November 7, 2024
Should the U.S. Government Continue to Support Ukraine?
Philip Kotler
Donald Trump will now be the 47th President of the U.S. Trump believes in “America First” thinking. He will judge policies by what they contribute to making the U.S. a stronger country. He will reject policies that weaken the U.S. economy today.
What policy should the U.S. have toward continued support of our allies? Should the U.S. make long-term commitments to defend our allies? The U.S. currently spends billions to support Ukraine against Russia and Israel against Hamas-dominated Palestine and Iran. Financing these two allies’ war efforts may be raising U.S. indebtedness into a crisis stage. As of October 2024, the U.S. federal government’s debt stood at $35.8 trillion. In the same October, the U.S. Gross Domestic Product (GDP) stood at $29.35 trillion. The deficit to GDP ratio is 1.21 (=35.8/29.35). Many economists believe that a debt-to-GDP ratio of 1.21 is dangerously high. At this level, many investors would hesitate to buy government bonds unless the bonds carried a high enough rate interest to cover the investors’ higher risk. The argument is also made that high government debt crowds out private investment.
Will a debt-to-GDP ratio of 1.21 lead to government default or to printing more money to reduce indebtedness and thereby cause more inflation? The answers are not that clear. Japan’s debt-to-GDP is 2.0, one of the highest globally, and yet Japan has maintained economic stability due to its low interest rates and a large domestic investor base. Germany’s debt-to-GDP rate 0.7 and yet Germany today faces heavy economic difficulties. The U.S. can sustain a high ratio more comfortably than most countries. Yet we do have to worry that continued high borrowing costs could affect American fiscal stability in the long run.
Most nations facing too high a ratio does their best to cut down government programs. Trump will propose cutting Social Security, Medicare and other consumer welfare programs. He could propose cutting down or cutting off aid to Ukraine and Israel. This will be the “common-sense” solution seen by conservatives. Stop sending money abroad to help people of other countries. Keep the money invested at home to benefit American citizens.
Vivek Ramaswamy, a major Trump Republican, is a major opponent of the Democrat’s “interventionist foreign policy.” Vivek sees our foreign support as abusing “the American taxpayer and even life resources to advance goals that didn’t directly advance or even indirectly advance the American interest.” He sees the U.S. as taking on too many financial responsibilities that is slowing down the U.S. economy. He says that the first sin was Lyndon Johnson’s creation of the Great Society “nanny” state. The U.S. got involved in welfare, Medicaid, and many regulatory agencies that hold industry back. The U.S. grew into Big Government. Vivek complains that too many Republicans accept Big Government and seek ways to exploit it. Instead, Vivek wants the Republican party to dismantle Big Government and the entitlement state and dissolve its support of foreign nanny states.
Could this common-sense solution amount to “bad common-sense?” Imagine that the U.S. cuts its aid to Ukraine. Imagine that Trump decides to cut off aid to Ukraine. Trump gets Ukraine to give up the Ukrainian territory that Russia now controls. Over time, Russia takes over the rest of Ukraine and turns it into a Russian state, erasing Ukrainian culture. As a result, Putin feels so empowered that he declares war on the Baltic countries of Estonia, Latvia, Lithuania and Moldova. Russia wins in the way that Nazi Germany brutally attacked and conquered Poland. Russia then goes after some formerly occupied Eastern European countries such as Bulgaria. All these events more deeply divide Western Europe from Eastern Europe. America’s remaining Western allies are weakened.
The U.S. is once again locked into a continuous Cold War with a powerful Russia battling the U.S. with and within every uncommitted country. China will join Russia in the Russian takeover. Clearly the U.S. will be burdened by rising defense costs and higher interest rates.
The choice is clear. If Ukraine loses its war, the U.S. loses. If the U.S. supports Ukraine and is successful, the U.S. remains strong at a relatively low cost. If the U.S. is not successful in supporting Ukraine, the U.S. loses badly at a high cost.
Let us return to the main problem. The U.S. and most countries tend to do short term thinking. Should Trump try to please Putin? The consequences of abandoning Ukraine could be disastrous.
Are there other solutions to supporting Ukraine and not giving up our welfare systems? Two solutions might be considered. The U.S. government could raise taxes on the rich and do a better job of taxing hidden money. By collecting more revenue, federal indebtedness gets smaller and debt-to-GDP falls. The other solution is to cut down on the ever-rising defense budget. The U.S. government decides that by helping Ukraine do the fighting, it can spend less on building up its own defense budget. Trump, however, does not want to raise taxes on the rich; if anything, he wants to lower their taxes. Trump doesn’t want to protect the welfare system. He wants to dismantle it. His answer is to bring down the debt-to-GDP ratio by reducing the cost of the welfare system.
The other question: Should the U.S. continue its support of Israel? By cutting support to Israel, the debt-to-GDP would go down. Israel differs from Ukraine in that it does not make the U.S. stronger against Russia. Israel does create new scientific findings that can help the world. Israel should be supported because it is a democracy and a believer in humanitarian values. Trump has a strong feeling about Israel that might lead him to continue supporting Israel.
In this article, my hope is to encourage more long-term public and professional thinking about where the U.S. is heading and where it should be heading!
