The Bush black hole

By Joseph E. Stiglit, a Nobel laureate in economics, is Professor of Economics at Columbia University and was Chairman of the Council of Economic Advisers to President Clinton and Chief Economist and Senior Vice President at the World Bank.

In 2001, President George W. Bush misled the American people. He said that a tax cut that was not designed to stimulate the economy would stimulate it, and the American people believed him. But it did not. He told Americans that the large surpluses that were among President Bill Clinton's legacies meant that the US could afford to cut taxes massively. Wrong again. He did not warn Americans how dubious such estimates can be.

In 2003 President Bush misled the American people about the economy once more. Weeks after persuading Congress to pass another tax cut-in some ways even more inequitable than the first-his administration revealed how bad the fiscal position had become. The $230 billion surplus inherited from Clinton had turned into a $450 billion deficit.

Now, after handing billions to rich Americans through tax cuts that almost exclusively benefit them, the Bush administration is passing the hat around, asking for contributions from other countries to help pay for the cost of the Iraq war. Even setting aside the other dubious aspects of Bush's Iraq policy, the conjunction of misguided giveaways to America's richest people with an international US begging bowl is hardly likely to evoke an outpouring of sympathy.

Meanwhile, as all of this happens, the US trade deficit mounts. America, the world's richest country, evidently can't live within its means, borrowing more than a billion dollars a day. As the US thrashes around for someone to blame, it was inevitable that it would focus on China, with its large trade surplus, just as the twin fiscal and trade deficits of the Reagan era led to a focus on Japan two decades ago. But this is blame shifting, nothing more. America's fiscal and trade deficits are intimately linked. If a country saves less than it invests, it must borrow the difference from abroad, and foreign borrowing and trade deficits are two sides of the same coin.

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