Megalextoria

I’ve been listening to Mark Spitznagel’s The Dao of Capital, which is three parts philosophy, two parts history, and one part investing advice, so if you’re into that sort of thing and don’t mind the same concept hammered home in a dozen different examples across multiple categories, you will love this book. In the chapter about the concept of “time preference,” he uses a striking turn of phrase when talking about the reality of our future selves and distant descendants.

The symptoms of this affliction [referring to our culture’s extreme focus on the now, at the expense of the future] can be found in the chronically low savings rate in our culture, ranging from financial to even fresh water, soil, and of course forests. And analogously and most incredibly, governmental fiscal deficits that deviously and increasingly rob future generations, our helpless intergenerational forward selves.

A Moral Duty for Financial Responsibility

The first time I ran into this concept of a human being as a continuous being, simultaneously real across the span of his lifetime, was when reading about Kurt Vonnegut’s Tralfamadorians in Slaughterhouse-Five. They perceive time as existing all at once. In the book this produced a kind of passive, fatalistic philosophy. Since all that will be already is, there was no room for the idea of free will.

I don’t take that view, but the image from the book, of viewing time and the people in it the way you might look at a stretch of the Rocky Mountains, their past and future selves just as real as the present one, stopped me in my tracks. It puts the present, which always dominates our perceptions and emotions, into a new perspective. It echoes something Einstein used to say about looking at past and future as equally and simultaneously real with the present.

This is in a section where Spitznagel credits Austrian economist Eugen von Böhm-Bawerk with noticing this truth and applying it to economics, and his choice of the word “helpless” really leaped out at me. It is a word that for me instantly conjures images of the downtrodden people who it is our moral duty to help.

Suddenly the ideas of saving, investing wisely, delaying gratification, sacrificing in the now for something better later, becomes more than just a strategy for self-gratification for the far-sighted. It is a moral duty to a future self and to future others, people every bit as real as you are right now, but whose condition is completely at your mercy.

This idea is not so foreign to those who speak a language like Japanese or Chinese, where the verbs make no distinction between past, present and future. But for those of us raised on English, focusing more on the canoe than the river when thinking about time, this might be a jarring insight!

Studying Tradeoffs

Anyone wishing to change the world through politics has a duty to understand economics. As arcane as some try to make it, economics is really just the study of naturally occurring tradeoffs. It is a pair of binoculars we can use to survey the landscape of humanity’s struggle against the material world to grow and thrive. The better we can see, the better we can navigate in that realm. Those who don’t will often do what seems right, but actually leads to destruction.

Böhm-Bawerk was right about the importance of time. Would-be reformers like some of the Democratic 2020 hopefuls would do well to pay attention to it. The systems we create today need to avoid creating crises later. Human affairs are unpredictable, but not hopelessly so. Through economics we actually can spot errors, learn from them, and plan to avoid them.

We today are the children of generations that traded future obligations for present benefits: borrowing to make finance payments, instituting a monetary system that slowly bleeds the value out of cash savings in order to boost the present buying power of the state, the list goes on. We live in a time of incomprehensible abundance and yet the young feel as if they have to build their lives on very thin margins.

Part of this, according to Robert Kiyosaki, is a failure to pass down financial wisdom, but there has also been a failure to respect the sanctity of our future selves and our distant descendants, all of whom are every bit as real as you are right now, even if they are not yet visible.

We cannot reach back to the past to ask for the guilty to restore what they took, but we can decide what to do with the world that we now have. According to Albert and Eugen, the future already exists. The people in it depend on us in the here and now to act in their interest.

No one else can.

This article is republished with permission from Rabid Quill. 

This article was originally published on FEE.org. Read the original article.

A generation ago, the national debt stood at just a smidgen over USD $4 trillion and a young presidential candidate named Bill Clinton was discussing a great plan he had to have it entirely paid off by now. Oops. The national debt is now 5.5 times bigger.

More than anything, this astoundingly bad public policy is the fault of Barack Obama, undoubtedly the most irresponsible president in our history…who added on more to the national debt than all other presidents combined in an orgy of Washington, DC, debauchery that saw the size of the federal government mushroom while hundreds of thousands of new bureaucrats were added to federal payrolls, and Washington, DC, housing prices skyrocketed as federal government employees and private industry sub-contractors paid for by the government reveled in their six-figure paychecks and outrageously lavish healthcare and pension plans… all paid for by us, the taxpayers.

Unwarranted Trust

Obama’s stewardship of our national finances was truly obscene, but George W. Bush was nearly as bad. He has even less of an excuse, in fact, because he had a Republican Congress to work with for most of his eight years. During that time, Bush took us from USD $5.8 trillion to USD $10 trillion, something that seemed reckless at the time. Of course, in light of the Obama USD $10 trillion spending extravaganza, Bush looks prudent by comparison.

people with law and medical degrees and MBAs from Ivy League universities, people that come from the finest law practices and accounting firms and consultancies and banks and financial institutions in the country…and our end result is the debt avalanche we now have before us?

Why do we believe politicians of either party when they tell us that they will make our national debt a top priority?

Why is it that the American people seem to fail to understand how ruinous our national debt truly is and what an astounding percent of our national budget we are now spending on servicing that debt?

