Before his death on February 6, George P. Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in US government spending in recent years, including during the COVID-19 crisis.
STANFORD – Many in Washington now seem to think that the US federal government can spend a limitless amount of money without any harmful economic consequences. They are wrong. Excessive federal spending is creating grave economic and national-security risks. America’s fiscal recklessness must stop.
The COVID-19 crisis has provided the latest impetus for government spending, even to the point of steering the American mindset toward socialism – a doctrine that has always harmed people’s well-being. But some say there is no need to worry about excessive spending. After all, they argue, record-low interest rates apparently show no sign of increasing. The economy was humming along just fine until the pandemic hit, and will no doubt rebound strongly when it ends. And is there even a whiff of inflation in the air?
This thinking is dangerously short-sighted. The fundamental laws of economics have not been repealed. As one of us (Cogan) demonstrated in his book The High Cost of Good Intentions, profligate government spending invariably has damaging consequences.
High and rising US national debt will eventually crowd out private investment, thereby slowing economic growth and job creation. The Federal Reserve’s continued accommodation of deficit spending will inevitably lead to rising inflation. Financial markets will become more prone to turmoil, increasing the chance of another big economic downturn.
Financial markets’ current relative calm and low consumer-price inflation are no cause for comfort. Previous periods of sharp increases in inflation, rapidly rising interest rates, and financial crises have followed periods of excessive debt like a sudden wind, without warning.
Shultz and Taylor’s book Choose Economic Freedom shows that economic indicators in the United States gave no hint in the late 1960s of the subsequent rapid rise in inflation and interest rates in the early 1970s. Likewise, financial markets during the years immediately preceding the 2007-09 Great Recession provided little indication of the calamity that would ensue.
So, what should today’s US policymakers do? Higher tax rates are not the answer. Even before the pandemic hit, every federal tax rate would have had to be increased by one-third in order to finance the current level of federal spending without adding to the national debt. Such an increase would have harmful effects – similar to those of mounting public debt – on economic growth and job creation.
Congress may be tempted to reduce defense spending to help close the deficit, as it often has done in the past. But these previous efforts demonstrably failed. Rather than reduce the budget deficit, Congress instead used the savings from lower defense outlays to finance additional domestic spending.
Unless policymakers abandon their misguided beliefs about budget deficits, cutting defense expenditure now would produce the same result. More importantly, it would be a grave strategic mistake, weakening US national security and emboldening the country’s foreign adversaries – particularly now that China is flexing its muscles in Asia and investing heavily in its military.
Throughout US history, the federal government’s ability to borrow during times of international crisis has proven to be an invaluable national-security asset. Two hundred years ago, the ability to borrow was instrumental in America maintaining its independence from England. During the Civil War, it was crucial to preserving the union. And it proved decisive in defeating totalitarian regimes in the two world wars of the twentieth century.
The US government’s careless spending is jeopardizing this asset. If the country continues along its current fiscal path, the federal government’s borrowing well will eventually dry up. When it does, America will be far less able to counter national-security threats. As hostile foreign governments and terrorist organizations recognize this, the world will become a far more dangerous place.
US policymakers’ mistaken belief that deficits and debt don’t matter is the sad culmination of a long downward slide in fiscal responsibility. From 1789 to the 1930s, the federal government adhered to a balanced-budget norm, incurring fiscal deficits during wartime and economic recessions, and running modest surpluses during good times to pay down this debt. This prudent management of the federal finances was instrumental in establishing America’s strong position in world financial markets.3
President Franklin D. Roosevelt’s New Deal broke this norm, and deficit spending has since become a way of life in Washington, with the federal government outspending its available revenues in 63 of the 75 years since the end of World War II. At first, elected officials were deeply concerned about the adverse consequences of their excess spending. But over time, this anxiety gradually lessened. Annual deficits grew so large that by the mid-1970s the US national debt was growing faster than national income.Sign up for our weekly newsletter, PS on Sunday
During the last decade, any remaining fiscal concerns in either the Democratic or Republican parties have seemingly vanished. Freed from a belief that rising deficits and debt are harmful, policymakers unleashed a torrent of new spending. By fiscal year 2019, the federal government was spending $1 trillion per year more in inflation-adjusted terms than it had a dozen years earlier. In fiscal year 2020, the federal government added nearly another $2 trillion of new spending in response to the pandemic, raising the national debt to 100% of national income. This year, another trillion dollars of new spending – if not more – appears to be on the way.
