President Biden’s newly proposed budget is projected to increase US debt to levels not seen since World War Two.This has got me thinking of an issue that not many people seem to care about: our government’s reckless spending and crippling accumulation of debt. Why do many politicians continuously kick the can down the road on this issue and why do we enable those politicians? What makes up our national debt and why should we care? These are the questions that I will seek to answer in this article.
Why many politicians do not care.
To quote economist Thomas Sowell, “No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems—of which getting elected and re-elected are number one and number two. Whatever is number three is far behind.” In short, politicians do not care about government spending, more specifically government waste, because we, the civilian population, do not care about government waste. It is far easier for politicians to simply promise and push for more government programs, more government jobs, and more government subsidies as opposed to leaving the market alone to freely operate. It is “selfish” to suggest that people take responsibility over personal finances. It is “extreme” to propose that the government should stop taking the place of the charity, the church, and the community. It is simply more expedient for politicians to not care about the debt.
Why many citizens do not care.
The American population has been accustomed to big government spending for decades. It is difficult to pinpoint when we truly started to become complacent with government waste. However, I believe that the election of President Franklin Roosevelt is a good starting point. I won’t discuss in detail the legacy and presidency of FDR (an in-depth analysis of FDR’s presidency is better suited for a future article). Simply put, FDR never really had an economic strategy—he had a political strategy derived from giving the false implications of economic growth. Despite spending more than any president before his term, the unemployment rate failed to decrease. In fact, unemployment went from 16.3% in 1931 to 17.2% in 1939. The fact of the matter is that politicians from FDR to Bernie Sanders peddle what is called the “Broken Window Fallacy.” Due to a lack of a better example, I will cite economist Henry Hazlitt’s example of the “Broken Window Fallacy” from Economics in One Lesson.
• A child destroys the window of a baker’s shop by throwing a brick into it.
• Citizens of the town point out that, since the window is broken, the local glazier will have a job.
• The baker must pay the glazier $250 to fix the broken window.
• The glazier now has $250 to spend with other merchants and now other merchants have $250 to spend.
• However, the baker is now out $250 he was going to use to buy a new suit.
• As opposed to having both a window and a suit, the baker must now be content with only a new window and the tailor must be content with not selling a suit.
• The community is therefore no better off than before, and the glazier’s gain of business is merely the tailor’s loss of business. No new employment was created.
Our tendency to fall for such a fallacy lies in the fact that most people tend to only focus on the immediate effects of economic policy or on one specific group. Take the WPA, Works Progress Administration, under FDR for example. Under the WPA, thanks to government spending, Americans were able to find jobs building bridges and other public works. One would believe that such government spending is good. People were able to work, make wages, and therefore were able to spend said wages on consumer goods. However, government spending for programs like the WPA must be paid for. The only way to pay for said projects is to either raise taxes or print money. To raise taxes is to take from other sectors of the economy, say private businesses or consumers, and divert said funds to, for example, a program that builds bridges. Now you may be thinking that this doesn’t seem like such a problem. Men and women now have jobs to build bridges. However, by levying taxes on other industries, the government makes it more expensive for said industries to continue producing at their current levels (thereby increasing unemployment). Taxation also gives way to gross inefficiencies of money and capital. Since the government is not subject to the reins and incentives of the free market, money and resources tend to create inefficiencies and deadweight loss. Similar things can be said about inflation. By increasing inflation, the government devalues our money and makes it more expensive to buy goods and services and for businesses to continue operating at current production levels. So, long story short, the gains made by increased government spending are offset by the losses in other sectors caused by increased taxation and/or inflation–the broken window fallacy. This fallacy is why we the people and the politicians that plague our society do not care about wasteful government spending.
What does our debt consist of?
The top four largest budgetary items are Medicare/Medicaid, Social Security, Defense, and the Interests on our National Debt. Social Security accounts for roughly 23.89% of the budget, Medicare/Medicaid accounts for roughly 22.69% of the budget, defense spending accounts for 15.3% of the budget, and interest on debt accounts for 8.5% of the budget. 14.5% of the remaining budget is other mandatory spending and 14.9% of the remaining budget is non-defense discretionary spending. Despite popular belief, defense spending does not constitute the bulk of our budget or debt.
On a similar note, I wish to address a cry I hear often from some leftists that by simply cutting defense spending our deficit problem will be solved. Like any other form of bureaucracy, you are certainly going to find inefficiency and waste in the Defense Department and military. However, I wish to rebuke the argument from the left that we can solve our debt problem by drastically cutting the defense budget. As a fiscal conservate, I am serious when I say I want to cut spending. More fiscal accountability is necessary in every department including defense. However, the left purports that by cutting defense spending (spending that is less than one trillion dollars) we can fix our deficit spending. The left simultaneously wishes to gut military spending in the name of “cutting waste” while also calling for universal healthcare, expanded welfare, forgiving student debt, and making four-year college education free. These policy implications indicate that the left cares not about the debt or deficit, and we, as the right, must reject such arguments.
Why is this a problem?
