Tag Archive for: federal budget deficit

Money For Nothing

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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 growth is easy when you have minimal environmental regulations and not even one viable competitive foreign economy. And last year, when America’s unemployment rate soared to nearly 15 percent, “stimulus” checks probably prevented even greater hardship. But the path Democratic policymakers have chosen for the United States today – with barely more than a peep coming from GOP politicians to object – is not driven by COVID concerns and is completely discretionary. And it is a disaster.

If America were bent on national suicide, they couldn’t do much more than they’re doing right now. Stimulus spending, with an astonishing $6 trillion now committed, has been used to bail out state and local government budgets that have been in the red for years. The reckoning that should have confronted bloated public education bureaucracies and underfunded public sector pension systems has been papered over, literally, with money conjured out of thin air.

Other nations of the world have long tolerated America’s ability to sustain budget deficits because America invests in global security. Why should trading nations invest in their own navies to keep the sea lanes free from piracy and rogue nations? Why should Europeans worry about Russia going back into Eastern Europe? Why should Asians prepare to fight Chinese domination in the Far East? The Americans will do it.

America also imposes on its population punitive rates for life-saving medicines that it then exports to the world at bargain prices; another reason to let the Americans print money. And with or without those perks. America’s appetite for foreign products creates millions of overseas jobs, and America’s willingness to sell its real estate and technology to the highest bidder gives American dollars additional enduring value.

For better or for worse, these are the reasons America could run up Federal budget deficits without consequences. But America’s vitality as a nation was never as threatened as it is today. The financial algebra that is getting harder and harder to balance is only part of the problem. The culture that made America great is dying. America is now in the throes of what Claremont Institute Fellow Joel Kotkin recently called an “infantada.”

Examples across America of what may as well be termed a rebellion of infants are plentiful. Leaders of the “woke” movement are not poverty stricken victims, despite their whining. They are tenured faculty at America’s most elite universities. They are lavishly compensated executives running the human resources departments of multinational corporations. Even on the streets, the violence and the vandalism is coming, as often as not, from people who take off their black bloc garb after their midnight “actions” and go to work the next morning.

These people, most of whom have more than average “privilege,” hate traditional American culture, they hate authority, and apparently they expect a perfect society. Their outlook is absolute; their capacity for nuanced reflection is nonexistent. They are infantile. They are expensive. They add no value to our civilization.

What of those American dissidents, more numerous than ever, that don’t still enjoy the dwindling fruits of America’s national vitality? What of America’s homeless population? These people could be helped, and help could come fast. Instead, tens of billions are wasted and the problem gets worse. The reason, justified by the new, woke arbiters of modern social justice, is because they must be provided housing that is far too expensive to be built in sufficient quantity, at the same time as they are encouraged to indulge whatever destructive lifestyle they wish to indulge. Heroin addiction? Free needles. Stealing and looting? It’s a “poverty crime.” Consider the alternatives.

One national guard regiment could move onto some sparsely populated tract of land in North Los Angeles County and construct a city within a few weeks. Complete with barracks, bathroom facilities, kitchens and clinics, the homeless population of Los Angeles, 50,000 strong, could be moved into this city within days. Meanwhile, the feckless crook that run Los Angeles, Mayor Eric Garcetti, proposes to spend yet another billion to help the homeless. For that kind of money, properly spent, these homeless could be moved into a supervised environment practically overnight. And magically, half of them would suddenly find relatives and friends with a roof, to avoid having to sober up.

“Freedom” and “Equity” for the homeless is costing the American taxpayer countless billions. The people who need help get next to nothing, while corrupt developers rake in most of the spending. The people who truly deserve help get even less. In the name of tolerance, infantile human urges are indulged and nurtured. Millions of lives are ruined. Thank the Democrats.

The monstrous scams that define America under Democratic rule, with the complicity of GOP politicians, are numerous. “Climate change” is yet another way America is destroying itself from within. Not billions, but trillions are going to be spent on projects that either accomplish nothing – injecting CO2 into underground caverns is a grotesque example – or displace cost-effective technologies like natural gas and nuclear power plants with unreliable and absurdly costly solar, wind, battery, and grid upgrades. These “renewables,” destined to be obsolete, embarrassing fads the moment breakthrough technologies like nuclear fusion are commercialized, are breaking American power. Pipelines are being cancelled so fossil fuel can only be transported by train, in an eerie parallel to a chapter in Atlas Shrugged. Productive wells are being capped. Vital infrastructure is being neglected, and the word itself, “infrastructure,” has become synonymous with fraud.

