The Bush administration's narrow focus on the people who will vote in the next election is the worst in modern memory. In fiscal policy this means lowering taxes and increasing spending today, as well as promising more of the same tomorrow. In trade policy it means protecting the jobs of those perceived to be important in the electoral arithmetic. And in security policy it means devoting resources to reducing risks that are already low.
Everyone knows the story of the US government's budget. In 3 years there has been a staggering shift from a cash-flow surplus of 2 per cent of gross domestic product to a deficit of 5 per cent of GDP. All in all, the Bush tax cuts and increases in defense expenditure, together with the existing Social Security and Medicare programs, mean the unfunded liabilities of the US government are now about seven times GDP. The tendency of today's politicians to make promises they will not have to honor has put the government into an unsustainable position.
Solving the fiscal problem requires that officials tie their own hands. Enforceable legislation setting limits on the extent of budgetary imbalance seems the only reasonable possibility. Past efforts have focused on current budget deficits. New rules need to consider long-term sustainability. Unless the politicians fix this problem themselves, financial markets will do it for them and drive long-term interest rates up dramatically. No one wants that.
Trade policy has been doing a bit better. Robert Zoellick, US trade representative, has indicated that he is determined to revive the stalled Doha round of trade talks, and appears to be adopting a more conciliatory approach to developing countries' concerns. But this is more a matter of tone than of substance. The positions that the US maintained to such disastrous effect in the Cancun meeting remain the same.
The trouble is that, while everyone agrees that trade is good in the abstract, technological progress and shifting consumption patterns make some people worse off. When jobs shift within a country, we call it labor market flexibility. When jobs move to another country, it becomes us versus them. While the winners are diffuse, the losers are concentrated, easily identifiable and organized - a far more potent electoral force.
But the administration needs to set such short-term concerns aside. The most insidious consequence of tariffs and quotas is that they keep less developed countries from developing. It is hard to see how this serves America's security interests. Making the US safe ultimately means making everyone else content. President George W. Bush and his fellow political leaders need to tell voters that the US cannot go it alone for long. Growth and prosperity are based on trade and co-operation.
America's domestic security policy is flawed as well. Rather than tackling what is truly dangerous, politicians are expending enormous resources making people feel safe. The focus is on psychology, not reality.
To see the point, just consider that the most dangerous thing most Americans do is to travel by car. Each year in the US, 40,000 people die and 300,000 are permanently disabled in car accidents. By comparison, the chances of being killed in terrorist attack seem trivial. Yet, even ignoring the time of inconvenienced passengers, we spend tens of billions of dollars on improved airport security. There is no commensurate move to improve road safety. Rather than try to educate people about what is safe and what is not, the government stokes irrational fears.
Ultimately, what we need is leadership. Policymakers have to fight their natural tendency to pander to voters' short-term wishes. Instead, they should be willing to make sacrifices today in return for gains that they will almost certainly not see. Let us hope that Mr Bush's officials have adopted some simple New Year's resolutions this year: to take the long view, to work co-operatively - especially with those who are less well off - and to help people understand what is good for them.
Stephen G. Cecchetti is Professor of International Economics and Finance, Brandeis University, and Research Associate, National Bureau of Economic Research.