The momentum toward more spending and exploding debt may currently appear unstoppable. But sooner or later, people will look at the facts, see the destructive path fiscal policy is now on, and recognize that they and the US economy will be better off with a different approach. At that point, America’s democratic system will say the expenditure growth must stop.
U.S. Senator Rand Paul (R-KY) recently introduced his own “Three Penny Plan” federal budget that will balance within five years by assuming the repeal of the Bipartisan Budget Act of 2021 and utilizing the “Three Penny Plan.” Dr. Paul’s budget includes instructions that would pave the way for the expansion of Health Savings Accounts (HSAs) to help Americans more easily cover their health care costs.
“When I started offering these kinds of budgets four years ago, we could balance with a freeze in spending. Not cut anything, then we went to just a penny, then two, now it is three,” said Dr. Paul. “We cannot keep ignoring this problem, this budget sets a goal for balance and provides Congress with necessary tools to achieve that objective.”
“Senator Rand Paul has long been a champion of balancing the federal budget and protecting the American taxpayer,” said Frontiers of Freedom President George Landrith. “Too often opponents of fiscal responsibility argue that to balance the budget would require draconian cuts. But Senator Paul’s proposal only requires a budget cut of 3 pennies on the dollar each year for the next five years and then limits spending increases thereafter by 2 percent per year.”
“Senators should support Rand Paul’s balanced budget plan to expand HSAs, reject tax hikes, and reduce spending by 3 pennies for every dollar,” said Americans for Tax Reform President Grover Norquist.
“I’m glad to see Senator Rand Paul continue his work to address the rampant growth in federal spending and the national debt,” said American Legislative Exchange Council Chief Economist Jonathan Williams.
Dr. Paul’s plan requires that for every on-budget dollar the federal government spends in Fiscal Year 2021, it spends three pennies fewer each year for the next five years. Senator Paul’s proposal doesn’t change anything about Social Security, but reduces spending by $67.4 billion in Fiscal Year 2022 and by $7.2 trillion over ten years.
Sixteen Thirty Fund acts as network for liberal donors to anonymously give to Democratic committees
Deep-pocketed liberal donors are using a massive dark money network to conceal the source of nearly $20 million in donations to pro-Biden PACs.
At least $19.8 million has made its way through the Sixteen Thirty Fund to liberal PACs for the 2020 cycle. The fund, which normally works with advocacy organizations, has switched its focus to the election in recent months, sending large amounts to groups supporting Joe Biden in the presidential race. Wealthy donors push cash into the Sixteen Thirty Fund—an entity housed at the D.C.-based dark money network Arabella Advisors—which then disburses the money to prominent Democratic committees.
Arabella Advisors operates as an important funding avenue for wealthy liberal donors, allowing them to contribute to political groups anonymously. Each of several funds within Arabella, including the Sixteen Thirty Fund, acts as a “fiscal sponsor,” providing its legal and tax-exempt status to dozens of liberal groups that fall under its auspices. That status absolves the groups from having to disclose their donors. Donors’ use of the Sixteen Thirty Fund as a vehicle for election PAC donations marks a departure from the group’s normal operations. It normally serves as a pass-through entity to bankroll shadowy nonprofit groups behind left-wing initiatives. This year, however, Democratic candidates including Joe Biden will benefit from the fund’s disbursements despite railing against secret money in politics.
The fund’s relationship to liberal nonprofits has raised eyebrows among money-in-politics watchdogs. Anna Massoglia, a dark money researcher at the Center for Responsive Politics, said the Sixteen Thirty Fund “has taken dark money in politics to a new level of opacity by channeling money from secret donors to political groups while steering funds into its own fiscally sponsored operations.”
“Sixteen Thirty Fund’s fiscal sponsorship scheme not only enables seemingly independent groups to operate under its umbrella with little or no paper trail but also enables them to engage in a level of political activity that might not be possible if they operated as separate tax-exempt nonprofits,” Massoglia said.
