Imperial Overstretch – A Forgotten Concept
I first came across the historian Paul Kennedy as an undergraduate in Politics and Modern History at Manchester University in the early 1980s. I went up to university as a mature student after a pub discussion about Germany and the Third Reich sparked an enduring interest in history.
In 1980, I duly bought Kennedy’s latest book The Rise of the Anglo-German Antagonism 1860–1914, but it was his idea of imperial overstretch in his 1987 tome The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 that made him well known outside the history fraternity.
…military overstretch and a concomitant relative decline are the consistent threats facing powers whose ambitions and security requirements are greater than their resource base can provide for.
Now, 30 years later, Kennedy’s warnings have been forgotten by virtually everyone, inlculjding the “global elite.”
The exceptions? Donald J. Trump and Steve Bannon – and a handful of economists, including 17 Nobel Prize winners.
The sheer scale of the problem escapes most people, including the global elite, who would like nothing better than to return to the comfortable status quo ante Trump and forget about trade wars and the US withdrawal from global affairs.
But as Bannon duly argues in 2011,
This crisis is of such a magnitude it’s unprecedented in our country’s history, and unprecedented in the world’s history…
In fact, the US is effectively bankrupt and can no longer afford to be the world’s policeman.
In 2018, total US national debt is commonly put at around $20 trillion:
In 2017, the US Congressional Budget Office (CBO) forecast that the debt to GDP ratio would increase from 77% of GDP to 150% in 2050.
This, however, is not even the half of it.
The US has huge “unfunded liabilities” – payments it has promised to make to its citizens in the future for the likes of Medicaid, Medicare, Social Security and defence.
In 2011, Bannon claimed that,
depending on the assumptions you make, Medicare, Social Security, Medicaid – the liabilities of these three are anywhere from $60 to $100 trillion.
These payments are thus now so vast that they cannot be met without fundamental changes in federal spending or taxation.
But instead of being officially recorded as debt, the promised payments are kept “off the books” as so-called “contingent liabilities” and do not therefore actually count towards the national debt.
In other words, we are dealing with an economic and accounting fiction.
By 2017, the US had a fiscal gap of over $200 trillion – not billion, but trillion.
If all these net unfunded liabilities are included in the national debt, the debt to GDP ratio as calculated by the CBO in 2017 was not 77% of GDP, but 1,025%!
This year, for example, the trustees of the Social Security Trust Fund reported that the programme would become financially insolvent in 2034.
By Wikideas1 – Own work https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/hist08z5.xls, CC0, https://commons.wikimedia.org/w/index.php?curid=64690837
It is easy to see why when the scale of the problem is understood.
Between 1946 and 1964, 76 million Americans were born – and now, 10,000 Baby Boomers are retiring every day – that’s 3,650,000 per annum and 36,500,000 per decade!
The population is also aging, so the dependency ratio of workers to pensioners is falling, which is leading to a serious shortfall in the pay-as-you-go system, with not enough money being paid in to avoid eventual insolvency.
It is erroneous to blame Trump for this situation, or indeed Obama. As the graph below shows, the public national debt in recent years, but the US has created a fiscal gap of over $200 trillion by making unsustainable promises over the previous 50 or 60 years.
There are no practicable solutions.
Some economists calculate that in order to avoid sharp cuts in federal spending, including Social Security, Medicaid and Medicare, federal taxes will have to rise by 60%!
Alternatively, a permanent increase in federal taxes could be avoided by a permanent federal spending cut of 47% – which would see sharp cuts in defence, entitlements and infrastructure etc.
But both tax increases and massive cuts in federal spending are likely to be rejected as politically toxic. Attempts to push these policies through would likely result in major political, economic and social instability – which will probably also occur anyway if nothing is done.
That other standby, printing money, will obviously cause inflation, so is also not a viable option.
Some people believe that mass immigration can pick up the slack by redressing the falling dependency ratio of workers to pensioners as Western society (and Japan) ages.
This is a pipe dream since AI + Quantum Computing + Robots will lead to mass unemployment and no income taxes, as well as to no corporate taxes since there will be no purchasing power among the population and therefore no demand.
Numerous observers therefore conclude that rather than being enormously wealthy – and able to be the world’s policemen, the US and its financial system is based on a glorified pyramid scheme which, like all Ponzi schemes, will collapse at some point.
The only question is when?
