No one can deny that substantial American ground forces were deeply and successfully engaged in the recent Iraq War. It remains to be seen, however, what military and political lessons will follow. The durability of the American triumph in Iraq will presumably depend on factors more political and diplomatic than strictly military. Ultimate success will depend on how the occupation is handled and legitimized. It will also depend on public support in the United States itself. Here, economic factors will probably play a significant role. Already, the high economic costs of the administration's policies are cause for serious concern. In the presidential election of 2004, the Democrats will presumably seek advantage from the country's deteriorating economic performance. So far, however, Democrats have not been very effective critics of neo-conservative geopolitics. They do not so much reject American "triumphalism" as offer a different variety of it.

Arguably, the Clinton Administration was no less "unipolar" than either Bush Administration. It should be recalled that Hubert Védrine was dubbing the United States a hyperpower needing to be balanced well before the current administration came into office. Clinton's triumphalism merely took a more economic than a military form. The United States was to be the world's predominant economy, the undisputed leader in new technology. This was the second coming of the American Challenge to Europe. But Clinton's initial step in "growing" his super-economy was to use deep cuts in military spending, made possible by the Soviet demise, to restore America's fiscal order, in ruins from the heavy military buildup of the Reagan era. The return to fiscal virtue produced the effects classical economists had always predicted. With a radical drop in government borrowing, interest rates fell and private investment rose accordingly, encouraged by a new sense of security--both geopolitical and macroeconomic. Along with high investment came a remarkable rise in productivity, hastened by a burst of technological innovation.

By the end of the decade, however, the boom was a bubble. Clinton's unipolar vision carried its own form of overstretch. Although his administration did cure the radical fiscal deficit inherited from Reagan, it failed to deal with Reagan's other poisoned legacy: the economy's huge external imbalance, an old American problem that Reaganomics greatly exacerbated. The external deficit worsened throughout the Clinton boom and now is worse than ever. What does this deficit mean, and how is it related to American military power?

A huge and continuing external deficit means simply that the United States regularly consumes and invests more than it produces. The difference has to be imported; it has to be financed by foreigners. Financing from abroad was no problem in the Clinton era as Europeans flocked to invest in the booming American economy. And despite the massive inflow of foreign capital, price and wage inflation were kept at bay by the strong dollar and cheap imports from Asia. In the end, however, inflation did reveal itself as "asset inflation"--over-investment in the classic manner--which led the way from boom to crash. Needless to say, as the bubble burst, European investors lost their ardor for pouring capital into the United States. Slackening foreign investment has exacerbated the crash and continues to weaken the dollar. What are the implications for American power?

The United States has, of course, run large external deficits with the world economy through much of the postwar era. When one formula for financing the deficit has failed, we have always been able to find another. The U.S. government always had two major advantages in this: the Cold War and the dollar. The Soviet threat gave the United States great bargaining leverage over its rich protectorates, Europe and Japan, while the dollar's international role gave successive administrations wide ability to create new money to spend in the world. Both advantages are now eroded. The end of the Cold War has deprived the United States of its former geopolitical leverage; the advent of the euro threatens America's monopoly power over the world's money. Now that Clinton's investment boom is over, financing America's future deficits is likely to grow more expensive. It will take higher interest rates to lure foreign savings. Higher rates seem likely to force American politics into harsher choices--between guns and butter, or growth and consumption. Arguably, this would be true even if the Clinton policies were still in effect. But President Bush's geopolitical and fiscal policies promise to make a difficult situation worse. While Clinton's policies did not diminish America's over-absorption and consequent external deficit, they did at least eliminate the fiscal deficit.

The present Bush Administration came into office scornful of Clinton's fiscal priorities. As in the Reagan era, the desire to increase military power has taken precedence over budget balancing. Bush was able to use 9/11 to carry a giant increase in military spending. Meanwhile, his administration proposed the familiar neo-conservative fiscal model of the Cold War--tax cuts to go with heavy increases in military spending. Like the Reagan experiment, the Bush model implies large Federal deficits. The budget surplus inherited from Clinton was an early casualty. Meanwhile, the huge external deficits grow worse. In effect, the United States has returned to the "twin deficits" of the pre-Clinton era. Current projections foresee a U.S. current account deficit of $500 billion for 2003, and a budget deficit of $246 billion for the coming fiscal year--not counting the extramilitary costs of the war, for which the administration has asked a further $74.7 billion. Estimates for occupation and reconstruction costs in Iraq vary widely, but the amounts will certainly be significant.

Budgetary expectations have to be weighed in the light of the administration's new strategic doctrine. That doctrine, formally proclaimed in September 2002, warns that, given today's weapons of mass destruction, together with the lunatic proclivities of rogue states and terrorist organizations, the United States "cannot remain idle while dangers gather." America's wars in Afghanistan and Iraq suggest that the doctrine is meant to be taken seriously. But the doctrine's logic and language imply a still wider application--not merely preemptive strikes at rogue states, but preventive war whenever a hostile power or coalition threatens American military primacy in any of the world's major regions. Such a doctrine suggests a formidable circle of potential enemies, many with large armies. Indeed, if the doctrine's logic is taken seriously, the United States could eventually look forward to war with China, Russia, perhaps even Europe. Meanwhile, there are lesser but more urgent challenges--North Korea and Iran, for example. Even the lesser challenges point to a continuing large investment in military power, with heavy fiscal consequences.

These geopolitically-driven fiscal prospects raise the all-important question of whether the neo-conservative global agenda is economically sustainable. Just as there has been a revival of "Reaganomics" in America, so it seems likely there will soon be a revival of "declinism", with its warning of hegemonic "overstretch." A feeble economy seems a likely and reinforcing complement to such a revival.

To say that a policy is economically ruinous is not to say that it is impossible. But sustaining the financial burdens of the Bush geopolitical agenda implies a radical change in the country's political culture, together with a more authoritarian state than Americans are used to. The public may reject the Bush agenda and return the country to a different administration with a different geopolitical worldview. Or the Bush Administration can change itself. But the longer the current geopolitical agenda holds sway, the more its expectations of the rest of the world's hostility will become a self-fulfilling prophecy, and the harder it will be for America to turn back. And the more the American and global economies are abused by huge deficits and unstable money, the greater will be the damage and the longer the time needed to recover. As in the 1930s, the collateral social and political consequences may be severe.

Europe's Weakness

These considerations ought to be kept in mind while assessing Europe's comparative military power. Kagan finds Europe militarily weak because its defense spending is low compared to that of the United States. The methodology of his comparison seems dubious, however. Any assessment of relative military power should obviously be linked to the geopolitical goals meant to be served. Europe is not planning to assert military hegemony over the world, nor is it expecting an American military invasion. Why then compare Europe's military spending with America's? Why should such a comparison tell us whether Europe's spending is adequate?

The United States and the European Union, moreover, are very different political constructions, above all in the military field, which is the least integrated within the EU. The European Union has three major independent military powers--Britain, France and Germany. Comparative spending figures are interesting but do not necessarily lead to Kagan's conclusions. In 2002, the three European powers spent $35, 32 and 23 billion respectively on national defense--a total of roughly $90 billion, as opposed to roughly $350 billion for the United States. Looked at in relation to population or GDP, the three big European military powers combined spent roughly half the U.S. outlay. Nevertheless, the three European states spent together more than Russia, China or Japan. What do these figures tell us? Is it that everyone else in the world is spending too little on defense, or that the United States is spending too much?

Essay Types: Book Review