On Wall Street, it is said that the longest river in the emerging market countries is “De Nile.” However, before we poke fun at those countries, we should ask whether we ourselves are not in denial about how our country is beginning to display emerging market tendencies.

Take, for a start, the dismal state of our public finances. According to the Congressional Budget Office (CBO), we are presently running a seven percent of GDP budget deficit. We are doing this even at a time when we are close to full employment, when our budget should at least be a balance. The CBO is also warning us that, on present trends, our public debt level will exceed 100 percent of GDP by 2027. That would be well above the level in almost all major emerging market economies. It would also be the highest level we have reached since the end of the Second World War.

If the state of our public finances is now resembling that of a wayward emerging market economy, so too is the lack of our political will to take measures to put our public finances on a sustainable path. Anyone doubting this assertion has not been paying attention to the stance that Kamala Harris and Donald Trump are proposing on the budget issue. Far from proposing corrective budget measures to reduce the deficit, they are both making budget proposals that would aggravate our budget problem.

As might be expected from a Democratic candidate, Harris risks worsening the budget position through public spending increases. Among other things, she is promising ramped-up public spending on housing, healthcare, child and family welfare, infrastructure investment, and the environment. It is far from clear how she proposes to fund her spending initiatives in general and the granting of Medicare for all in particular.

As might be expected from a Republican candidate, Trump would add to the deficit by making unfunded tax cuts. Among his proposals are ending taxes on social security benefits, at an estimated cost of $1.8-trillion over a 10-year period, and making permanent the 2017 corporate and individual tax cuts, at an estimated cost of $2.5-trillion. In addition, he is proposing further corporate tax rate cuts and the exemption of tips from taxes.

Yet another way in which we have come to resemble an emerging market economy is the way in which our central bank engages in periodic bouts of massive money printing. It does so in response to financial crises, or else to finance the government’s outsized budget deficit. Whereas it took the Federal Reserve almost a hundred years since its founding in 1913 to increase the size of its balance sheet by $800 billion, since 2008 the Fed has increased its balance sheet size by around $7 trillion. It has done so largely through its quantitative easing policy. Meanwhile, between the start of 2021 and the end of 2022, the Fed allowed the broad money supply to balloon by 40 percent; an amount to be expected from a wayward Latin American country.

Perhaps the scariest of ways in which the United States is coming to resemble an emerging market economy is the seeming relinquishment of its leadership role as the promoter of free international trade and its steady drift towards protectionism. Far from proposing to roll back the punitive import tariffs that the Trump administration imposed on imports from China, Kamala Harris is promising to maintain a tough line on Chinese trade. For his part, Trump is proposing not only a 60 percent tariff on all Chinese imports, he is also proposing a 10 percent across-the board import tariff on the imports from all of our trade partners. It is difficult to imagine how this would not lead to retaliation by our trade partners and take us well down the road to the beggar-my-neighbor economically destructive policies of the 1930s.  

All of this could mean real trouble not only for our economy but for that of the rest of the world. The last thing that the world economy needs is a malfunctioning American economy and one that is retreating from the post-war globalization that underpinned years of world economic prosperity.

The post America: The World’s Scariest Emerging Market Economy appeared first on American Enterprise Institute – AEI.