On Aug. 3, 1967, President Lyndon B. Johnson sent a message to Congress in which he said that the United States could not continue to fight a war in Vietnam and at the same time continue his Great Society programs without, among other things, raising taxes. George Bush ought to read that message. It was titled "The Hard and Inescapable Facts."
For Bush, facts are neither hard nor inescapable. He believes in "magical math" -- a firm understanding that somehow, in some way, something will happen to make everything come out right in the end. This is the economics practiced by the dreamy who think that today's credit card purchase will never come due. This, in a nutshell, is the financial blueprint for the United States of America.
For Johnson, the realization that bills come due came too late. Early on he said, "We can continue the Great Society while we fight in Vietnam," but he sensed -- canny pol that he was -- that the American people would pay for the former but not, if they had to choose, the latter. When Johnson finally had to ask for a tax increase, he was on his way out as president. Less than a year after delivering his message about hard facts, he had to face the hardest one himself: He announced he would not seek reelection.
Bush, having won a second term, cannot seek reelection and so he may never become politically accountable for his mismanagement of the nation's finances. As Johnson initially attempted, Bush is telling the American people they can have both guns and butter -- two for the price of one. In Bush's case, "guns" is the war in Iraq (and Afghanistan) and the "butter" is domestic programs such as enriched Medicare along with the war on terrorism, which Bush himself has characterized as virtually endless. In his case, though, he has not only refused to raise taxes, he has actually lowered them. LBJ could only marvel.
Ever since the war in Iraq went from resplendent victory ("Mission Accomplished") to the ugly quagmire it has become (almost 2,000 American dead), commentators have been making comparisons to Vietnam. I myself have done that -- and I think certain commonalities exist and are troublesome. Usually, these comparisons focus on military or political matters, but Robert D. Hormats, a former assistant secretary of state and now a vice chairman of Goldman Sachs International, has found what may be a more apt comparison. Initially, both wars were financed on the cheap because interest rates were low.
Hormats is finishing a book, "The Price of Liberty," on how America paid for its wars, starting with the Revolution and concluding with Iraq. Most wars forced the government to revise its budgetary and tax priorities. In other words, cut spending and increase taxes. Not so Vietnam -- not for a long while, anyway. LBJ ultimately hit the fiscal wall, and when he did so, Americans had to decide whether Vietnam was worth the bucks. His political position worsened.
Bush has been luckier. He came into office -- as he did life itself -- with a huge surplus. He spent it. He now has a huge deficit. The Federal Reserve is increasingly concerned about inflation and this week raised interest rates for the 11th consecutive time since June 2004. Sooner or later, Americans are going to have to make hard choices -- guns or butter. Not surprisingly, they overwhelmingly tell pollsters they'd choose butter. When asked by a CNN/USA Today/Gallup poll how they'd prefer to finance the (at least) $200 billion Hurricane Katrina relief effort, only 6 percent proposed cutting domestic spending and just 15 percent supported increasing the deficit. A majority -- 54 percent -- chose "cut spending for the war in Iraq."
The curse of Texas is once again upon the land -- an elective war, important enough to fight, not important enough to pay for. Up to now, it's been manageable if only because few have been asked to sacrifice anything for the grand cause of . . . well, it's hard to say, isn't it? On a national scale, the casualty rate is bearable and the financial cost has not been felt because the money was first looted from the surplus and then borrowed. But that borrowing will drive up interest rates, including mortgages, and it might, as happened with Vietnam, trigger inflation that lasted longer than the war itself. Everything is going to get more expensive and voters are going to get more grumpy and it's all going to look like it once did to LBJ. That's not someone's nightmare scenario. That's "the hard and inescapable facts."