Several election-focused PACs received large sums from Sixteen Thirty, according to FEC filings. The pro-Biden Unite the Country PAC, liberal operative David Brock’s American Bridge PAC, and a joint fundraising venture between the two groups hauled in a combined $11.4 million from the fund last month. Priorities USA Action, the largest Democratic super PAC, received $3.5 million. The Black PAC, a progressive group focused on black voter turnout, received $2.25 million from the dark money entity—nearly all of the $2.5 million the committee raised in June.
The Sixteen Thirty Fund pushed more than $2.5 million to other Democratic PACs earlier this cycle, including six-figure sums to the Nancy Pelosi-linked House Majority PAC, Shaun King’s Real Justice PAC, and Forward Majority Action. It also sent seven-figure sums to Future Forward USA PAC.
“Liberal dark money groups outspent their conservative counterparts in 2018 for the first election cycle since Citizens United,” Massoglia said. “But direct spending by groups like 501(c)(4) nonprofits is only a fraction of the secret donor money seeping into U.S. elections since dark money groups also steer donations to groups like super PACs.”ADVERTISING
Arabella’s massive network has facilitated the transfer of more than $1 billion from Democratic donors to powerful liberal groups and initiatives in 2017 and 2018 alone.
“The Sixteen Thirty Fund provides support to advocates and social welfare organizations around the country, and we will continue to grow our program,” Amy Kurtz, the fund’s executive director, told the Washington Free Beacon. She added that the fund would continue to support groups that work on causes such as “economic equity, the climate crisis, racial justice, and participation in our democracy.”
It makes a lot of sense for Republicans to run a unified campaign going into the next election—with the intent to not just hold the White House and the U.S. Senate, but to regain control of the U.S. House of Representatives, as well.
Many election forecasters would say that if the election were held today, that’s a bridge too far. And they’d be right. House Republicans under Kevin McCarthy have offered little in the way of meaningful contrasts on most of the major pieces of legislation taken up over the past few months. But establishing a meaningful contrast with the way the other party runs things (or would run them) is a key component of any winning strategy and, thanks to Speaker Nancy Pelosi’s considerable overreach in the last coronavirus bill, Republicans now have a chance to make such a contrast.
The American public is highly dissatisfied with the job Congress is doing. According to Gallup, just 20 percent of those recently surveyed expressed approval of Congress. Even Democrats are unhappy, with just a quarter telling Gallup that things under Pelosi were going well.
Part of this is attributable to the increasing polarization of the American electorate. As veteran electoral analyst Michael Barone has written repeatedly, the number of people who split their vote between the major parties as they move down the ballot has declined steadily since the Bush/Gore election in 2000.Ads by scrollerads.com
Republicans can make polarization work to its benefit, especially in the upcoming election, if they run a campaign based on the idea that the two parties have dramatically different visions of what the nation should be like in the future—a vision clearly defined by what Pelosi and her allies narrowly managed to get through the House in the last COVID-19 relief bill.
That legislation contains lots of wedges issues the GOP can exploit to its benefit. For example, with more people out of work at any time since the Great Depression, it’s highly unlikely most voters would support the distribution of their hard-earned tax dollars to unemployed people here in America who did not go through the legal immigration process. It’s the kind of excess progressives generally favor, but which leaves most Americans probably thinking twice about voting for any member of Congress who supports it.
Likewise, the Pelosi-built bill included an extension of the so-called bonus payment being given to many unemployed workers who now find themselves making more money while out of work than they did while gainfully employed. That’s bad policy, not just because it adds considerably to the annual deficit, but because it is also a perverse incentive to stay out of the labor market just as job openings are once again about to become plentiful.
Throughout the political activities related to COVID-19 relief, the Democrats have insisted on all kinds of new spending, adding to the budgets of agencies that are not involved in fighting the pandemic and liberally passing out money to friends and favored interests. Most everything Democrats have accused President Donald J. Trump of doing for his so-called “billionaire buddies,” they’ve themselves done for the interests that keep them in power.
All this creates a contrast with Republicans, who, at least at one time, used to argue for responsible spending and balanced budgets. Trump was never part of that, but he did take the lead, by cutting the corporate tax rate and deregulating industries, in getting the American economy growing at something like the level it is supposed to during good times.
