Ferguson Warns About U.S. 'Fiscal' Overstretch
In the March/April edition of Foreign Affairs, Niall Ferguson offers an interesting piece on the fall of empires – arguing that most collapses of world powers have been associated with fiscal crises and have come abruptly (an indication that a slow decline is not what citizens and policymakers should be worrying about).
Examining the historical experiences of ancient Rome, the Ming Dynasty in China, the British Empire, and the Soviet Union, declines have come precipitously and unexpectedly. Ferguson cites the United States’ dire fiscal outlook, with public debt expected to more than double from $5.8 trillion in 2008 to $14.3 trillion in 2019 under the CBO’s baseline projections, and argues that:
“In imperial crises, it is not the material underpinnings of power that really matter but expectations about future power. The fiscal numbers citied above cannot erode U.S. strength on their own, but they can work to weaken a long-assumed faith in the United States’ ability to weather any crisis.”
We have already begun seeing this happen, as credit rating agencies have been warning about the unsustainable course of U.S. debt and interest payments (see yesterday’s post on Moody’s quarterly report here).
At this point, Ferguson warns about a “seemingly random piece of bad news” one day about U.S. debt that will generate widespread concern not only among policymakers and analysts but in the public at large and investors abroad. Ferguson believes this change – people losing faith in the United States’ viability – to be the crucial one.
It’s not only the strength of our economy and standard of living that are at risk in a fiscal crisis, it’s also our role in the world.