Money For Nothing

During 2020 the U.S. Federal budget deficit was $3.1 trillion, equal to over 15 percent of GDP. The deficit hasn’t been this big since the end of World War Two. The difference between now and 1945, however, is deeply unsettling. Back then, Americans were a unified, patriotic people that had just emerged relatively unscathed from a horrific conflict that left most of the world in ruins.

In the aftermath of World War Two, the American economy exploded. Industries previously on a war footing turned to manufacturing automobiles and appliances that were sold all over the world. Government funded projects – from interstate highways to reservoirs and commercial airports – were built in record time. The economy boomed, unemployment was low and wages were high. The American middle class expanded to become a majority of the total population.

Today America’s economy is fitfully emerging from being nearly shut down in 2020. Entire economic sectors – travel, entertainment, hotels, food services, retail, small businesses – have been devastated with no end in sight. The windfall the lockdown imparted to high tech companies only served to increase their ongoing assault on legacy retail and media industries. The deficit spending that back in 1945 had been used to build a war machine and spawn countless spin-off technologies was used in 2020 to help ordinary Americans buy food and pay rent. And for that, too, there is no end in sight.

There’s plenty of room for debate in this scenario, of course. Economic […] Read More

Deficits Are Secondary to WHAT You’re Paying For

“I am not worried about the deficit. It is big enough to take care of itself.” – Ronald Reagan

If you pay attention to the libertarian purists, President Reagan earns mixed reviews on his economic policies. After all, in 1983, the federal budget deficit exceeded 6 percent of GDP. But Reagan was untroubled by federal budget deficits for at least two reasons, and in both cases he has been vindicated by history.

Reagan’s priorities were to unleash the American economy, which he accomplished through deregulation, and to invest in American military supremacy. As the federal budget surpluses of the 1990s and the collapse of the Soviet Union can attest, Reagan had his priorities straight, and got the results he sought.

When it comes to deficit spending and the military challenges facing an American president, Reagan and Trump have a lot in common. Mostly through executive orders, and to some extent through legislation, Trump has deregulated the American economy. He has also successfully reinvested in America’s military.

To put this in perspective, Trump’s projected 2019 federal budget deficit of $960 billion is 4.5 percent the 2019 GDP projection of $21.2 trillion. And Trump’s projected 2019 defense budget of $716 billion is 3.3 percent of GDP. Military spending during most of the Reagan years was around 6 percent of GDP, and during his presidency the federal budget deficits averaged 4.3 percent.

Like Reagan, Trump took office having to clean up after a predecessor whose foreign policy […] Read More