The many programs, departments, agencies, and actions the US federal government undertakes every year must be paid for. After all, government workers must receive a wage and benefits, government contractors must be compensated, materials used for the bridge construction project must be produced, delivered, and promptly organized in a manner as to create said bridge. This all requires money. To generate money, the government must levy taxes. In fact, the government would have to increase taxes. However, even if the government were to tax the income of the top 1% at a 100% rate the government would not raise enough money to balance the budget. The government would then have to turn to the rest of us to “pay our fair share.” Such a level of taxation is unsustainable and would certainly lead to a decrease in entrepreneurship, innovation, and employment. The decimation of businesses and entrepreneurship would certainly lead to a shortage of jobs and products to buy and ultimately a lower quality of life.
Now, let’s turn to inflation. The Federal Reserve could always just print more money, but this policy only devalues our currency, purchasing power, and savings. Inflation is after all a “tax on savings.” As the Fed prints more money, the value of our savings declines. Here is a definition posed by Investopedia, “Let’s say you have $100 in a savings account that pays a 1% interest rate. After a year, you will have $101 in your account. But if the rate of inflation is running at 2%, you would need $102 to have the same buying power that you started with. You’ve gained a dollar but lost buying power. Any time your savings don’t grow at the same rate as inflation, you will effectively lose money.” This can be particularly troubling for the elderly population living on savings because they will not be able to maintain the same standard of living.
The inefficiencies of government spending and solutions to said inefficiencies.
Welfare
The merits of government welfare are certainly debatable. 70% of all federal money spent on welfare went to administrative costs. The other 30% went to direct payment programs. Juxtapose this with state and local spending which sees roughly 96% of funding spent on administrative costs and roughly 4% of spending going to direct payment programs. The same cannot be said for private charities that show that 30% of funding went to administrative cost and 70% of funding went to services said charity was designed to provide. This would suggest that private charity is far more efficient than government programs at delivering aid to our poorest citizens. This makes sense considering that unlike government programs, which receive funding via taxpayers and therefore are not subject to the standards of the market, private charities and businesses must adhere to the standards posed by consumers and the market. Private enterprise must compete and do a good job to continue to receive business. We have determined that welfare is inefficient in allocating money to those in need. However, do our current welfare policies and programs help lift people out of poverty? No. Like FDR, LBJ is another president whose policies did little to solve their respective issues. Also, like FDR, I won’t divulge greatly into his legacy and presidency (it is also worthy of a future article). In the 20 years before Johnson’s War on Poverty, the poverty level decreased from 32.1% to 14.7%. However, since the implementation of the Great Society in 1966, poverty levels have remained stagnant and single-parent households have risen. Children raised in single-parent households are more likely than children raised in a nuclear family to drink, smoke, do drugs, experience emotional and physical abuse, drop out of school, commit crimes, and have out-of wedlock pregnancies. Finally, data has concluded that not only is our massive welfare state inefficient at actually allocating money to impoverished citizens, but it also creates a cycle of poverty that trickles down through generations.
Medicaid/Medicare
Many of the problems dealing with the rising cost of healthcare started around the 1960s when Medicare and Medicaid were enacted. These programs created a reliance on government institutions, as opposed to the more efficient private providers and charities. Since these programs rely on tax increases and appeasing special interest groups, healthcare has been faced with more expensive and inefficient means of providing products and services. A possible solution to our healthcare system is to allow healthcare providers to compete and have full jurisdiction over pricing and business, and to gradually dissolve programs like Medicare and Medicaid and work towards a system based on private charity and competition.
Social Security
To put it lightly, Social Security is bankrupt, or at least, Social Security is on the path to bankruptcy. There are many issues that the Social Security Administration faces, from an increasing life expectancy amongst the nation’s population to establishment money grubbers slowly eating away at the social security fund. As of writing this, US unfunded liabilities total over $162 trillion. That means that the US currently has 162 trillion dollars’ worth of debt obligations that it does not have the money to pay for. Which, in turn, means that either the US government will have to raise taxes, which unfortunately will not raise enough funds to even take out a chunk of our debt, or decrease Social Security payments. The current path is not sustainable for our seniors or our children. A better path would be to give citizens authority over their money and allow citizens to invest in private retirement accounts that would generally bring a greater return of investment (as opposed to social security).
Final word
The path that our nation is on is not a sustainable one. A path of debt lowers the faith and trust in our economic system. No firm or individual will want to invest in our children’s future. Our standing on the world stage will be weakened. We will not be able to effectively respond to national security risks. By not pressing our government officials, we are setting ourselves up for an era of desolation and ruin. Currently, debt per taxpayer is $224,455. We would be outraged if we saw this cost directly. We would be outraged if, one day, we all woke up and this amount of money was taken from our bank accounts. The money you were saving to buy that new car, send your child to college, or start that business is now gone. Sadly, this is the reality. It is about time that we all do something about this and finally send a message to Washington: we care about the debt!
Very informative article. I had no idea of the percentage of welfare money that goes to administrative costs! Unacceptable. Eye opening.
Great article Garrit! Good to see UT liberals have not led you astray. Keep it up! (Jerry Collins).