Deficits, Debt, and DOGE

Do I agree with everything Elon Musk is doing with DOGE? Absolutely not. Is something like what he is doing necessary at this point? Yes.

Our various federal entitlement programs are the largest single line items of the U.S. federal budget. Over a decade ago when I first became aware of the problem in college, the net present value of the unfunded liabilities of our federal entitlement programs was estimated to be about $100 trillion, which may or may not have been a conservative (as in understated) estimate. This problem has not gotten any better. For clarification: Net present value or NPV means what we would have to invest right now to take care of an issue. $100 trillion is several times the annual GDP of the United States. Are you starting to see the problem?

Whenever someone talks about cutting federal spending, they’re usually not serious. They merely manage the decline by cutting the increase in spending, not meaningfully actually cutting spending itself. Oh, a 4% increase in the budget instead of 6%; I’m so thrifty and frugal!! Like when Pelosi claimed during sequestration that $11 million was about all the spending cuts she could muster, saying she had cut the federal government to the bone. Liar. The other canard that gets bandied about, including by Donald Trump right now, is that all spending cuts will target “waste, fraud, and abuse.” Without anyone ever defining what any of those words even mean and rarely actually meaningfully going after fraud.

Obama, who dragged this line out a lot, oversaw a massive expansion in the Social Security disability numbers. His administration, at the near start of the recession kicked off by the housing bust and financial collapse of fall 2008 (that all but guaranteed he would win the White House a couple months later,) decided to approve virtually every disability claim that came in. Leading to some truly ridiculous people claiming lifelong disability, in that they could not hold down a job even with reasonable accommodations. Like the man who dressed up as a baby at home but as an adult outside of it. When an investigative reporter spotlighted him and led to his disability income being shut off to the embarrassment of everyone, he threatened to kill himself.

Which brings us to what I call the Puppy Stomping Fallacy. Whenever spending is cut, whether it be USAID or the Department of Education, the people who have a vested interest in the money spigot never getting shut off (like NGOs) find something, however small, that is a good thing that will no longer be receiving federal funding and claim the cutters lack basic humanity and empathy. As if every good thing must be paid for by the US taxpayer forever and ever and always. The scope and size of the federal government has ballooned so much over the last century in a way that is getting more and more unsustainable. And we have to start somewhere to get these deficits and debt under control. Throwing everything, absolutely everything, onto the cutting room floor is what private businesses do on the verge of or after declaring bankruptcy. While the federal government does not have a profit motive, it does have a finite amount of resources. Money isn’t infinite. Because printing money, for instance, causes bad things when left on autopilot. Just like jacking up taxes ridiculously would have negative consequences. We have already seen some of these consequences in the form of inflation, stagnation, and stagflation.

To bring up an example from the last paragraph, the U.S. Department of Education was created under the Carter Administration and recognized a problem: Education outcomes in America had fallen over the past few decades preceding its creation. What it didn’t do is meaningfully solve the problem. Education standards fell, education outcomes continued to fall, and education just got ridiculously more expensive while continuing to get worse. The pandemic exacerbated all of these issues. The problems with pre-collegiate education in America are legion. The biggest one is that the largest lobbying organizations for it don’t give two big dumpies about the students and whether they are actually learning anything meaningful for their eventual adult lives. The teachers’ unions, who care about union dues and teachers’ salaries and benefits. But mostly the union dues. Which allow them to spend so much money buying off the politicians that negotiate their massive union contracts. Big conflict of interest there, of course. And there exist very few solutions to unfornicate this equine. But kneecapping the influence of the teachers’ unions would be a start. How you do that without causing Hell screams from the people who currently benefit from the arrangement, I don’t know. Somebody is going to have to lose here. And I’d rather it be the corrupt union bosses and the politicians who feed them in a vicious cycle of graft and bovine feces and not the students and parents.

Thirteen percent of the annual U.S. federal budget is merely interest on our debt. As we continue to deficit spend like it’s going out of style, stacking up more and more debt every single year. That gravy train will end eventually. Just like Social Security and Medicare will implode eventually, leaving us few options to deal with the problem when that happens. We do virtually zero actual debt service. What happens when the various awful regimes the world over, at least one of which buys a whole lot of our debt on an annual basis, decide that it isn’t worth it anymore? When China decides that its currency should become the new reserve currency for the world? Nothing good.

What are the solutions as of now? Raising taxes and cutting spending. I am philosophically against tax increases as a general principle. Milton Friedman once described tax cuts as cutting the government’s allowance. The government has no real money of its own. It either prints money, which devalues the world’s reserve currency, or takes money from its (hopefully productive) citizens. But some tax increases are likely necessary at this juncture. We pretty much have to raise payroll taxes to deal with Social Security and Medicare at some point. Those are the taxes that are supposed to pay for them, but every surplus in them in the last forty odd years has been raided by the federal government to pay for something else, leaving the fund with a bajillion IOUs that have never been repaid. The money has to come from somewhere as more and more Baby Boomers retire and the worker to retiree ratio gets closer and closer to one. If we raise payroll taxes too much, the workers getting it up the rear will revolt and start a likely very bad intergenerational civil war that the Baby Boomers probably won’t win what with their relative frailty. Although they do have most of the wealth…

Having a lot more babies would help, but not before either program implodes, too little too late. Importing a lot of immigrants might help, but illegal immigrants aren’t going to be solving our payroll tax deficit issue. If they even pay income taxes, they are breaking the law by earning a paycheck in America at all (in most cases.) Legal immigrants can help, but the industries we badly need, like doctors and nurses, have lobbying organizations that prevent us from just importing doctors or other such professionals from other countries through profligate licensing restrictions. We could have set both Medicare and Social Security to taper the age of benefit eligibility to life expectancy, but also too late on that one for the current problem. And no one is truly talking about going after Social Security and Medicare anyway, especially benefits for current and soon-to-be retirees. And then there’s the H1B visa abuse where tech companies, for instance, import foreign workers in order to pay them less than American workers in industries that are not starved at all for workers.

So many problems that no cares to truly fix. I’ll just continue to be Cassandra, fiddling while Rome burns.

Eat at Arby’s.