They tell me that politics changes the world. I have never believed it and, in fact, regarded it as a fiction spread by political leaders and the people who write about them.
It is money that changes the world. Politics derives its chief energy from money and, in fact, can be defined as little more than the attempt to resolve pressing money issues.
I am reminded of this once again by David Hale, an economist for Chicago`s Kemper Financial Services, who recently returned from a trip to Eastern Europe and an audience with West German Chancellor Helmut Kohl.
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West Germany is passing word that it played a key role in the collapse of communism. In return for Bonn`s aid to Hungary a year ago, that country opened its borders to start the mass exodus of Eastern Europeans to the West. Another tidbit: The Soviets did not insist that troops be unleashed on Eastern European protesters because of a quid pro quo; the West Germans had provided $200 million in emergency food aid to Moscow.
”They say that the only reason there was violence in Romania was because there were no Soviet troops there keeping the peace,” Hale said.
Behind Mikhail Gorbachev`s willingness to permit a unified Germany to be a member of NATO is said to be a promise of billions of dollars in Western aid-perhaps as much as $50 billion.
All this may sound mercenary, and perhaps it is. But money frequently is the glue that holds the international political system together and, though it has wide potential for conflict, it normally is a force for peace.
Saudi Arabia has used money to buy peace and stability for several decades. Because money is vital to its foreign policy, that nation gets very nervous when oil prices fall and its true source of power shrinks.
Which brings me to George Bush. At a time when American resources might be used to enhance and smooth the process of change in the Soviet Union and Eastern Europe, Bush is a President without any real money-except that borrowed from someone else.
He can`t propose another Marshall Plan, or a Bush plan, to help the Soviets put food on the table and move to a market economy. If he had the means, this truly would cement U.S.-Soviet relations and guarantee a better result. There would be a Pax Americana throughout the world.
History teaches that a country`s foreign prowess rests on a foundation of domestic economic strength. But we have become the recipients of money, rather than the providers. Our economic growth relies on borrowing the capital surpluses of Japan and West Germany. While Kohl provides money directly to Gorbachev and wrests concessions in the process, we have to borrow it from Kohl before we provide assistance.
That is why there is more at stake in Washington`s budget negotiations than mere financial accounting. The rest of the world is watching to see if the process of economic decline will be reversed or continued. So far, our management of domestic money matters has been less than inspiring (witness the savings and loan debacle).
Our current financial condition condemns us to forced isolationism and a weaker foreign policy at the very time that the rapid process of change in Eastern Europe and the Soviet Union poses many dangers. There is no holy writ, even in those famous treatises by Adam Smith and Milton Friedman, declaring that going from a state-controlled economy to a free market will be peaceful and bloodless.
For instance, Hale said, it has been speculated that the opening of this region could bring defections of Soviet troops; he said some of their sophisticated weaponry might wind up in terrorist hands as defectors cash in their only assets.
We don`t need an economist or a politician to tell us that money talks. Americans accustomed to a certain standard of living based on budget expenditures (Social Security) or tax preferences (the deduction for mortgage interest) won`t give them up without a major stink.
The first stage in regaining some of our lost power will be austerity. We`ll have to bite the bullet and either pay higher taxes or accept lower government benefits. I like the idea of a major new tax on energy, and restructuring our income-tax system to foster more savings.
The payoff will be worth the pain. Interest rates are sure to decline almost instantaneously as inflation fears subside. The groundwork will be laid for strong economic growth in the next decade. Maybe, as Friedman speculated recently, the stock market might even rise to 3900 by year`s end.
Tanks, planes and ships may give you a sense of security, but they don`t help much if you`re broke.