The only way to test Bush’s bold plan

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Perhaps hope and ideology will prove victorious, in Iraq and on Wall Street – but real life and budgetary arithmetic generally win out. In this week’s article, John explains why he might be one of the few foreigners to vote for the re-election of George W. Bush.

If the world’s most powerful leader were chosen by its whole population rather than that of the US alone, the result would be in little doubt: there would be a new incumbent in the White House after January. But this support is probably a hindrance rather than a help to John Kerry. Let me redress the balance by explaining why I may be one of the few foreigners to vote for the re-election of George W. Bush.

America is engaged in a bold, ideologically motivated experiment, in defiance of conventional wisdom about international affairs and economic policy. If it succeeds, its architects deserve their political success, and there will be important lessons for us all. If it fails, which seems to me much more likely, it is important that the connection between policy initiatives and their consequences should be obvious both to those who opposed this course of action and to those who favoured it. If there is a change of administration, there will certainly be another neo-conservative experiment, and the myth of Democratic betrayal will fuel it.

Socialism is no longer a serious political force because it was tried, and it did not work. It did not work in centrally planned economies or poor countries; nor did attenuated forms of socialism work better in western Europe. People in the states concerned had to pay a high price for this. Ideology is never defeated by political argument alone, but, in the long run, results count. So when the ship hits the rocks, those who set that course should be on the bridge to take responsibility; and if the vessel sails triumphantly into port, the captain and his navigators should also be there to accept the plaudits of the cheering crowds.

Mr Bush came to office a little over a year after the bursting of the dotcom bubble and has presided over the greatest fiscal and monetary stimulus ever given to a western economy. Interest rates were cut to 1 per cent in a largely successful attempt to keep asset prices high. Tax cuts were implemented despite soaring military expenditure and rising spending in other programmes. The Reagan administration was austere in its approach to public spending, and tax cuts had previously been justified as a means of controlling the size of government, but the agenda of the past few years has made tax reduction a goal in its own right.

The idea that you can spend yourself rich has enduring appeal. A left-wing version is maintained by Utopian socialists and Keynesian economists. A right-wing version is supported by self-help gurus and supply-side politicians. The text of the left has been The General Theory of Employment, Interest and Money, the text of the right The Power of Positive Thinking. The mathematical tool of the left is the multiplier, while the right employs the Laffer curve.

In the left-wing account, spending by government makes taxpayers rich. In the right-wing account, spending by individuals makes the individuals rich. And both theories contain a small amount of truth: demand does, to some extent, bring forth supply. Government spending gives some stimulus to industrial production; personal profligacy gives some stimulus to personal effort. The flaw in both theories is that only in exceptional circumstances is the consequent effect on output as large as the initial impact on demand.

And so both typically end in debt and devaluation. Such expansionist efforts by the left normally come to an end quite quickly, because financial markets are never persuaded of their viability. Such policies are more rarely adopted by the right because central bankers are generally rather conventional in their beliefs and act as a restraining influence. The US experiment is possible because the chairman of the Federal Reserve broadly believes in supply-side economics.

Perhaps hope and ideology will prove victorious, in Iraq and on Wall Street. But real life and budgetary arithmetic generally win out. If you must read a self-help manual, How to Win Friends and Influence People may be a more useful title than The Power of Positive Thinking. The next four years may enable us to see for sure.

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