higher interest rates and a dramatic slowdown in thendomestic economy.nTo pay off debt and interest charges, the US will have tonreturn to a trade surplus or suffer the downard spiral ofnaccelerating asset sales. The market solution is massivendollar devaluation to cut imports and boost exports. However,nthis also reduces the terms of trade, so that an even largerntransfer of real goods and assets is required. Debts are claimsnagainst future income, and current policy is making thesenclaims larger.nThe proper solution is to end both the trade and budgetndeficits. Either a tax increase or a budget reduction wouldnaccomplish this, though the second is preferable. Thenprivate sector cannot stand a further shift of resources tongovernment if it is to recover the ground lost to foreignncompetitors. Indeed, tax cuts to encourage savings andninvestment are vital elements of any industrial policy. Thenreduction in aggregate demand necessary to solve the debtnproblem should be managed at the expense of imports. Itnwould be self-defeating to slow the domestic economy byntaking the hit at home. That means intervention to curtailnimports so that 1) domestic demand can be maintained evennas its aggregate drops, and 2) the country can move to antrade surplus without gutting the dollar.nThe US also needs to escape its dependence on foreignncapital for political reasons. A “globalized” capitalnmarket is likely to become more sensitive to internationalntensions and crises. And from this will come greater pressurenon the US to avoid conflict through appeasement. In thenpast, the nervousness of allies and neutrals over confrontationsnor military operations has been expressed inndiplomatic terms that a determined administration couldnpolitely ignore. But if that nervousness can now be expressednby a drop in the stock market, a jump in interest ratesnor factory lay-offs, with the distress this will cause among thenbusiness community and domestic electorate, any administrationnwill become even more wary of taking strong action.nForeign firms have already organized their American employeesnto campaign for policies that favor their interests,nwhile millions of dollars are funneled to candidates, formernofficials, and think tanks to influence decisions. Given thenpacifism of our allies and trading partners in Europe andnJapan, the danger is not just that America’s enemies willncontrol its economy, but that its friends will. Indeed, then”peace in our time” rhetoric from the Reagan-Bush WhitenHouse over the last five years may already be a sign of this.nSuch an inhibition would be the negation of Great Powernstatus. A Great Power by definition is one that has thenfreedom to act unilaterally, to take as little or as much of thenoutside world as its interests dictate. The kind of economicninterdependence now being promoted would have the sameneffect on the United States that being tied down by thenLilliputians had on Gulliver.nThe relative decline of the United States and the diffusionnof power across a multipolar globe bodes ill both fornAmericans and the world at large. It must be rememberednthat what stability there has been during the last half of thisncentury has been due to the preeminence enjoyed by thenUS since its triumph in World War II. As William R.nThompson noted in his study On Global War,nThe more pronounced and unambiguous thenpostwar hierarchy of prestige, as reflected in thendominance of the leading power, the more likelynthe system to enjoy a period of peace andnstability. . . . Their decline, however, createsnsituations of conflict and instability.nThere has been a worfd economy for five hundred years,nbut it has not depended on anything as dubious as ann”invisible hand.” The stakes are too high. It is nationalnpower that writes the rules of the game, and protects thenproperty rights of citizens and clients. The system has beenncapitalist without being laissez-faire: the dominant powernprovides the bulk of investment capital and a stable currency.nIt does not do this out of altruism, but because it profitsnfrom its position as the most advanced economy. It isndominant because it is able to outperform rivals in thenleading sectors of the economy.nUnfortunately, the United States has been losing groundnin all these leadership categories. Gurrent trade and investmentnproblems are symptoms of a deeper malaise. Thendownward trend started in the 1970’s, but became morenevident in the 1980’s. Between 1972 and 1987, Americannmanufacturing productivity increased only one-third as fastnas West Germany and one-eighth as fast as Japan. Duringn1983-88, US fixed investments’ share of GDP was one-halfnthat of Japan. American growth since 1982 has dependednprimarily on increased labor participation; more workersnrather than more productive workers. In the modern age,nthat is the antithesis of progress. Not only is this poorneconomics, it is harmful social policy and a dangerousnnational strategy.nAs disturbing as this trend is, even more disturbing is thennon-response of so many. To spend one’s efforts trying tonexplain away or rationalize ominous developments rathernthan seek solutions is to become part of the problem. Fornwhen we cease to worry about the nation’s relative standingnin the world, the situation is truly lost. nBOOKS ON CASSETTESn§*• The Conservative Classicsn^ Unabridged Recordingsn^ Purchase & 30 Day Rentalsn^^’ Books by Buckley, Gilder,nSowell, Muggeridge, PaulnJohnson, Friedman, Hayek,nTocqueville, Kirk, Mises,nPodhoretz & scores of others.nCLASSICS ON TAPEnP.O. Box 969, Ashland, OR 97520n^ For Free Catalog, CallnnnMJ&iscffln/••fMiy’n1 (800) 729-2665nJANUARY 1990/21n