On the Decline of US Power

From diplomats and business leaders to columnists and pundits, nearly everywhere these days one hears cries of alarm. The fall of the shah, the latest OPEC price hikes, the further decline of the dollar—all are cited as evidence of the growing loss of American power and prestige in the world. It's "the most talked-about subject in the world," the managing director of Manufacturers Hanover bank in London told Business Week, which recently devoted a special issue to "the decline of US power."

Whatever the merit of these complaints, the reaction of our leaders on the Potomac is far more worrisome. Rather than coming to grips with the reasons for this country's fall from grace, the government's principal reaction has been saber rattling. Defense Secretary Harold Brown set the tone: "Protection of the oil flow from the Middle East is clearly part of our vital interest," he declared in March. "In protection of those vital interests, we'll take any action that's appropriate, including the use of military force." Added Energy Secretary James Schlesinger, "The US must move in such a way that it protects those interests, even if that involves the use of military strength or of military presence." A few days later an unnamed State Department planner told the Wall Street Journal, "It is now more widely perceived that military power is a legitimate tool in support of our economic interests."

As if to bolster this tough talk, the campaign to revive the draft has gone into high gear. Once-forgotten politician John Connally is making a rapid comeback, based on his image as a "strong leader" who could bully foreign leaders around. And out on the streets, for the first time in a decade, the word war is on people's lips.

Why this return of jingoism? It appears to be a reaction to (a) the inability of US leaders to control events in other countries, (b) our ever-growing dependence on oil imports, and (c) the continuing decline of the dollar. When the dollar was the world's strongest currency and oil was cheap, and (apparently) the CIA effective at instigating or preventing military coups, the world appeared to be secure under the sway of a benevolent American empire. But, for better or worse, those days are gone.

There are some valid reasons for worry. The United States is, after all, importing 46 percent of its oil (though only a bit more than a third of that comes from the Arab countries). And those imports are potentially vulnerable to cutoffs by producers, hostile action by terrorists, or blockades by the Soviet navy. The dollar buys less and less in world trade, having depreciated 50 percent against the mark and 44 percent against the yen in the past nine years. As one result, US firms are increasingly losing business to foreign multinationals. These facts—not the CIA's inability to intervene with impunity—deserve our attention and concern.

And when we examine them closely, what do we find? In every case, it is US government policy that has created the problem. Before the 1973 OPEC embargo and price increase, only 26 percent of US oil was imported. The government's response to those events was to create a huge new energy bureaucracy, slap price controls on domestic oil, and create a complex entitlements program to compensate crude-short refiners. The predictable result has been to curtail US oil production and—literally—to tax US producers to subsidize OPEC. With demand for oil continuing to grow (albeit more slowly), the only possible result was an increasing percentage of imports—as a direct result of government policy.

Likewise, it is widely acknowledged that the tremendous decline in the value of the dollar is due to Washington's continued inflationary policies. Since 1975 US inflation rates have consistently exceeded those of Germany, Japan, and Switzerland, whose officials have had the courage to resist political pressures for a perpetual free lunch. US tax policies are among the most anti-investment in the industrial world, leading to appallingly low rates of saving and investment. Thus, the productive capacity of US industry continues to erode, relative to that of other advanced countries. Finally, US multinationals are uniquely hobbled by a plethora of "do-gooder" regulations—antiboycott, antibribery, and environmental—making them all the less competitive in world markets.

Those are real reasons for a declining respect for America. And they are things that can be corrected. Overdependence on oil imports could be alleviated by leaving domestic oil companies free to explore and produce—not kept in harness by the carrot of "phased decontrol" and the stick of a "windfall profits" tax. By allowing free-market oil pricing, new sources of supply—like tertiary recovery from old wells, synthetic oil from coal, and maybe even shale oil—would one day become economically feasible. Streamlining nuclear power plant licensing would also help reduce dependence on oil. Speeding up natural-gas decontrol would hasten development of the vast reserves of gas in the geopressurized zones and of methane in coal deposits.

An all-out effort to reduce inflation, by halting Federal Reserve efforts to manipulate the economy by changes in money-growth rates and by requiring Congress to cut spending to match revenues, would restore confidence in the dollar. A return to some form of gold standard—so we wouldn't have to rely on the word of politicians and bureaucrats—would be even better.

Abolition of the capital gains tax and reductions in corporate taxes in general would spur investment in badly needed modernization of our decaying industrial plant. And removing the absurd restrictions on overseas corporate operations—as if it was any of our government's business—would give US firms a fighting chance to compete against the likes of Japan, Inc., and an increasingly united European community.

America once earned respect in the world. Its people knew how to produce—and set an example for the world. Its dollar was literally as good as gold. Though strong enough to defend itself, for most of its two centuries it minded its own business rather than everyone else's. Most of all, its implementation of political liberty was an inspiration to people everywhere.

To restore that kind of respect we must make those conditions once more the reality. The last thing we need is a return to conscription, saber rattling, and gunboat diplomacy. Napoleon was respected—because he was feared. Jefferson was respected—because he inspired men with a practical vision of liberty. It's high time we told today's would-be Napoleons what kind of respect we have in mind.