Physician, heal thyself
HOW many times have other countries which find themselves in financial trouble (from living beyond their means) come to Washington for help and been told what they must do to earn the right to help? And what have they always been told to do?Skip to next paragraph
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We all know the answer. They are told to cut their extravagances, balance their books, and adopt a sensible plan for servicing their debts.
Those who agree to do just that, then get help. But before they get help they must balance their books and stop living beyond their means.
It is unpleasant medicine. No one who has been living beyond his means takes such medicine willingly or easily. Yet it is the only way to cure the condition and get back to financial and economic health.
The great big important question facing the government of the United States today is whether it can take the medicine which so often in the past it has imposed on others.
There is little doubt about the present danger to the welfare and to the security of the US.
The dollar is sliding. Interest rates are beginning to rise. The first overt resort to protectionism as a remedy has been taken. This is the road to fragmentation of the Western world's economy, the road to inflation, the road to a general worldwide economic recession.
The US has not yet set its course down that road. The danger is real, but not immediate. There is still time in which to save the economic health of the entire Western community. But can the government in Washington bring itself to take the steps necessary to avoid the economic trouble?
The problem is simple. The American deficit, running now at nearly $200 billion a year, is undermining the dollar, and the American economy. The US has covered the deficit so far by borrowing from others, by running up an unfunded deficit. The debt is so high now that foreign governments and individual foreign investors are beginning to pull out of the American market. That is why interest rates are beginning to rise.
The remedy is simple, and clear, and unwelcome in Washington.
The slide of the dollar and the rise in interest rates would be checked and reversed if the government in Washington would set forth on the road to solvency by adopting, and beginning to execute, a plan to reduce the deficit. To do that spending must be curbed progressively, as contemplated in the Gramm-Rudman-Hollings Act, and revenue must be increased by new taxes.
The obstacle is President Reagan's refusal, so far, to accept higher taxes. Yet no plan for reversing the deficit is believable unless it includes higher taxes. And unless the plan is believable, it will not enlist the help of friends and allies and will not achieve its purpose of heading off the economic trouble which is the ultimate penalty for those who will not balance their books.
Both parties in Congress are ready for tax rises. If the President led in determination to reverse the American financial position, Congress would go along. And so too would the important trading partners.
To cure the condition requires the help of the outside world. Japan and West Germany in particular must help by finding markets at home to absorb the goods which the American market can no longer take. If Japanese and Germans cut their taxes by the amount of the tax rise in the United States, the level of production could remain constant and the economies of the three main producing nations remain undamaged.
But Japan and Germany cannot be expected to come to the help of the US unless or until the US government will itself set forth down the road to financial solvency.
President Reagan will earn praise as a peacemaker if he gets an arms control agreement with the Soviets. But the praise will be swept away in a wave of reproach if his stubbornness on taxes plunges a fragmented Western world into economic recession.