The fiscal gap is just part of America’s problems. Again, as Bannon said in 2011,
Imperial Overstretch – A Forgotten Concept
I first came across the historian Paul Kennedy as an undergraduate in Politics and Modern History at Manchester University in the early 1980s. I went up to university as a mature student after a pub discussion about Germany and the Third Reich sparked an enduring interest in history.
In 1980, I duly bought Kennedy’s latest book The Rise of the Anglo-German Antagonism 1860–1914, but it was his idea of imperial overstretch in his 1987 tome The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 that made him well known outside the history fraternity.
…military overstretch and a concomitant relative decline are the consistent threats facing powers whose ambitions and security requirements are greater than their resource base can provide for.
Now, 30 years later, Kennedy’s warnings have been forgotten by virtually everyone, inlculjding the “global elite.”
The exceptions? Donald J. Trump and Steve Bannon – and a handful of economists, including 17 Nobel Prize winners.
The sheer scale of the problem escapes most people, including the global elite, who would like nothing better than to return to the comfortable status quo ante Trump and forget about trade wars and the US withdrawal from global affairs.
But as Bannon duly argues in 2011,
This crisis is of such a magnitude it’s unprecedented in our country’s history, and unprecedented in the world’s history…
In fact, the US is effectively bankrupt and can no longer afford to be the world’s policeman.
In 2018, total US national debt is commonly put at around $20 trillion:
In 2017, the US Congressional Budget Office (CBO) forecast that the debt to GDP ratio would increase from 77% of GDP to 150% in 2050.
This, however, is not even the half of it.
The US has huge “unfunded liabilities” – payments it has promised to make to its citizens in the future for the likes of Medicaid, Medicare, Social Security and defence.
In 2011, Bannon claimed that,
depending on the assumptions you make, Medicare, Social Security, Medicaid – the liabilities of these three are anywhere from $60 to $100 trillion.
These payments are thus now so vast that they cannot be met without fundamental changes in federal spending or taxation.
But instead of being officially recorded as debt, the promised payments are kept “off the books” as so-called “contingent liabilities” and do not therefore actually count towards the national debt.
In other words, we are dealing with an economic and accounting fiction.
By 2017, the US had a fiscal gap of over $200 trillion – not billion, but trillion.
If all these net unfunded liabilities are included in the national debt, the debt to GDP ratio as calculated by the CBO in 2017 was not 77% of GDP, but 1,025%!
This year, for example, the trustees of the Social Security Trust Fund reported that the programme would become financially insolvent in 2034.
By Wikideas1 – Own work https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/hist08z5.xls, CC0, https://commons.wikimedia.org/w/index.php?curid=64690837
It is easy to see why when the scale of the problem is understood.
Between 1946 and 1964, 76 million Americans were born – and now, 10,000 Baby Boomers are retiring every day – that’s 3,650,000 per annum and 36,500,000 per decade!
The population is also aging, so the dependency ratio of workers to pensioners is falling, which is leading to a serious shortfall in the pay-as-you-go system, with not enough money being paid in to avoid eventual insolvency.
It is erroneous to blame Trump for this situation, or indeed Obama. As the graph below shows, the public national debt in recent years, but the US has created a fiscal gap of over $200 trillion by making unsustainable promises over the previous 50 or 60 years.
There are no practicable solutions.
Some economists calculate that in order to avoid sharp cuts in federal spending, including Social Security, Medicaid and Medicare, federal taxes will have to rise by 60%!
Alternatively, a permanent increase in federal taxes could be avoided by a permanent federal spending cut of 47% – which would see sharp cuts in defence, entitlements and infrastructure etc.
But both tax increases and massive cuts in federal spending are likely to be rejected as politically toxic. Attempts to push these policies through would likely result in major political, economic and social instability – which will probably also occur anyway if nothing is done.
That other standby, printing money, will obviously cause inflation, so is also not a viable option.
Some people believe that mass immigration can pick up the slack by redressing the falling dependency ratio of workers to pensioners as Western society (and Japan) ages.
This is a pipe dream since AI + Quantum Computing + Robots will lead to mass unemployment and no income taxes, as well as to no corporate taxes since there will be no purchasing power among the population and therefore no demand.
Numerous observers therefore conclude that rather than being enormously wealthy – and able to be the world’s policemen, the US and its financial system is based on a glorified pyramid scheme which, like all Ponzi schemes, will collapse at some point.
The only question is when?
The fiscal gap is just part of America’s problems. Again, as Bannon said in 2011,
I first came across the historian Paul Kennedy as an undergraduate in Politics and Modern History at Manchester University in the early 1980s. I went up to university as a mature student after a pub discussion about Germany and the Third Reich sparked an enduring interest in history.
