The crisis is not economic; it is moral
Spending Crisis Truths
GEORGE NOGA – APR 30, 2023
Much has been written about America’s debt crisis, including by me. I prefer to call it a spending crisis because, absent runaway spending, the deficits and debt would disappear. This post strips away all the superfluous background noise and distills all you need to know about the spending crisis into a few unassailable truths.
Truth #1: America Passed the Point of No Return
When Titanic first hit the iceberg, passengers barely noticed. The ship remained afloat for 4 more hours, but its fate was sealed; there was no way to unhit the iceberg. So it is with the spending crisis. America hit the Debt/GDP iceberg sometime during the past few years when the ratio neared 100% on its way to the moon. As with Titanic, life may appear normal for a while, perhaps even for years; but our fate is sealed. During the thousands of years governments have borrowed money, none with a debt ratio above 100% have recovered without calamity and a lost generation.
Truth #2: Few Understand the Seriousness of the Problem
Only an infinitesimal segment of Americans know what is coming. The spending crisis will not hit home until it affects their daily lives. We are far past possible bromides such as a balanced budget amendment or debt ceiling limitation.
Some economists suggest freezing the Debt/GDP ratio at its current level; however, they have not done the math. To freeze the ratio means debt cannot increase faster than GDP, which is forecast to grow at 2%. That means debt could increase only 2%, or no more than $500B. The CBO estimates the 2023 deficit at $1.4 trillion; meaning spending would have to be slashed $900B to limit the debt increase to $500B, i.e. to freeze the ratio. The entire budget for non-defense discretionary spending is $900B, meaning such spending would have to be cut 100%, and that is merely to freeze the ratio, not to lower it. Raising taxes could plug part of the gap, but that would hurt the economy and slow GDP growth, meaning the spending cuts then would have to be even more that $900B – a vicious circle.
Truth #3: Great Pain Inevitable
No matter what comes, the crisis is existential – to invoke a vastly overworked term. As shown supra, freezing the ratio would mean $900B in cuts (or tax increases) now. If we wait until the US no longer can borrow to finance the deficit, it will be worse by an order of magnitude. The ensuing crisis will have dire geopolitical consequences as well as likely social unrest as Social Security, Medicare and countless other government programs are scaled back or eliminated. There would be no borrowing capacity in event of a natural disaster or war. Even a debt default would not provide much relief as future spending still would have to be brought into balance.
Truth #4: Debt Limit Determined by Markets Not Congress
In the end, Congress is irrelevant. The real US debt limit is determined by markets. When there are no buyers for government debt, the jig is up. It is possible markets already have begun to speak. Foreign governments are now net sellers of US debt and high interest rates may, in part, be attributable to an added default risk premium.
Truth #5: If Something Can’t go on Forever, It Won’t
The spending crisis is a poster child for the above quote from economist Herb Stein. As shown supra, it is impossible even to freeze the ratio. That means it is destined to get worse each year until it goes into a death spiral.
Truth #6: Crisis is Moral – Not Economic
I call it a spending crisis, but at its heart it is a moral crisis. Americans chose – whether consciously or unconsciously matters not – to take from our children and our grandchildren rather than to control our spending. We refused to make tough choices, falsely believing we could buy social peace. We elected politicians who promised us the moon was made of Stilton and whose favorite exercise is kicking cans down the road. We chose – and are continuing to choose – to condemn our progeny to a dystopian Clockwork Orange future.
Worst of all, we stole from future generations, not to save America from natural disaster, world war or Armageddon, but to pay for a perpetual party, which continues unabated today even as Americans whistle past the graveyard.
© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com