The latest piece of received wisdom going around here--see, around here an awful lot of educated people were educated to be Marxists, and therefore suffer from a combination of blind faith that somehow capitalism isn't going to work, a complete ignorance of economics, and a strictured formula of thought, leavened with Old European anti-Americanism--is that the United States economy is going to crash and Bush will be humiliated and the Yanks will have to pull out of Iraq and those damn Americans will be taken down a few pegs and they'll have to come running to Zap for the multilateral support they allegedly don't have now. It even shows up in Baltasar Porcel's column today, as if Porcel has the slightest idea about anything except obscure Mallorcan Baroque poetry and how to get Generalitat subsidies.

Dream on.

First, the American economy is running at about 4% annual growth, with very low inflation and unemployment less than half of Europe's. I don't know where anyone figures from that a sudden collapse of any sort.

Second, the United States has not one, but TWO different deficits, something Vanguardia and Periódico editorial writers don't seem to be able to keep straight. There is the BUDGET deficit and there is the TRADE deficit.

First, the budget deficit. The latest figures show the US federal government budget deficit at 3.5% of GDP. This is no more than many European countries, including France and Germany, are running right now, and is certainly nothing to panic over, especially since spending is artificially high right now because of the war. But even if the war goes on for years, which it won't, our economy is so huge that it can handle a deficit at this level.

Here is the problem with the budget deficit. That 3.5% of GDP that the government is spending has to come from somewhere, and a lot of it is covered by the sale of bonds. People and companies and institutions both in the US and around the world buy these bonds because they trust them to be a good investment. This means the United States can pay lower interest on its bonds than less creditworthy countries can. Right now United States interest rates are very low. If the Americans start running a really huge deficit, then the US's creditworthiness will drop, investors will start leaving for safer places to put their money, and the Federal Reserve will then have to raise interest rates in order to attract other less risk-averse investors. Higher interest rates mean slower economic growth, since it's harder for business people to get capital. But there's plenty of room for interest rates to grow, and the American budget deficit also has room to grow before America's credit really goes south.

Now, I am as against running a deficit as anybody else. I'm for balanced budgets, and I think Bush is going to have to jerk the economy into a recession with an interest-rate hike in 2005, assuming the war is still going on. But I don't see disaster looming any time soon.

Now for Part Two. The trade deficit is the difference between what the United States economy exports and what it imports. Right now that trade deficit is high because the American dollar is strong; this means imported stuff is cheap for Americans to buy and American exports are expensive for foreigners to buy. If the dollar declines in value, then imports get more expensive and exports get cheaper. So, you say, let's just have a weak American dollar and then they'll buy all our stuff and we'll all have great jobs, right? Well, the problem is that if the American dollar loses value, then foreign investors run away from American-dollar investments very fast. This means we have to raise interest rates to attract those foreign investors, and we need foreign investors because of the budget deficit, and you see where this is going, toward slower economic growth.

The problem is that this looks like an insoluble problem. It isn't. Best-case scenario is we stomp 'em in Iraq, military spending drops and public confidence stays steady, interest rates go up in 2005 and we have a year or so of negative growth, the tax cuts kick in and that provides more money for American investors, Europe's economy continues in the doldrums so American bonds still look pretty attractive, and we're comparatively out of the woods by 2008 and Jeb's prez until 2016. Worst-case scenario is we somehow muddle through again just like the '70s and Hillary gets elected in 2008.