts of a single war being waged by a new Axis against the fundamental values we hold dear: democracy, the rule of law, individual freedom. I predict that the isolationists’ counterarguments will not age well.

For now, fortunately, we are in Cold War II, not World War III. However, Cold War II is proceeding rather faster than Cold War I. If the Russian invasion of Ukraine was our equivalent of the Korean War of 1950-53, we have (thus far) skated past a second Cuban Missile Crisis — over Taiwan — and have already entered a period of détente, a sequence that took two decades last time around. Since last November’s presidential summit in Woodside, California, the Chinese have seemed genuinely keen to avoid a showdown and want to engage in serious, if frosty, dialogue with their American counterparts, reminiscent of 1969-72.

But the surprise attack on Israel by Hamas last October propelled us all the way to 1973. And it is worth recalling that détente did not long survive Henry Kissinger’s successful assertion of US primacy in the Middle East in the wake of that year’s Yom Kippur War. In short, in Cold War II we seem to be getting the 1950s, 1960s and 1970s compressed together in a somewhat bewildering mash-up.

Then, as now, cold war has an ideological dimension: at least some Republicans are back to talking about defending freedom. To Putin and Xi, that is just code for CIA-backed “color revolutions.” Then, as now, cold war is a technological race, though today the frontiers of innovation are artificial intelligence and quantum computing as well as nuclear weapons and “star wars” (missile defense).

Then, as now, cold war is inflationary and domestically divisive. Then, as now, it matters a lot if China and Russia are united, as opposed to at each other’s throats. Their current unity is a real headache for the US and its allies, who find themselves in the situation — envisioned more than a century ago — of Nicholas Spykman’s “Rimland,” trying to contain Halford Mackinder’s vast Eurasian “Heartland.” Then as now, there are not just two groupings, but three, because a significant number of countries would prefer to be nonaligned rather than have to choose a side.

So what are the biggest differences between Cold War I and Cold War II?

First, China is a much bigger economic contender than the Soviet Union ever was. Second, the West is economically entangled with China, through a vast web of supply chains, in a way we never were with the USSR. Third, we are much weaker in terms of manufacturing capacity. With China flooding the world with cheap “green” stuff, the West has no option but to revive protectionism and industrial policy, turning the economic strategy clock back to the 1970s, too. Climate adviser John Podesta made that clear last week at Bloomberg’s BNEF Summit. Treasury Secretary Janet Yellen complained last month that Chinese “excess capacity … in ‘new’ industries like solar, EVs, and lithium-ion batteries” was “hurt[ing] American firms and workers, as well as firms and workers around the world.”

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Fourth, US fiscal policy is on a completely unsustainable path. To run a 7% deficit at a time of full employment is, to put it mildly, not what the macroeconomics textbooks recommend. More importantly, as the Congressional Budget Office has just pointed out, the relentless growth of the federal debt in public hands relative to gross domestic product — from 99% this year to a projected 166% by 2054 — will inevitably constrain future administrations, for the simple reason that an inexorably rising share of revenues will have to go on servicing the debt.

My sole contribution to the statute book of historiography — what I call Ferguson’s Law — states that any great power that spends more on debt service (interest payments on the national debt) than on defense will not stay great for very long. True of Hapsburg Spain, true of ancien régime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the US beginning this very year, when (according to the CBO) net interest outlays will be 3.1% of GDP, defense spending 3.0%. Extrapolating defense spending on the assumption that it remains consistently 48% of total discretionary spending (the average of 2014-23), the gap between debt service and defense is going to widen rapidly in the coming years. By 2041, the CBO projections suggest, interest payments (4.6% of GDP) will be double the defense budget (2.3%). Between 1962 and 1989, by way of comparison, interest payments averaged 1.8% of GDP; defense 6.4%.

[Graph of “Rising US Debt Service Will Swamp Defense Spending” - Source: Congressional Budget Office – unfortunately, such graphs are not replicated Microsoft Word (the graph shows the lines crossing in 2024 – if you want to see the graph itself, please click on the URL at the beginning of the post).]

