Whose Fault Is The Debt Limit?

At 2 p.m. today, the NBER will release the monthly Treasury update of debt relative to credit. (Here’s a spoiler: It won’t be anything we didn’t see a month ago. We’re up to our ears in debt.) Meanwhile, Congress is rushing back into emergency session for a quick fix to stave off default as our spending continues to increasingly exceed our income. At a time when every politician is casting blame about the rapidly ballooning national debt and the continual political struggle surrounding raising the debt limit, it’s worth our while to examine the larger picture: Whose fault, really, is the precarious condition of our national finances?

It’s tempting for partisans to each blame the other party; it’s easily done, too, as government waste has become proverbial and inefficiency is automatically assumed without the bother of proving it. It’s equally simple for a certain class of people to throw up their hands and blame all politicians, as though they themselves would do better if they were in charge. But even a little brief reflection will show that, while these are satisfying accusations, they can’t possibly have much merit.

There are some general truths we can start with, and some truly are partisan. The most fundamental is that politicians, generally not being skilled economists, aren’t very good at running an economy. Roughly speaking, Democrats tend to embrace Keynes, who eighty years ago recommended as good policy that governments should spend money they don’t have in order to help society during hard times. Republicans follow Friedman’s theories, which focus rather on permitting the market access to a sufficient monetary supply.

Unfortunately, both parties are plagued by an absence of expertise coupled with the inevitable wishful thinking that so frequently drives politicians. Excessive debt is pursued by Democrats because they misunderstand Keynes. Inappropriate thrift is pursued by Republicans because they too misunderstand Keynes, and they also don’t quite get Friedman. Nobody actually believes in “Trickle-down economics” or has done for nearly a century, but members of both parties are pressured by corporate moneyed interests, and the effect is, practically speaking, almost indistinguishable.

Still and all, that merely generates inefficiency. One might well consider that ten or even twenty percent of the budget is wasted this way, but our present difficulties far outweigh the few hundred billion dollars this would account for. The amount we’re spending is twice what we collect.

Democrats love to blame the Trump tax cuts, but in truth total tax receipts haven’t changed more than a fraction since 2016. They also cite defense spending, but the entire DoD annual budget is only 750-odd billion dollars — and, since the DoD employs four million people, nearly a quarter of that goes to salaries, medical care, pensions, and other benefits, making it rather more efficient than most other job-creation programs. Republicans blame fraud and wasteful welfare programs, but far more is spent to detect and eliminate fraudulent claims than is paid out for them, and in any case they’re tiny fractions of overall spending.

Truly vast sums are expended in ways that the population doesn’t approve of. A hundred billion dollars a year is spent on the War On Drugs, whereas at least a degree of legalization is actively desired by the American people — and that across party lines. Local police are militarized; more than one percent of the population is incarcerated at public expense. INS deports hundreds of thousands of people, most of whom are eager to work. The only thing all of this accomplishes is to reduce the workforce, which, all else aside, costs us potential tax revenue.

Some would argue that these sums add up to a truly massive amount, and they’re not wrong. However, to stop there is to miss one of the more fundamental truths about our present debt.

Consider: In 2020, the government spent just over $7 trillion. Tax revenues totaled less than $4 trillion. Undoing Republican tax cuts isn’t enough to make up a fraction of that difference, even if doing so doesn’t (as Republicans suggest) severely dampen the economy. We could sink all eleven fleet aircraft carriers, fire the entire Army, and eliminate ATF, INS, the FBI, and the DEA and still not cut the budget by even a single trillion (while, incidentally, creating massive unemployment).

People will rush to shout out the impact of COVID, and that is indeed massive — in terms of spending. As previously mentioned, tax receipts haven’t changed much at all, which should surprise anyone who only listens to the opinions of politicians and pundits on the topic. But extra spending in an emergency, as Keynes would tell you, is entirely appropriate, as would be reduced taxes. Even so, that’s only a large fraction of our total budget; more to the point, it’s temporary. It’s also overwhelmingly bipartisan, and should be.

The core fundamental imbalance is this: The United States has a population of 330 million people, of whom 130 million are in the workforce paying taxes and 70 million are collecting Social Security and Medicare benefits. It would be tempting to blame the remaining 130 million, but most of those are children and students. The bottom line is, there’s simply no way for the taxes on 130 million people to carry the other 70 million. It’s just not possible.

Barstool economists instantly retort that, if the money had been saved as was originally intended, the fund wouldn’t be bankrupt. They’re failing to consider that cash isn’t wealth; it’s just numbers. If there was a massive multi-trillion-dollar bank account to cover Social Security, there would still be a shortage of doctors, nurses, and people to keep society running. We’d have the same amount of food, the same goods and services, but all guaranteed federal funding would do would be to make prices go up. All we’d accomplish would be to create spiraling inflation without helping people in the slightest.

So who is to blame for our approaching bankruptcy? The answer, as always, is complex. The common-sense (and wrong) answer is that it’s the fault of our elderly for living as long as they have; not only is this absurd, it also defies solution aside from the institution of roving euthanasia squads. (Which, let’s be clear, I am not recommending.)

Democrats blame Republicans; Republicans blame Democrats — but let’s be clear: Neither party, regardless of their majority, can pass a complete budget unaided. It’s immaterial who has control; budget moves are bipartisan or they don’t happen. That means that, every time there’s a major spending bill, it’s got stuff for both sides of the aisle. We haven’t seen a large enough majority to overcome that since shortly after the Civil War.

Of course, things were different back then. Corruption was rife, and one thing about corruption is, it lets the necessary things get done. Unfortunately, after rooting it out and descrying “pork-barrel politics”, we have yet to come up with a replacement mechanism that actually works. That’s the real reason we’ve had mostly Continuing Resolutions since the late 90s. Blame Newt Gingrich and his ice buckets.

Some of it is certainly inefficiency; another small part is horrifically excessive law enforcement. Our massive expenditures on foreign wars are absurd and unnecessary; we can thank both Biden and Trump for some savings in those areas. One of the largest areas of waste is the excessive growth of healthcare administration costs over the past few decades; this is exacerbated by the ever-growing retired population and their increasingly expensive needs.

However, the main thing we need to accept here is simply this: We’re going to need to keep spending more than we can possibly make back in taxes for a while. It’s a necessity; there’s nothing to be done to stop it. We can reduce the excess, but that’s all.

And it’s nobody’s fault. Suck on that, Washington.

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