In today’s political landscape, there exists a profound disagreement within the United States regarding the fundamental facts that shape our economy. Should we advocate for a laissez-faire market, or do we require more regulatory oversight?
Many politicians champion free market principles when it suits their agenda, particularly during election season. Yet, historical trends over the past century suggest that the default response tends to lean towards an expansion of government intervention.
President-elect Trump’s policies exemplify this duality; he aims to reduce regulations and government spending while also safeguarding Social Security, increasing defense expenditures, and imposing substantial trade tariffs on foreign goods.
Realistically, one cannot have it both ways. Once a choice is made, the alternatives are often lost. This nuance explains why figures like Elon Musk and Vivek Ramaswamy may struggle to cut $2 trillion from the federal budget. Achieving this goal will necessitate significant sacrifices in social spending and defense budgets.
Nonetheless, the pursuit of a smaller government is a commendable objective worth striving for. In fact, we urge Musk and Ramaswamy to think on a grander scale.
A reduction in federal spending below 10 percent of GDP would align us with fiscal levels seen before World War II, when it was around that figure. Currently, the spending rate hovers near 22 percent.
This translates to a required cut of approximately 55 percent in government expenditure, or around $3.71 trillion. For the fiscal year 2024, total receipts were projected at $4.92 trillion, against total spending of $6.75 trillion.
Reducing expenditures to $3.04 trillion, or by 55 percent, while maintaining receipts of $4.92 trillion, would leave a remarkable annual surplus of $1.88 trillion. This surplus could be directed toward diminishing the national debt, which stands at $36 trillion, allowing it to be cleared in just under two decades.
Difficult Decisions Ahead
Transitioning to this fiscal reality will demand drastic and often unpopular measures, such as reducing Social Security and Medicare benefits and significantly cutting defense budgets. Neither political party is inclined to entertain these propositions, often leading to backlash from constituents who dislike the harsh truths associated with these necessary changes.
However, fundamental mathematics cannot be ignored. This principle extends back to the dawn of numerical systems; no amount of political negotiation can alter the fact that certain promises cannot be fulfilled without major adjustments. Despite the aversion towards addressing Social Security and defense spending, these commitments were perhaps misguided from the outset.
A quote often misattributed to the 18th-century figure Alexander Fraser Tytler sheds light on the nature of democracy’s fragility:
“A democracy is always temporary in nature; it cannot exist as a permanent form of government. It will continue until the moment voters discover they can vote themselves generous gifts from the public treasury. From that point on, the majority will favor candidates who promise the most benefits, ultimately leading to a collapse due to fiscal irresponsibility, often followed by dictatorship.”
The intertwined issues of democracy, defense spending, transfer payments, and the devaluation of currency are crucial to understanding our current predicament.
The Challenge of Inflation
The severe currency debasement that occurred during the pandemic instigated a sharp rise in consumer price inflation. The M2 Money Supply surged by more than $6 trillion as a result of this expansive monetary policy.
The Federal Reserve responded by creating credit and injecting it into Treasury securities, leading to an approximate $5 trillion increase in its balance sheet from January 2020 to mid-2022, a level that remains elevated.
The latest Consumer Price Index (CPI) report indicates a 2.7 percent increase in consumer prices annually as of November, layered atop a 22 percent rise since March 2020 when extensive lockdowns and aggressive money printing began.
To control this inflation, government spending must be curtailed. However, this inevitably involves re-evaluating the promises made to citizens, which the nation can no longer afford. The alternative—a trajectory of endless money printing—will only perpetuate inflation.
On matters of fiscal responsibility and monetary policy, both Republicans and Democrats exhibit a troubling inconsistency. Over the past century, any semblance of coherent guiding principles has diluted significantly, reflected in both political rhetoric and the eroding value of the dollar.
The public’s stance on these issues is equally fragmented; demands and expectations shift based on circumstances. However, these disparities will likely come to the forefront during the next economic downturn.
Thirteen Reckonings for America
To facilitate reflection, we present a list of thirteen reckonings that currently seem obscured in a state of confusion:
- Everyone advocates for smaller government, provided their entitlement payments remain unscathed.
- Everyone distrusts the government until they face economic hardship and seek federal bailouts.
- Everyone praises free trade until their jobs are outsourced.
- Everyone disparages products from China, unless they are available at bargain prices.
- Everyone desires modern infrastructure, but only if it doesn’t come at a higher tax cost.
- Everyone despises inflation, except when it benefits their investments or home values.
- Everyone criticizes government deficits until faced with the prospect of austerity.
- Everyone supports a trade war, as long as consumer prices do not rise uncomfortably.
- Everyone champions green energy but opposes projects in their vicinity.
- Everyone believes in universal healthcare until the time comes to seek specialist treatment.
- Everyone loves cheap credit until it leads to widespread defaults.
- Everyone accepts government-funded pharmaceuticals, until they see those being affected.
- Everyone wants multiple benefits, but only if they don’t have to bear the costs personally.
Ultimately, when the economy collapses and critical resources dwindle, both citizens and politicians will uniformly clamor for government intervention, demanding action. The volume of these cries will surge until the broken monetary system collapses under its own weight and democracy transforms into dictatorship.
At that point, society is bound to face even graver challenges.
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Sincerely,
MN Gordon
for Economic Prism