As Michael Boskin and Kiran Sridhar recently argued, the Biden administration’s proposed defense budget for 2025 is already “vastly inadequate.” The Department of Defense needs to be spending more if our adversaries are to be deterred. On current trends, it seems certain to be spending less.

Fifth, our alliances may prove to be weaker than they were in Cold War I. In Europe, Germany is even more ambivalent about US leadership of the Atlantic alliance than it was in the days of Ostpolitik. In Asia, the US may think the “Quad” has turned India into an Asian ally, but I very much doubt India’s prime minister, Narendra Modi, would pick up the phone if Washington called for assistance in a Taiwan crisis.

For all these reasons, we should not be overconfident about the outcome of Cold War II. In particular, as Elbridge Colby has consistently warned, a Taiwan crisis — were China to blockade or invade this year — would find the US ill-prepared. And Beijing may not conform to US intelligence assessments that it will wait until 2027 to make its move.

Yet there is one final similarity with Cold War I that I omitted above. Now, as then, there is a bipartisan consensus in Washington that the communist superpower poses a serious threat. The political question that remains to be answered this year is who is best able to counter that threat.

In a way, Joe Biden and Kamala Harris personify the post-Vietnam Democratic Party’s approach, which ran from Jimmy Carter through Bill Clinton to Barack Obama. This approach nearly always prioritizes “de-escalation” over deterrence (even in Ukraine that has been true), and tends to cut the defense budget. By contrast, Donald Trump has veered between belligerence and isolationism, clearly preferring trade wars to the “fire and fury” of real wars. But he is temperamentally good at deterrence — if only because our adversaries find him so unpredictable. Under Trump defense spending went up.

By launching their drone and missile swarm at Israel, the Iranians have unwittingly given many Republicans permission to follow Pompeo down a path of hawkishness that is anything but isolationist. Read the new Foreign Affairs essay by outgoing Wisconsin Representative Mike Gallagher and former Trump adviser Matt Pottinger to get a flavor. “China,” they argue, “is underwriting expansionist dictatorships in Russia, Iran, North Korea, and Venezuela.” Stopping it will require “will require greater friction in US-Chinese relations” and “rapidly increasing US defense capabilities.” They accept my longstanding argument that we are in Cold War II, but dismiss détente as likely only to “fortify [the Chinese] conviction that they can destabilize the world with impunity.” In short, Pottinger and Gallagher want to fast-forward this new cold war to the 1980s.

Will Trump himself heed the hawks’ advice? If he chooses to stick with isolationism, I suspect it may hurt his chances of reelection. But if he discards that delusion, there could suddenly be a 1980 vibe to his year — and not only because Trump has rediscovered Ronald Reagan’s lethal question: “Are you better off than you were four years ago?” Despite having pursued a policy of technological containment of China that has been in many ways tougher and more effective than Trump’s, Biden looks weak right now. Not only has he been lousy at deterring America’s foes. He can’t even get a close US ally — Israel — to do as he asks.

It may therefore be that the ultimate historical significance of the Iranian attack on Israel will be its effect not on the Middle East but on Republican sentiment in the US.

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Tolkien’s hobbits are also isolationists, in their way. However, despite their strong preference for the quiet life, Frodo and Sam come to realize that they must fight their way to Mordor and risk their necks to destroy Sauron’s Ring of Power. When they return to the Shire, they find that it, too, has been overrun by the Enemy. But it is not too late to salvage the situation. Symbolically, the wicked wizard Saruman perishes on the very threshold of Frodo’s beloved home:

“And that’s the end of that,” said Sam. “A nasty end, and I wish I needn’t have seen it; but it’s a good riddance.”

“And the very last end of the War, I hope,” said Merry.

“I hope so,” said Frodo and sighed. “The very last stroke. But to think that it should fall here, at the very door of Bag End! Among all my hopes and fears at least I never expected that.”

“I shan’t call it the end, till we’ve cleared up the mess,” said Sam gloomily. “And that’ll take a lot of time and work.”

Words for isolationists to ponder in 2024.