I’ve been a deficit hawk for a long time.  I spent the whole Bush Administration railing about the consequences of deficit spending, and though I am a strong Obama supporter, I’ve been pretty brutal on him from the beginning.  In 2009, I wrote:

BernardFinel.com » The Fiscal Abyss

Look… I understand the reality of this. Republicans run up massive deficits in order to constrain Democratic administrations. It is fundamentally undemocratic behavior. And sooner or later, a Democratic president was going to come along and say, “screw it, I am not going to allow my agenda to be dictated by the dead hand of past Republican idiocy.” But, the fact is that this is a disaster looming:

White House Adds $2 Trillion to Deficit Forecasts – washingtonpost.com

The nation would be forced to borrow more than $9 trillion over the next decade under President Obama’s policies, the White House acknowledged late Friday, bringing their long-term budget forecast in line with independent estimates.

We’re going to add $9 trillion to our national debt… IF WE’RE LUCKY. This assumes no double-dip recession. It assumes no major terrorist attacks. It assumes no other wars. It assumes no more financial meltdowns. It assumes no disruption in oil supply. $9 trillion in new debt is the BEST CASE.

I’ve continued in this vein since, writing this in 2010:

BernardFinel.com » Debating Obama’s Present and Palin’s Future

The issue for me was not “inflation.” It was we were going down a path where interest rates were going to spike, blowing a hole out of business investment and the country’s fiscal posture. And I believed (and continue to believe) that unconstrained deficit spending will lead to a double-dip recession due to the disastrous consequences of a massive increase in our debt, ballooning interest payments (particularly to foreign investors), and a fiscal crunch that will make our current problems look like child’s play. We’ve been funding our new debt with short-term t-bills, and so we could see massive interest rate moves very rapidly, leading to a rapidly deteriorating fiscal picture. So, interest, not inflation was — and is — my concern.

The reality is that the consequences are going to be more severe than just passing along debt to our children. Our current fiscal insanity is very likely to severely affect our global position. 

Over at his site, Fabius Maximus lays out some of the potential consequences of a significant economic downturn, though he seems to see the main danger as one of insufficient stimulus, and hence avoidable, whereas I see the fundamental problem as a structural fragility in the economy introduced by Bush’s deficits. His policies put us in a position where there are simply no effective counter-cyclical instruments because we’re already near the zero bound on monetary options and additional fiscal stimulus is likely to lead to a crisis of confidence in the American government causing interest payments to spike and sucking money out of the economy as a result.

Anyway, regardless of how we get there, FM and I share a similarly pessimistic assessment about the near to mid-term outlook for the U.S. economy.  His view of the geopolitical consequences are the following:

Some thoughts on the political effects of a long recession « Fabius Maximus

We can say little about the new order. Here are some guesses.

* China will become a great power, again The Middle Kingdom.
* The US will no longer be sending our troops into other nations at the drop of a hat, as we have since the Spanish-American War — and doubly so since WWII. We can no longer afford the necessary military machinery (which we run today only by loans from China, Japan, and OPEC).
* More countries will get nukes, which will dampen down regional conflicts (as it did in the Middle East and China-India).
* Violent conflict will take new forms, probably intense economic war and 4GW.
* Technological change will continue, bringing humanity kicking and screaming into a better world.

All of those consequences strike me as plausible.  I also think this will raise a fundamental challenge to the United States, not as a matter of national security, but as a matter of self-perception.  Consider the China case.  The notion that China could become a co-equal player to the United States scares a lot of  Very Serious People in Washington.  It is considered wholly self-evident that a world in which China is more assertive and the United States more constrained would be bad.  But would it?

We make a mistake to thinking of China as a challenger in the mode of Germany (1914-45) or the Soviet Union (1917-89). I am going to channel my old professor from SAIS, George Liska, an old-school European geopolitical theorist.  Liska noted that a fundamental ordering pattern in international politics was the competition between land powers and sea powers.  The difference, though, is not about the source of military might — navies vs. armies; the difference is a function of international orientation and commercial interests.  Land powers, traditionally, less reliant on trade and overseas communication tend toward autarky, and are tempted to use threats to the open international order as a way to pursue state interests.  They, thus, seek to foment instability as a way to dissipate the capabilities of their sea power rivals, and they also are willing to directly threat communication links.  As a result, their power position is inherently a threat to the livelihood and way of life of sea powers.

But China is, as a matter of international orientation, much more of a sea power than a land power, even though its military capabilities are focused on ground forces rather than naval forces.  China is tremendously reliant on international trade, commerce, and finance.  People sometimes tell me that the growth of Chinese military capabilities creates a latent threat that they might choose to use it to deny us access to trade… but how would that serve their geopolitical interests?

The point is the rise of China, as a structural matter, resembles the challenge posed by the United States to Britain in the late 19th Century moreso than it does the rise of Germany in the early 20th Century or the Soviet Union after World War II.  The main challenge for the United States is not facing down China, it is figuring out how to best accommodate and co-opt China to play a stabilizing role in the emerging world order.  The main threat is not that they will work against our interests, the main threat is that we will try to maintain American hegemony and thus spurn a potential strategic partner.

The same is true on several other points FM makes.  Some Americans will bemoan our diminished capacity for foreign interventions, when as a matter of national strategy these interventions are — and have almost always been — counter-productive.  I am less sanguine than he about the impact of the spread of nuclear weapons, but while that may prove to be a regional problem, it need not pose a fundamental threat to U.S. interests.

We could, in short, with sufficient wisdom and leadership manage a transition to a new “new world order” in such a way that neither American prosperity nor political independence are jeopardized.  But that will require a thoughtful and careful pruning of responsibilities and a cultivation of successors and partners in global management.

Unfortunately, we won’t do that.  Just as simply continuing Clinton-era fiscal policies would have left us in better shape, we’re likely to shoot ourselves in the foot in terms of managing international transition.  We’re going to hold on too hard and too long to our current dominance, and as a result we’ll likely miss the opportunity to establish a new set of global institutions.

The Long Recession is going to affect international politics.  The United States is going to have to accept a diminished role in the world.  The only question is whether we do it with wisdom and embrace emerging opportunities, or whether we do it kicking and screaming wasting resources and destroying relationships in the process.