America’s election is the one that matters to the rest of us

We should start thinking and planning for the day when the USA can't support us

With more than one hundred countries’ peoples going to the ballot box, 2024 is election year, but only one has global significance, that of the United States, the world’s hegemon.  Whether it can sustain that status in the long term seems not to be a question in American minds, but it should be, and here in Europe too.    

The US emerged as hegemon from the Breton Woods conference in 1944 when it crafted the present rules-based world order that all are expected to obey, but which it frequently ignores because it can.  Every hegemon from Rome, through the British Empire, to the US colossus is resented by the rest, but it is the reality they have to live with, and accommodate to with reluctance- tune into Russian and Chinese complaints – or do a UK and invent the “special relationship” best described by John F Kennedy as America’s British lieutenant.

Who wins the Presidency, and which party controls the House and Senate, and can therefore set economic, diplomatic, and military policy with international consequences matters to us all. Hence the attention the Harris v Trump contest gets from outside its boundaries.

Although the USA does not exercise the power it had  in the latter half of the 20^th century,  it is still the world’s superpower:  the largest economy, central to the biggest  alliance, NATO; the United Nations can be rendered impotent by the US veto; it effectively controls the World Bank and IMF; the USA disliking some  WTO decisions  deliberately  paralysed its Appellate Body.  US national interests places its sea-power in our two great oceans the Atlantic and the Pacific; its military sits on 750 bases in 80 countries, and has a military presence in every part of the globe. In Japan and South Korea, both in the key Asian region, it has 120  and 73 bases respectively.

Whether the USA can maintain its wide outreach and immense projection of force, and for how long, depends on its economic ability to fund the domestic and foreign/defence calls upon its public finances. That obvious fact would, one would expect, be front and centre of the presidential debate. One would be wrong. In the 91 pages of the Democratic platform, and the 21 pages of the Republican’s, the link between the public finances and the economy, and its importance to American power gets no serious mention.  

The day of the Trump v Harris debate the Congressional Budget Office reported a government deficit for one month of $381bn, contributing to an annual deficit in 2023-24 of $2 trillion. Neither candidate in the debate mentioned the public finances.  For Harris the numbers that mattered were those leaving a Trump rally early; and for Trump the numbers crossing the southern border to feast (allegedly) upon American families’ pet dogs.  Yet, what they didn’t mention is central to the American assumption of continued world power.

Remaining the hegemon, exercising the hard power that can bend the rest to its will, requires the home base, the 330m American citizens and their economy, to be in sound condition, a machine of   indigenous strength generating the great wealth needed to pay for that worldwide reach, which doesn’t come cheap.   It now, for example, costs $15 billion to build an aircraft carrier. The F-35 that sits on its deck comes in at £109m per fighter. The navy aims to have 14 on each carrier battle group. The army has 300 of them, the marines 100.  The whole programme of continuing F-35 improvement is calculated at $1.7 trillion.  Lots and lots of dollars are needed for the military’s manpower and weaponry. The US military budget in 2023 was £820.3 bn.  So, how well is the US economy, and how focused on it are Harris and Trump?    

So far the election is froth. Greg Ip, an economic writer has noted: “It is too soon to predict the winner of November’s election, but not the loser: economics. The candidates haven’t just demoted economic principles; they’ve jettisoned them altogether. In each election there’s less detail and less concern about paying for stuff.” He is not alone. Other economists take the same view.  Irwin Stelzer gives the candidates an F in economics, describing Harris and Trump as joined in a bipartisan “economic illiteracy”.

Harris is promising $6,000 tax credit for every newborn child, and a $25,000 tax credit for first home buyers, all calculated to cost $1 trillion over the next ten years. As well as not taxing tips Trump would make all social security payments non-taxable, at a $1.6 trillion cost to the Treasury.  Both would boost defence spending. To the outsider looking at these throw aways it would seem there are huge budget surpluses just waiting to be distributed, from an economy based on indigenous strength.  

But these promises, and the cost of being the world hegemon,  require a level of wealth creation that the economy does not produce.  The Federal government, and the American people, don’t earn what they spend. In 2023 the US federal government spent 38 per cent more than it collected in taxes.  During the 227 years of the republic, up until 2016, 44 presidents had accumulated $19.9 trillion national debt.  It is now expected to reach $36 trillion by the time Biden leaves office. The first call on the Treasury is for $1.2 trillion debt service, without as one economist noted “spending a dime” towards paying off the principle.  Family total household debt stands at $17.8 trillion. The US economy is growing through increased consumer spending, which means credit card debt rising to $1,4 trillion.  

These figures point to a massive black hole which, as it gets bigger each year, means America lives on the willingness of the rest of the world to lend it money by buying its bonds. This trick of living on tick continues to be possible because the dollar is the world’s reserve currency. But the dollar is fiat money, with no intrinsic value, having left the gold standard in 1972. For fiat money to be accepted as holding value, it relies solely on the willingness of people to believe it has value.  So far so good for the USA and its dollar……...but for how long? This hegemon now has inbuilt vulnerability, having transformed itself from the world’s greatest creditor to its greatest debtor with, as this presidential election demonstrates, its elite and its citizens seemingly unaware of the danger to its power status from living on a giant international credit card.

No one but a hegemon likes a hegemon, but we in Europe have nestled gratefully under its umbrella for almost 80 years. America as hegemon is vital to our security. But there will be a day of reckoning for the USA when the gross imbalance between its tax take, spending and borrowing is no longer sustainable, and that will also be a day of reckoning for Europe when the guardian can no longer deliver, and we are on our own. We should start thinking and planning for that day now.