INSIGHTS: WHILE WE ALL GAWK AT THE POLITICAL CIRCUS, OUR FISCAL HOUSE IS FALLING APART
GUEST COLUMNIST: Michael D. Tanner, a senior fellow at the Cato Institute and the author of The Inclusive Economy: How to Bring Wealth to America’s Poor. Reprinted with permission from National Review.
In what was little more than a footnote amid the noise of impeachment and the continuing chaos of the Democratic primaries, late last month the Congressional Budget Office officially announced that for the first time since 2012, our annual budget deficit will top $1 trillion. Even worse, our fiscal house is set to remain in abominable shape for the foreseeable future: The CBO projects that the deficit will average $1.3 trillion from 2021 to 2030 and that the current $22 trillion gross national debt will reach $36.2 trillion by 2030.
None of this concerns the Democratic presidential candidates, of course. They’re busy promising to spend ungodly amounts of the taxpayers’ money on any conceivable scheme that they think might win them a few more votes.
The most shameless of them is the self‐proclaimed democratic socialist Bernie Sanders, who has proposed $97.5 trillion in new spending over the next ten years. To finance his grandiose plans, Sanders is proposing a variety of taxes on the rich totaling some $23 trillion and more than $74 trillion in additional debt. Think about that: Sanders’ plan would push the national debt over $100 trillion by the end of the decade.
Debt and deficits are not exciting issues, but they’ll have a huge impact on our future. Other Democrats are not far behind him, either. Elizabeth Warren has proposed more than $49 trillion in new spending over the next ten years. Even more‐moderate candidates such as Joe Biden, Amy Klobuchar, and Pete Buttigieg have called for trillions in new spending. Biden is calling for just under $6 trillion in new spending over a decade. Buttigieg is calling for $7.5 trillion in new spending over the same period, though in fairness, he has at least proposed tax hikes sufficient to pay for it, while the others are content to pass the costs of their plans on to future generations.
It should come as no surprise to anyone that every single viable Democratic candidate is firmly opposed to reforming Medicare, Medicaid, and Social Security, the entitlement programs that make up more than half of federal spending and are the chief engine of our deficits.
As fiscally irresponsible as the Democrats are, though, anyone concerned about the growing tide of red ink should not look to the Trump administration for a better way forward. Faced with news of trillion‐dollar deficits, President Trump’s response at a Mar‐a‐Lago fundraiser was a dismissive, “Who the hell cares about the budget? We’re going to have a country.” And a quick glance at his record confirms that that’s not just more of his trademark bluster: He has signed $4.7 trillion of new debt into law over his first three years in office. If he wins reelection and continues at that pace, by the end of his second term, Trump will end up having added more to the national debt than President Obama. And he will have done it amid relative prosperity, rather than the recession Obama had to navigate.
Democrats conveniently blame Trump’s tax cuts for the ballooning debt. And it is true that the tax cuts have not paid for themselves, as some supporters claimed they would. Yet, tax revenue is up, albeit less than predicted under pre‐tax baselines. The real culprit lies on the spending side. The new spending that Trump has signed into law amounts to an additional $1,441 per person per year. As Trump’s defenders are quick to point out, much of the responsibility for this fiscal recklessness lies with Congress. But the president, who has proven time and again that he’s more than willing to play hardball in fighting for the things he really wants, hasn’t made a peep about the big‐spending budgets Congress sends him.
The Trump administration’s most recent budget proposal is a case in point. It is full of cuts to the usual suspects such as foreign aid and “lower‐tier” entitlement programs — Trump, like his Democratic rivals, has refused to touch Social Security and Medicare outlays — offset by massive increases in defense spending. It’s a budget designed to play well with his base while remaining a non‐starter for Congress, and it would make no difference to our precarious fiscal situation anyway: Even if every one of its spending cuts made it into law, it would still add around $30 trillion to the national debt over eight years.
Debt and deficits are not sexy political issues. It will always be difficult to get voters and the media to pay attention to them. But in the long run, our bipartisan fiscal irresponsibility is likely to have a greater impact on our future than the more‐entertaining political circus that captivates us.
ON THE ECONOMY: GAMES WITHOUT FRONTIERS
John Dunham, Managing Partner, John Dunham & Associates
Andre has a red flag, Chiang Ching’s is blue, they all have hills to fly them on except for Lin Tai Yu. Dressing up in costumes, playing silly games, hiding out in treetops, shouting out rude names. Whistling tunes, we hide in the dunes by the seaside. Whistling tunes, we’re kissing baboons in the jungle. It’s a knockout. If looks could kill, they probably will in games without frontiers, war without tears. This song was written and recorded by English rock musician Peter Gabriel, with backing vocals by Kate Bush. It was released in 1980 and was a commentary on how international diplomacy was like a childhood game. Mr. Gabriel could have been writing about the decent into Populism happening in America today.