In 1980, I duly bought Kennedy’s latest book The Rise of the Anglo-German Antagonism 1860–1914, but it was his 1987 work The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 and his idea of imperial overstretch that made him widely known outside the history guild.
Kennedy describes to a tee America’s current problems:
…military overstretch and a concomitant relative decline are the consistent threats facing powers whose ambitions and security requirements are greater than their resource base can provide for.
Now, 30 years later, Kennedy’s warnings have been forgotten by virtually everyone – except Donald J. Trump and Steve Bannon – and a handful of economists, including 17 Nobel Prize winners.
The truth is that the US is effectively bankrupt and heading for a meltdown if nothing is done – a meltdown which, if it occurs, will take the rest of the world down with it and be far worse than the Great Recession of 2008.
However, the global “elite” and media are constantly complaining about Trump’s trade wars and America’s global withdrawal, barely comprehend the problem – and would like nothing better than to return to the status quo ante Trump.
So what exactly is going on? Steve Bannon points out in this 2011 video that total US liabilities stand at an unimaginable $200 trillion and at the same time explains much of the Trump success and the ideology of the president:
This crisis is of such a magnitude it’s unprecedented in our history, and it’s unprecedented in world history
As state level, the state governments today are about $3 trillion under water.
Municipal governments are about $2 trillion under water.
Corporate pension funds I think, are at $2 trillion under water.
Municipal pension funds, I think, are at $2 trillion under water.
The biggest problem we have, which every quarter, all the goods from China, all the foreign oil we buy – it it is $7 trillion it’s the beating heart of the problem.in 8 debates now one question has been asked about…
The industrial democracies have a problem today we’ve never had. were are highly over-leveraged and we have built in a welfare state that is completely unsupportable.
Barack Obama is not the problem. Barack Obama is a symptom of the problem. We have to remove Barack Obama I have no doubt that we have to We have to remove Barack Obama…
These numbers are so esoteric that even the guys on Wall Street, the guys I worked with at Goldman Sachs, because it’s so tough to tie all this together.
The standard line critique of globalists worried about US withdrawal from global affairs is now accepted almost universally and uncritically – a stance that betrays a profound ignorance of political, economic and military history since 1945.
This is particularly ironic, since globalisers accuse “nativists” of seeing the past through rose-coloured spectacles, but commit precisely the same sin themselves.
American’s foreign minister, the then Secretary of State Hillary Clinton, stated the case clearly in 2011:
With Iraq and Afghanistan still in transition and serious economic challenges in our own country, there are those on the American political scene who are calling for us not to reposition, but to come home. They seek a downsizing of our foreign engagement in favor of our pressing domestic priorities. These impulses are understandable, but they are misguided. Those who say that we can no longer afford to engage with the world have it exactly backward — we cannot afford not to. From opening new markets for American businesses to curbing nuclear proliferation to keeping the sea lanes free for commerce and navigation, our work abroad holds the key to our prosperity and security at home. For more than six decades, the United States has resisted the gravitational pull of these “come home” debates and the implicit zero-sum logic of these arguments. We must do so again.
Hillary Clinton, America’s Pacific Century: The future of politics will be decided in Asia, not Afghanistan or Iraq, and the United States will be right at the center of the action, Foreign Policy, 11 October 2011
At http://foreignpolicy.com/2011/10/11/americas-pacific-century/
Chrystia Freeland, Canada’s foreign minister since January 2017 and a former Moscow bureau chief at The Financial Times, noted the change in the international sphere in a classic statement of Western-led globalisation and prosperity:
International relationships that had seemed immutable for 70 years are being called into question. From Europe, to Asia, to our own North American home, long-standing pacts that have formed the bedrock of our security and prosperity for generations are being tested.
And new shared human imperatives—the fight against climate change first among them—call for renewed, uncommon resolve.
Address by Minister Freeland on Canada’s foreign policy priorities, Ottawa, Canada, 6 June 2017.
https://www.canada.ca/en/global-affairs/news/2017/06/address_by_ministerfreelandoncanadasforeignpolicypriorities.html
In fact, these “International relationships that had seemed immutable for 70 years” and are so praised by Clinton and Freeland have been called into question at various times in the past.
