Washington is the longest-running political show, much like Andrew Lloyd Webber’s The Phantom of the Opera on Broadway. The Swamp continually produces sold-out performances, relying on budget deficits to ensure Capitol Hill’s doors stay open. As politicians depend on imbalances, capital markets, and Federal Reserve debt monetization to remain in power and stay relevant, they have distorted the public’s view of government. It is no coincidence that Republicans and Democrats have run federal deficits for much of the last 50 years while expanding the state’s all-you-can-eat menu. Officials may have convinced millions of Americans that they can feast on endless entrees for free, but as one of the guiding principles of economics states: There ain’t no such thing as a free lunch.
The Grand Tradition
As president, Joe Biden will continue the tradition and legacy of his predecessors by posting massive deficits. Just days before his inauguration, Biden outlined his $1.9 trillion stimulus and relief package that includes beefed-up stimulus payments, enhanced unemployment aid, rental assistance, food stamps, small business aid, a $15 minimum wage, and a treasure trove of other goodies. And this is only one phase of his ambitious spending initiatives. He intends to release a second and more comprehensive campaign of outlays that concentrate on his long-term goals, like combating climate change and facilitating racial justice.
He failed to acknowledge where the money is going to come from to pay for this package. Not too many asked the incoming administration this question. Yet it can be challenging to probe for further details when the person presenting such large-scale plans hides from even the friendliest occupants inside the Fourth Estate. Like past presidents, Biden is tapping into the desperate and perturbed population’s just give it to me attitude.
It can be easy to scoff at the millions of Americans who have deified the state and accepted that government is the only responsible entity that can deliver essential goods and services, such as education, transit, and healthcare. For most of the U.S. population, this is the only characteristic of government they have been acquainted with, and anything different is an alien concept.
An adult from the 1920s might be taken aback by how much of a role the government plays in the minutiae of today’s everyday life. But it has been ingrained in Baby Boomers, millennials, and Generation Zers that this is the way the state must operate. Whether this is right or wrong, that is just the way it is.
The only way politicians have accomplished this concept of the state is by running perpetual deficits.
Drowning in Red Ink
Conservatives have wisely espoused that the U.S. government suffers not from a revenue problem but rather a spending problem.
As President Donald Trump implemented across-the-board tax cuts, the Treasury Department received record levels of revenue. The issue was that Uncle Sam spent more than it took in, allocating finite taxpayer dollars on gender programs in Pakistan, television programming in Moldova, and research for lizards walking on treadmills.
An adage states that if you watch the pennies, the dollars will take care of themselves. So it is the deficit-financed $25 billion, $75 billion, and $250 billion schemes that generate long-term consequences for the country. Indeed, these lavish programs permanently change the fabric of American society.
When President Franklin Delano Roosevelt created Social Security and confiscated portions of workers’ paychecks for their retirement, the White House claimed it was far superior at managing the public’s finances. When President Jimmy Carter established the Department of Education, it sent the message that the federal government knows better than states, cities, and communities how to educate children. When presidents send combat troops into countries halfway around the world, they tell the world that America is better at running internal affairs of foreign governments.
All of these statist endeavors have succeeded by drowning in red ink, either by a few billion dollars or a couple of trillion dollars. Worse, the U.S. central bank has enabled elected officials since the Eccles Building can flip a magic switch and allow the pesky Accounting 101 details to vanish without a trace. If politicians are indifferent to the budget imbalance, why should John Q. Public fret?
Without federal deficits of the last 50-plus years, the stampedes of donkeys and elephants would have been reduced to leisurely strolls along the Rose Garden on 1600 Pennsylvania Avenue.
The Dick Cheney Doctrine
During the 1992 presidential debate, then-President George H.W. Bush was stumped by a voter’s question: How does the national debt affect you personally? Like many establishment conservatives who pay lip service to the fiscal responsibility cause, he could not effectively answer the question, alluding to some vague platitudes about how it impacts everybody. Debt and deficits hurt the public on a different level, whether it is crowding out private borrowing if government debt continues to grow or leading to higher taxes in the future to pay for new spending. As long as a few people artificially suppress interest rates, the country will treat the swelling $28 trillion national debt as a number that defies the space-time continuum. Politicians may kick the can down the road and subscribe to the Dick Cheney School of Thought that deficits no longer matter, the tsunami of red ink cannot swallow the entire U.S. economy indefinitely.
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