The bond market is faced with a familiar question: Can the Treasury borrow more to stimulate the economy without raising interest rates?
Not to worry, at least not just yet. The bond market pays more attention to the economy than to bond volume, and yields can decline further, even though Treasury borrowing will increase. The economy will remain sluggish.
Eventually, we contend, this course will lead to economic disaster if the United States continues to borrow heavily in good times and bad while failing to invest in research and development, plant and equipment, and infrastructure and education. But there's no reason to believe the United States will follow its present course that far.
The 50th anniversary of Pearl Harbor is no time to succumb to such nonsense.
As David Brinkley noted last Thursday night, the United States, in the past half-century, put Western Europe together, wrote a new democratic constitution for Japan, and stood off the Soviet Union until it collapsed -- "a heroic performance by one of history's great countries." A country achieving that much can reshape its economy.
Pearl Harbor, of course, unified Americans and made them drive toward one goal. Today's sluggish economy, however, is a different kind of problem, with no single, clearly recognizable enemy to galvanize Americans or make them agree what to do.
Charting a course in this foggy atmosphere requires knowledge and work. President Bush has revealed no vision, and Americans don't want to face tough decisions, which makes the outlook discouraging. But if we can reshape the world, we can build an economy that works.
The supply-side economics of the 1980s failed, and President Bush has suggested no alternative. The strategy of the so-called conservatives--throwing billions of borrowed dollars at expensive weapons, unregulated government-guaranteed oligopolies, and Treasury-debt interest--has no merit. The liberal habit of shoveling billions of tax dollars at ineffective Federal programs isn't much better.
Even so, much cries out for change. Education needs improvement. Drugs and crime must be controlled. The environment needs care. Medical finance needs overhaul. Transportation could be better. Aircraft carriers and Stealth bombers are big, useless, unproductive postwar expenses. Interest on the national debt, now exceeding $300 billion a year, could be spent more wisely.
Without some economic equivalent of Pearl Harbor, however, Americans will be slow to change. That's the uninspired present, and it will permit the Treasury to borrow without putting upward pressure on interest rates right now.
Optimism for the longer run must rest on faith, not on hard evidence, but the record of the half-century since 1941 is reason for confidence.