At staggering cost, America’s economy is being strangled by “climate emergency” zealots and opportunists. Thank the Democrats, and while your at it, thank Mitt Romney, Con Inc.’s favorite oligarch, and every other Republican coward who knows better but doesn’t say a word in opposition, much less actually do something to change the trajectory.

Race and gender obsessions are obviously additional sources of American infantilization – any ideology that trains people to take no responsibility for their success of failure in life is the epitome of infantilism – but it also imposes a devastating cost on the American economy. Wherever you turn, schools, jobs, contracts, the most competent applicants are turned away, because proportional representation in every institution at every level must be maintained. This is impossible. It is devastating. It destroys the character of those favored and embitters those who are denied what they’ve earned. It undermines American competitiveness. It introduces hideous waste. If nothing else does it first, “equity” at all costs will kill the nation.

Another mismanaged issue is immigration, where – sorry nativists – the problem isn’t that too many people arrive. It’s that too many of the wrong people arrive. America invites, either legally or defacto, immigrants that are not bringing the skills America needs today. Justin Webb, writing for Unherd, explains:

“The whole “bring me your huddled masses” schtick is a bit of a con. Nearly 30 years ago, a taskforce led by then congresswoman Barbara Jordan, a hugely respected African American Democrat, blew it apart with a detailed study of the people who actually came to Ellis Island. Jordan pointed out that they were in fact more skilled than the average American at the time. They were seamstresses and stonemasons, tailors and bricklayers. They had, in other words, the skills the nation needed. They were the cancer researchers of their time. This was not charity; it was nation building.”

When you wonder why America’s immigration policy no longer emphasizes “nation building,” just remember that if you criticize the disaster it’s become, you’ll be called a racist. For that, blame the Democrats. While you’re at it, blame virtue-signaling George W Bush, who wrote a new book that gives all those “racists” a good thrashing, but has little to say about why we must move to merit based immigration.

Across almost every sector of American society and across every policy that drives America’s destiny – infrastructure, public finance, education, housing, homeless, law and order, energy, environmental protection, race relations and immigration – Americans are spending far too much for what they’re getting. In many cases, the money they’re spending is making the problems – both economic and cultural – not marginally better at ridiculous expense, but worse. With Americans now able to collect more money by collecting government benefits than they’ll make working in a job, with “universal basic income,” with every new scheme, America’s once estimable character is being destroyed.

There’s a reason why America has been able to run up Federal debt and print money to cover the annual deficits, while still retaining a hard currency. It’s because Americans have always been a generous, creative, productive, fearless people, who have given the world much more than they’ve taken from it. Now that America has decided to spend its discretionary trillions on fostering dependence and division, its usefulness to the world deteriorates accordingly.

When you spend money for nothing, you become nothing.

This article originally appeared on the website American Greatness.

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Deficits Are Secondary to WHAT You’re Paying For

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“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 amounted to feckless weakness and futile moralizing. Jimmy Carter faced Soviet aggression, Barrack Obama faced Communist China. Neither of them were taken seriously by these adversaries. Both of them neglected America’s military. But Trump’s mess is bigger than Reagan’s ever was.

To properly deter China, an expansionist, racist, fascist kleptocracy bent on world domination, a high-tech prison camp with 1.3 billion inmates, America’s defense budget should rise to the percentage of GDP that it was during the Reagan years. This would suggest that America’s defense budget for 2019 should rise to 6 percent of projected GDP, or increase by over a half-trillion dollars from $716 billion to $1.3 trillion. Although this increased spending would generate some offsetting new tax receipts, in 2019 it could hypothetically increase the federal budget deficit from the currently projected 4.5 percent of GDP to as much as 7.1 percent of GDP.

Without something approaching that level of new investment, the United States will struggle to maintain and upgrade its existing military assets and, at the same time, conduct fast-tracked investment in next generation strategic weapons.

Deficits Are Secondary to WHAT You’re Paying For

In an era where irony abounds, it’s particularly ironic that among Trump’s greatest critics are also those who are seizing upon the trendy new “modern monetary theory” (MMT) to claim that deficits don’t matter. An only slightly oversimplified summary of MMT would be the following: as long as the government has a monopoly on the issuance of currency, than the government can print as much money as it needs, and therefore deficits don’t matter. Just print more money.