We have written a lot about Populism recently, and the blog post attached to this Monthly Manifesto discusses it in terms of the current election. Historically, Populist policies have been economically destructive, and have also at times been extremely damaging to liberty. Even with this horrible track record, they continue to pop up again and again. It’s as if people were genetically prone to support populist ideas.
Academics have suggested that Populism rises out of the view that ordinary people are being betrayed, neglected or exploited by a corrupt elite. In general, Populist attitudes tend to rise when voters become detached from historical political parties, when the ideology of opposing parties converge, when the elites of business and politics appear to be corrupt and ineffective and when there is some sort of economic or political crisis.
All four of these fertilizers for Populism exist in the United States and have existed for some time. The 2007 financial crisis and resulting recession seems to have been the fuel that sparked wide spread increases in the election of Populist candidates. Beginning with the Tea Party movement which gained momentum on the heals of the recession, and moving through the election of President Obama, who was a Populist in terms of policy, and definitely with the elections of President Trump, the so called Squad, and now the groundswell behind Senator Sander’s campaign, Populism on both the left and right has become widespread in Washington.
As our recent blog post Great Expectations points out, neither the Republican or Democrat party, nor their Populist candidates offer a real meaningful way to help guide the baby boomers (and Gen X) into retirement, while creating opportunities for Millennials. The things needed to correct the problems created by years of neglect and bad policies don’t have simple solutions, and will require compromise, something that Populism does not foster. We suggest a focus on 5 key policy areas:
Sound Money: The biggest economic problem facing the country today is the result of years of reliance on Keynesian (or pseudo Keynesian) economic policy. Both the Federal Reserve and the US Treasury have embarked on a long-term debasement of the dollar, and the resulting inflation has led to many of the issues to which populists have gravitated. The trade deficit, the rise of income inequality, and the level of indebtedness at both the personal and corporate levels are all the result of policies that have encouraged borrowing economic activity from the future. If the Millennial generation is ever going to be able to afford to retire, and if the Baby Boomers are going to maintain their lifestyles monetary policies need to change to encourage price stability, not continued inflation.
The Rule of Law: Laws and regulations are necessary in any civilized society; however, when nearly everything is illegal or over regulated, there are few incentives to innovate or invest. The current regulatory structure has become so stifling that it has crushed the economy, while providing little benefit. One of the key accomplishments of the Trump Administration has been to slow the growth in regulations; however, they have not stopped completely. The Populist push against corporations is in large part due to the fact that the regulatory system in America has been used to create a system of crony capitalism rather than to solve real problems that arise when people interact with each other.
Public Education: Both Populist candidates for President have commented on the importance of an educated public. Senator Sanders’ lauding of the Castro regime’s push to improve literacy, and President Trump’s efforts to bring competition to a monopoly education system both realize that the current school system is failing to properly provide for an educated and literate population. As classical economists, we would suggest that market solutions to improving the education system would be preferable, but not matter the solution, it is essential that the next generation be better educated than the last few.
Infrastructure: Anyone living in the nation’s cities knows that the country’s infrastructure has been neglected for decades. From a government budgeting perspective it makes sense to skimp on maintenance; however, this has led to poor roads, bridges, airports, schools etc. all across the country. Unfortunately, the post-recession period of high unemployment and low interest rates was squandered, and there is not much slack in the economy to devote to infrastructure today. It is inevitable that the government will need to privatize more of the nation’s roads, bridges, hospitals, etc. and all of us are going to be paying for the lack of investment through higher costs for services.
Health Care: The white elephant of American politics today is health care. The debate has been twisted so that politicians are discussing different ways to provide health insurance, and not focusing on how their ideas impact actual health care. Ideas like Medicaid for All (actually Medicare for all) will end up providing health care for few. At the same time, a complete privatization of the nation’s health care system would likely lead to great health care for the wealthy and no health care for the poor. I for one agree with Senator Sanders that health care is something that every American should have access to; however, a focus on providing crappy insurance rather than on growing the supply of actual care will only lead to more rationing and poor health outcomes.
It’s going to take a lot more than Dressing up in costumes, playing silly games, hiding out in treetops, and shouting out rude names to fix the problems that have led to the drift toward Populism in America. But until the issues are properly framed, and until well meaning people are able to generate ideas and compromises, it is likely that we will continue to Whistle tunes and kiss baboons.