Pelosi’s plan for America, like Joe Biden’s, is the anthesis of that. Incredibly, the former vice president recently proposed taking the corporate tax rate back up to a level higher than even China’s. So much for global business competitiveness during a time when the pressure will be high on America’s manufacturers to come home to the United States.
A coherent, well conceived and executed plan could get the GOP within striking distance of a House majority. It could even push Republicans over the top if they make the effort to produce the proper policies. The money and the organization are there. If they have ideas to go with it, Pelosi may have to pass the gavel next January—which would be good for America.
“Even though our businesses are creating new jobs and have broken record profits,” President Obama said in his economics address last week, “nearly all the income gains of the past 10 years have continued to flow to the top 1 percent.”
It’s odd that Obama touts these facts, because the facts indict his policies. This is even stranger: Many Republicans want to downplay these facts, even though they provide the GOP with an opening.
Obama’s first term, with all its tax hikes, regulations, mandates, subsidies and bailouts, saw stock markets rise, corporate earnings break records and the rich get richer, while median income stagnated and unemployment remained stubbornly high. Continue reading
Will Rogers once said, “It is a good thing that we do not get as much government as we pay for.” That may be true, but I think we all wish we were paying for a lot less government and a lot less taxes. Our federal government is at historically high levels of spending — in recent years gobbling up nearly 25% of the total economic output.
Every year, the federal government spends more money than it did the last year. Even this year with the “sequester,” federal government will spend more money this year than it did the year before. Continue reading
“In the Obamaian universe, the units of the private economy . . . are satellites orbiting the great fixed planet of public spending.”
by Daniel Henninger
It may be that we have to move beyond politics alone to explain events in Washington. We are in the fifth year of the Obama presidency, and Washington is still dead in the water. Four straight years in which the government of the United States of America fails to enact a budget is, well, amazing.
The sense is growing around Washington, and this increasingly includes Democrats, of living in an alternative universe. Barack Obama gives his State of the Union speech, the sequester looms, and the president flies around the country giving speeches. He’s had virtually no contact on the sequester with the legislative branch. Continue reading
Worse, a veiled liberal threat to correct what they deem a “misallocation of wealth.”
by Scott L. Vanatter
Over the past week liberal House and Senate leaders have spoken openly about how they see America’s spending problem. They don’t see it. They claim that we don’t have a spending problem.
First, Rep. Pelosi (D-CA) relabeled it as a “priorities problem.” Then, Rep. Hoyer (D-MD) redefined it as a “paying-for problem.” Finally, Senator Harkin (D-IA) revealed the usually hidden liberal designs on capital. He turned the equation upside down by describing problem of a lack of funds to pay for what we have spent, not because we do not have a budget, but because we have “misallocation of wealth problem.” Continue reading
“This whole controversy: Are you entitled to the fruits of your own labor or does government have some presumptive right to spend and spend and spend?”
by Scott L. Vanatter
Ronald Reagan is well known for his multi-decade devotion America’s purpose and promise. By returning to these lofty ideas America would fulfill its destiny.
His July 27, 1981 speech was President Reagan’s main public effort to educate the nation on the benefits of a bipartisan bill to cut taxes and spending. He taught America, once again, how and why cutting taxes and spending (cutting the rate of growth of government spending) would make for a stronger economy — and help restore America’s latent greatness.
It was Reagan’s habit to speak on large themes. In this particular case he used a two-letter word to illustrate one of the largest of political themes. He stated that the people in electing him wanted to make a change from ‘by’ to ‘of.’ Succinctly put, “It doesn’t sound like much, but it sure can make a difference changing by government,’ ‘control by government’ to ‘control of government.’” Continue reading
Why isn’t there a debt clock in the convention hall in Charlotte, NC?
$16 TRILLION is an astronomical number. If you were to count from 1 to 1 million without stopping (assuming about 1 second per number on average), it would take about 12 days. If you were to count to 1 billion, it would take about 32 years. And if you were to count to 1 trillion, it would take about 31,710 years. And to count out the dollars of our current national debt of more than $16 trillion, it would take more than 507,357 years of counting one number each second without ever stopping. The point is — a trillion is a HUGE, GARGANTUAN number and 16 trillion is completely off the charts. We must have a serious national debate about cutting government spending. And then we must dramatically cut spending before we become the next Greece. We cannot delay.