Contrary to popular, and far too much “expert” opinion, which should know better, there have been problems with the Trans-Atlantic or Euro-US alliance from the very start. And while many accuse Trump of a “transactional approach” to defence and trade, these elements have also always been present. Ambiguity has been central since Stunde Null:
Western Europeans wanted the US to involve itself in European affairs after 1945 — but they also resented that involvement and what it implied about Europe’s decline.
Tony Judt, PostWar. A History of Europe since 1945, 2005, p.8
And again, the US had difficulty financing its commitments almost from the beginning of the Cold War period – as these extended quotes make clear:
…at the [twentieth] century’s close, as at its midway point, the United States was a country of unmatched economic productivity and superdominant military might but unsure of matching the latter by the former. The crucial element in this equation lay in an open worldwide trading system. When the Second World War ended the United States faced overseas markets closed by the British Commonwealth and other colonial empires and by the newly inflated and would-be autarkic Soviet empire. Demolishing empires was an ideological and material imperative and in this the United States was largely successful. But the Cold War and its attendant military commitments put continuing pressures on the American economy to earn by foreign commerce the surpluses needed to meet the accumulating demands of American foreign policies, and even when the Cold War was over the Gulf War of 1991 together with the balance sheets of the Reagan and Bush presidencies advertised the fact that the crucial issue of 2000 was the same as that of 1945. There was nothing, not even communism, that scared the American people more than persistent deficits in the national accounts but they could not be sure of the skills and the luck needed to meet these economic dangers. [emphasis added]
Peter Calvocoressi, World Politics Since 1945, p. 64 – this quote is from the 9th Edition, which was published in 2009 – seven years before Trump won the U.S. presidential election!
As Calvocoressi explains in more detail,
Throughout the postwar period there had been a concealed flaw or trap in the American position. A resolute refusal to revert to isolationism and to combat communism worldwide had entailed foreign operations and disbursements on an unscheduled scale, which could be financed only by a commensurate expansion in foreign earnings: hence American insistence on the dismantling of imperialist protection and on free trade generally on the best terms that the dollar could command. In these matters the United States largely got its way but the scale kept on growing so that the problem did not go away. The United States found it difficult to pay its way in the world. Domestically, the economy was improving in the 1990s but there was also a feeling that the administration lacked the political courage to make the best of the improvements – a failing in will in the Congress as well as the presidency. Commercial disputes with Japan were handled with erratic inconsistency, meetings of the Group of Seven became little more than group photographs attached to platitudinous communiqués. Yet the United States remained uniquely favoured. Its economy excelled, being in sheer volume more productive than any other and being underpinned by an educational system which (however bad in parts) included the best universities and research institutes in the world: this educational excellence made the economy innovative as well as massive. And it still had a unique currency. No other currency vied with the dollar as a magnet for foreign investors or bolthole seekers.[emphasis added]
Peter Calvocoressi, World Politics since 1945, 9th edition, 2009, p. 62.
In other words – the United States always ran into financial difficulties due to its military commitments – difficulties which came to a head in the 1960s, when it found it hard to finance the Vietnam War and its allies Japan and Western Europe were not pulling their weight in terms of military spending and, at the same time, had started to out-compete US business and industry and moving into America’s traditional markets.
As Steve Bannon pointed out in 2011, the US had total debt amounting to an eye-popping $220 trillion – with unfunded liabilities due to shoot up as the baby boomers hit retirement.
Occasionally the reality of the situation filters through to the elite, as in this instance
[Chairman of the Joint Chiefs of Staff Admiral Michael] Mullen was in a talkative mood. In 2010… Mullen had vented alarm about growing U.S. national debt, declaring it the country’s number one threat – greater than that posed by terrorism, by weapons of mass destruction, and by global warming.
Quoted in Edward Luce, Time To Start Thinking: America And The Spectre Of Decline, 2012, p.13.
Mullen voiced the absurdity of the US position to Luce, chief US commentator for the Financial Timesand:
We are borrowing money from China to build weapons to face down China. I mean, that’s a broken strategy. It may be ok now for a while, but it is a failed strategy from a national security perspective.
Quoted in Edward Luce, Time To Start Thinking: America And The Spectre Of Decline, 2012, p.13
The idea that the US can go on funding a huge military apparatus when its wealthy allies contribute far less as a percentage of GDP and run up massive trade deficits has reached the end of the line – at least under this president.
Now, however, it is hard to disagree with the view that
We’re dealing with a situation in which the dominant thinking is lagging behind changes in the actual economy.
Jeremy Green, Lecturer, International Political Economy, Cambridge University, UK.
Cambridge Alumni Magazine, Issue 81, Easter 2017