Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.
Butting in Our Lives
Just when you thought Mayor Pete Buttigieg was one of the few somewhat sane Democrats running for president in 2020, he lets his crazy out.
Recently appearing on MSNBC with Rachel Maddow, the South Bend mayor revealed that national service would be one of the main themes of his bid for the White House. Concerned of “the threat to social cohesion,” Mr. Buttigieg explained that “everybody likes” this idea, but because it is never a vital initiative it “requires policy intervention” to get 18-year-olds to enroll in the military or volunteer in public service.
The justification for his plan, it seems, is that he aims to bridge the social divide. He told Maddow that when he knocked on doors for former President Barack Obama, he noticed “just how stark the class and regional divides had become. I could count on one hand the number of people I knew at a place like Harvard who had gone on to serve. And I began to feel like I was part of the problem.”
Mayor Pete was short on the specifics, choosing to be as vague as possible. The closest he came was when he told the host of his desire to “make it, if not legally obligatory, then a social norm.” You will have to wait and see if his plan becomes mandatory or just a cultural expectation.
To invoke the great Milton Friedman, “General, would you rather command an army of slaves?”
There are two problems with Buttigieg’s plan: The first is compulsory service and the second is voluntary enrollment.
The former is that Friedman’s memorable statement can also apply to teenagers and 20-somethings who are required to work in the U.S. Forestry Service or the Environmental Protection Agency (EPA). They might not be fighting in combat or serving on the frontlines, but they are still servants of the state, doing as they’re told without the freedom to say no.
The latter is that it diverts resources away from the private sector. If a young graduate is spending 20 hours a week at the Internal Revenue Service, or a jobless teen decides to volunteer at the Mutilated Currency Division, then that is one less person in the labor market. It’s essentially Fredric Bastiat’s timeless lesson of “That Which Is Seen, and That Which Is Not Seen.” You see a 23-year-old applying his human capital in government, but you do not see him working in a private sector job that now goes unfilled.
One more thing: The mayor’s plan suggests that the government is efficient and essential to maintain and advance society. Perhaps this is an ideological dispute, but the state can excuse itself from many aspects of that role, leaving them to the free market.
Stop the presses! It’s another day that ends in “y,” so you know what that means: The left is outraged again. This time it’s over a banking tweet.
As part of #MondayMotivation on Twitter, Chase Bank offered some elementary financial advice that may seem like common sense, but it is a foreign concept to many consumers. It recommended a solution to your low account balance: Make coffee at home, eat what’s in your refrigerator, and walk three blocks instead of taking a taxicab.
This advice ostensibly perturbed the left, including Senator Elizabeth Warren (D-MA) and Representative Katie Porter (D-CA), who averred that “families aren’t spending frivolously; they’re trying to pay rent.” Sen. Warren thought she was clever with this tweet:
.@Chase: why aren’t customers saving money?
Taxpayers: we lost our jobs/homes/savings but gave you a $25b bailout
Workers: employers don’t pay living wages
Economists: rising costs + stagnant wages = 0 savings
Chase: guess we’ll never know
— Elizabeth Warren (@SenWarren) April 29, 2019
Chase, of course, caved to public pressure, promising “to get better at #MondayMotivation tweets.”
But is the company’s basic advice poor shaming? Hardly.
Sure, there are many Americans who are trying to make ends meet. They are doing everything in their power to live beyond just paycheck to paycheck, whether it is cooking all their meals at home or foregoing those morning lattes. At the same time, there are just as many consumers whose fiscal pain is self-imposed, from too many trips to Starbucks to too many Uber trips for just a six-minute walk. What is wrong with an instant Maxwell House coffee, and why can’t you walk a few blocks?
The complaints about Chase’s tweet represent a much larger conversation. You just need to take a gander at the replies to Warren’s comment. It is apparent that leftists detest the truth, cannot accept personal responsibility, and need to find a scapegoat for their problems. Yes, Chase is not a victim by any means, accepting taxpayer dollars as part of the 2008 bailouts rather than folding. But the feigned outrage over an innocuous tweet is absurd.
If you want to talk about those egregious 35% overdraft charges, that’s a different discussion. Then again, there’s plenty of competition in the financial market to avoid such ridiculous fees.
Borrowing on Heaven’s Door
In the fallout of the historic tax cuts and refusing to slash spending, the U.S. government has gone on a borrowing binge. The Treasury is borrowing the most since the financial crisis a decade ago, nearing the $1 trillion mark. But this measure to keep the doors of Washington open needs to stop, warns Brian Smith, the Treasury Deputy Assistant Secretary, in a statement detailing its quarterly debt issuance plans.
According to the Treasury, the federal government must quit borrowing money between July and December if Washington refuses to raise a legal restriction on public debt. He noted that the “Treasury expects that the extraordinary measures will be exhausted sometime in the second half of 2019.” Wall Street agrees, suggests the minutes from a meeting of a Treasury advisory committee of financiers.
The present debt limit was established in March, and the Treasury has continued to borrow from the market by taking advantage of a myriad of clever bookkeeping tricks, like restricting payments to government retirement funds. Once the U.S. hits the debt ceiling, a default on the debt could occur and a subsequent recession would take place.
President Donald Trump never really campaigned on taking a chainsaw to the federal budget and promoting fiscal responsibility. But it might be time he did. The government is already adding billions to the deficit every year, refraining from complementing his across-the-board tax cuts with across-the-board spending cuts. By borrowing more, boosting the size of debt auctions, and selling two-month Treasury bills, Washington is just kicking the can down the road and leaving the next generation to pay the tab. The only option left is to have the next generation’s successor pay today’s bills with ultra-long bonds, as was done in Argentina and Ireland.
There is an enormous supply of public and private debt in the global bond market. For now, there is an appetite for America’s debt, but what happens when that demand dissipates and eventually ceases? Treasury Secretary Steven Mnuchin isn’t too worried, telling the press that “the market can handle it.”
Can it, though? It’s difficult to believe this assessment when $1.2 trillion of new Treasury debt hits the market this year and about $4 trillion of old debt from the Fed is eventually dumped on top – it’s a good thing the central bank hit the pause button on the reduction of the balance sheet!
The consensus is that we are in a bond market bubble. This is an opinion held from contrarians to institutional investors and from former Federal Reserve Chair Alan Greenspan to former White House budget director David Stockman. When the bears and bulls call a truce, you know there is big trouble in little China brewing.
Serving the state. Blaming others for their problems. Pawning fiscal woes of today to tomorrow’s population. These are the attitudes of politicians, who know only of power and getting to the next election. Many of the issues complained about are either not dilemmas at all or they’re the result of government intervention. Borrowing? That’s a problem. Not serving the state? Not so much.
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