There are plenty of lucid criticisms of MMT, but in one vitally important context, some critics miss the point. If resorting to MMT truly is unsustainable in the long-run, than what all that money is used for in the short run matters a great deal. According to economic sages on the left, such as Alexandra Ocasio-Cortez, the federal government needs to print money – heedless of deficits – in order to pay free college tuition, free healthcare, and a host of other wonderful benefits. But while the American Left wins elections by promising more benefits, this is not the best use of funds.

To the extent military spending goes into the pockets of soldiers who spend the money in America, or send it home to be spent by their families in America, it has the same Keynesian benefit as more broadly distributed benefits such as free tuition or free healthcare for everyone. But reforming healthcare policy and dismantling most of the education bureaucracy are necessary prerequisites that might actually make increased government spending unnecessary in those areas. Military spending, on the other hand, has the salutary benefit of making America able to deter China. Spending on research and development for new strategic weaponry also delivers the Keynesian boost, while guaranteeing America’s military remains the most fearsome on earth, and yielding technological spinoffs that benefit America’s private technology sector.

The other place where deficit spending would yield strategic economic benefits is in infrastructure. Back in the 1930’s, after the last debt bubble collapsed, and America encountered a liquidity crisis, deficit spending put millions of Americans to work. Unlike the fraudulent “shovel ready” infrastructure scam perpetrated a few years ago by President Obama and his banker cronies, during the 1930’s the Americans built hydroelectric dams across the United States. They rolled out rural electrification projects. They upgraded America’s infrastructure to make the nation competitive in the 20th century. The infrastructure investments made in the 1930s are still paying dividends to the American people.

To be fair to President Obama, he did not create the paralyzing, extortionate shakedown that constitutes infrastructure approvals in 21st century America. These days, funding an infrastructure project feeds most of the money into the pockets of attorneys, environmental consultants, and government bureaucrats. Applications take years, and almost nothing ever gets built. For several decades, Americans have been living off of an aging infrastructure that was actually built 50-100 years ago.

Where the Economy is Headed is Bigger Than Any President

To be fair to President Trump, if the economy falls off a cliff, it will be the result of a debt binge joy ride that began in the 1980s. Unlike Reagan, who started his presidency confronting negligible national debt, Trump faces an accumulated federal debt burden nearly equal to GDP. But in a nod to the MMT gang, it is unlikely that more deficit spending will push the U.S. economy off a cliff, because for that to occur, international confidence in the U.S. Dollar would have to falter. And how could that possibly occur?

America is the only major economy on earth that has it all – a preeminent military, preeminent technology, the best universities, political stability, human rights, demographic health, abundant natural resources, and diverse industries. As for America’s debt burden, it is less problematic than the many financial challenges facing the European Union and the Chinese, which are the only other economies big enough for their currencies to challenge the U.S.

This is why President Trump is right to urge the Federal Reserve to cut interest rates. It helps people living in the United States to devalue the U.S. currency, and it is in the interests of the United States to experience high single digit inflation across all industries for many years. Devaluing the U.S. currency will force manufacturers to source raw materials and skilled labor domestically, creating more jobs and wealth. Moderate inflation will whittle away the real value of American consumer debt, as well as the real value of the debt burden that confronts American government agencies at all levels.

For all of this to work, however, fundamental changes are necessary in two areas of national policy. First, immigration will have to be further controlled, in order to turn the job market into a sellers market, bidding up wages at a faster rate than inflation. Second, extreme environmental laws and regulations will have to be repealed, in order to allow U.S. companies to tap America’s rich store of natural resources to replace foreign sources. Without these changes, currency devaluation could be a perilous gamble.

Economists who object to lowering interest rates fear that in an economic downturn, if interest rates are already too low, it will be impossible to rely on lowering them further in order to stimulate the economy. They’re right, but America’s economic prospects vs the rest of the world evoke the parable of the two men fleeing an aggressive bear in the woods. The survivor does not have to run faster than the bear, they only have to run faster than the other human. There is no nation on earth that is positioned even slightly as well as the U.S. to survive a global downturn.

There are contingency plans to inject liquidity in the markets in the event of a severe downturn. To ensure it is not a fool’s errand, however, a temporary fix, the United States has to use deficit spending to make investments that bring it into the 21st century – resilient new infrastructure, and military technology that leapfrogs that of our adversaries.

This article originally appeared on the website American Greatness.

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