A Taste of the Future

By David Ignatius

"Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself." The acidulous wisdom of Mark Twain speaks to us across the ages, and never more than this week during the great congressional mobilization to save America's ports from the dreaded hand of Dubai.
The furor over Dubai is misplaced on so many levels, but let's start with the supposed terrorist threat. Military and CIA officials will tell you privately that the United Arab Emirates is among the most effective intelligence partners the United States has today in the Arab world. Its operatives are risking their lives to help gather information about al-Qaeda and other terrorist groups. They don't advertise it, and when an operation goes bad -- such as the U-2 spy plane that crashed last June returning from Afghanistan to al-Dhafra air base -- they keep their mouths shut.
Certainly, al-Qaeda knows who the enemy is. Among the documents released last week by the Combating Terrorism Center at West Point was a spring 2002 al-Qaeda warning to officials of Abu Dhabi and Dubai. It accused the UAE leaders of working with the U.S. government "in order to appease the Americans' wishes which include: spying, persecution and detainments." Al-Qaeda claimed it has penetrated the UAE government, and the United States should certainly vet any UAE personnel working in the United States. But the idea that by purchasing the British company that has been managing six U.S. ports, Dubai Ports World is somehow opening the door to terrorism is, frankly, racist.
The hubbub over terrorism isn't the biggest problem with the Dubai flap. In a sense, the Bush administration had it coming, after having beaten congressional opponents over the head with the terrorism club for four years. What goes around comes around, and while it may be comical to hear a legislator accuse President Bush of having a pre-Sept. 11 mind-set, the White House made itself a fat target.
The real absurdity here is that Congress doesn't seem to realize that an Arab-owned company's management of America's ports is just a taste of what is coming. Greater foreign ownership of U.S. assets is an inevitable consequence of the reckless tax-cutting, deficit-ballooning fiscal policies that Congress and the White House have pursued. By encouraging the United States to consume more than it produces, these fiscal policies have sucked in imports so fast that the nation is nearing a trillion-dollar annual trade deficit. Those are IOUs on America's future, issued by a spendthrift Congress.
The best quick analysis I've seen of the fiscal squeeze comes from New York University professor Nouriel Roubini, in his useful online survey of economic information, rgemonitor.com. He notes that with the U.S. current account deficit running at about $900 billion in 2006, "in a matter of a few years foreigners may end up owning most of the U.S. capital stocks: ports, factories, corporations, land, real estate and even our national parks." Until recently, he writes, the United States has been financing its trade deficit through debt -- namely, by selling U.S. Treasury securities to foreign central banks. That's scary enough -- as it has given big T-bill holders such as China and Saudi Arabia the ability to punish the U.S. dollar if they decide to unload their reserves.
But as Roubini says, foreigners may decide they would rather hold their dollars in equity investments than in U.S. Treasury debt. "If we continue with our current patterns of spending above our incomes, by 2013 the U.S. foreign liabilities could be as high as 75 percent of GDP and an increasing fraction of such liabilities will be in the form of equity," he explains. "So, let us stop whining about the dangers of unfriendly foreigners owning our firms and assets and get used to it."
Here's how bad it is: The worst thing that could happen to the United States, paradoxically, would be for Arab and other foreign investors to take us at our xenophobic word and decide that America doesn't really want foreign investment. If they pulled out their money, U.S. financial markets would plummet in a crash that might make 1929 look like a sleigh ride.
Let's rashly assume that Bill Frist and Dennis Hastert, the Republican Senate and House leaders, are serious in their expressions of concern about foreign ownership of American assets. What they should do right now is begin changing the fiscal policies that are transforming the United States into a ward of the world.
I'm dreaming, of course. Such policies would mean financial sacrifice on the part of Congress and the American people. They would require political leadership instead of quick-hit news conferences. What a quaint idea, that members of Congress actually might want to solve problems rather than make headlines.