Interest Is Adding Up

Former Pennsylvania Governor Ed Rendell has penned an op-ed which presents some eye-opening statistics as to just how bad our national debt really is. By next year, the cost of servicing the national debt (paying interest on it), will exceed the cost of Medicare. By 2025, it will exceed the cost of our military spending, making it the most expensive item in our entire national budget!

Yikes!

Today’s high school and college students are well-versed in a whole host of social justice topics, courtesy of their Marxist professors. How much would you venture to bet that they hear little to nothing about the national debt and what it means for American workers and families?

Today’s campus culture social justice themes include the “right” to “free” healthcare and education… transgender bathrooms… the need for “safe spaces”… the enforcement of campus “speech codes” designed to make sure that no one ever gets their feelings hurt… a robust and comprehensive policy on identifying and denouncing inappropriate Halloween costumes… and a stale and tired Marxist discourse on the exploitative nature of American capitalism.

But… when was the last time college students ever got together to protest a USD $22 trillion and rising national debt? Do they understand the threat, even?

And even more importantly… do they understand why and how we have gotten here?

Corrupt Politics

Quite simply… we have arrived at this point by spending infinitely more than we collect in tax revenue, mainly on things that have no mention in the Constitution as being a function of the federal government.

Public sector unions, and the millions of workers and hundreds of millions of dollars that they spend every year to support the Democratic Party, play a fundamental role in not only our ruinous levels of federal debt but the debt crisis facing our state and local governments as well.

Nothing is more ruinous to our future than the ever-increasing demands of government employees… specifically public sector union employees such as those at AFSCME and the SEIU. They live like kings and queens on the backs of actual working class people… all the while donating hundreds of millions of dollars to the Democratic Party to ensure that their six- and seven-figure paychecks never run dry.

They couldn’t care less about government budgets or the national debt or actual working-class people. They couldn’t care less about “public service.” There are only two things that public sector unions care about: soaking the rest of us for the biggest paychecks possible… and shoveling money to socialist politicians like Bernie Sanders and Elizabeth Warren.

But it is not merely their salaries and the fact that government employees rarely, if ever, get fired. It’s the highly lucrative nature of their healthcare and pension plans… plans to which they contribute far less than their private sector counterparts.

For states, these plans have proved a bitter pill to swallow, and have led to the greatest fiscal crisis in the United States that you have most likely never heard about: unfunded pension liabilities. When you drill down into the details, it is almost impossible to believe that the situation is true. Essentially, states promise outrageously generous pensions to state employees (who, of course, rally to support whichever candidate promises them the most money), and then fail to fund those very plans… kicking the can down the road to future administrations and generations.

The Snowball Keeps Getting Bigger

Now, it amounts to a USD $6 trillion crisis.

For the libertarian and conservative movements, it’s time to stand for fiscal responsibility and common sense. It’s time to stand against government employees and their demands, and explain to the American people that the government is spending their money on entirely unconstitutional (read: illegal) things. It’s time to take a strong stand against the public sector unions like AFSCME and the SEIU that are leading this country to fiscal ruin.

And more than anything, it’s time to force Trump to actually live up to his promise of draining the swamp: reigning in the excess and beginning to drastically reduce the size of our bureaucratic state: firing large numbers of government employees.

These government employees are driven by self-interest.

It is hard to envision government employees stepping back from the situation and saying:

Well, I have a pretty generous salary, healthcare, and pension. It’s far more generous than the private sector enjoys. And we are $22 trillion in debt, and the government is spending too much money. So… as much as it pains me to say… me and some other government employees should lose our jobs. The government is spending too much money, deficits and debt are growing, and I should go look for a job in the private sector.

That is never going to happen. Public sector unions are a millstone around our neck, and as many commentators have noted, they have no natural enemies.

Except, of course, for citizen watchdog groups and independent media outlets who are not afraid to denounce them and point out their ruinous nature.

I, for one, will not rest until we return our government to the vision of the Founding Fathers, who would not have approved of any of this. Let’s start by ending the Department of Education, the Department of Housing and Urban Development, the Department of Energy, and the Department of Agriculture. That would be a good start. We could use the money we saved to begin paying off our national debt, and government employees would have to do something that the vast majority of real working class people have to do every day: compete in a highly competitive free market economy to earn our daily bread.

This article is reprinted with permission from Panam Post. 

This article was originally published on FEE.org. Read the original article.

Let me tell you a Halloween horror story.

This month it was announced that the federal budget deficit had jumped 17 percent to $779 billion in 2018. This was larger than any year since 2012 when it topped $1 trillion. According to the White House’s recent budget, the federal government will borrow $870 billion this coming year.

This isn’t being done in the name of economic stimulus. As a number of distinguished economists recently pointed out in an op-ed for the Washington Post, this has been a year of “relatively strong economic growth, low unemployment and continued historically low interest rates.” And still, the federal government is on track to borrow nearly $7,000 for every household in America.

The outlook for the future is grim. Even if the “Trump boom” continues, current tax and spending patterns indicate that deficits will continue rising, approaching $1 trillion in two years and steadily rising afterward, on and on into the future. On the current path, the outstanding public debt will rise by one third to $20 trillion just five years from now. That works out at nearly $250,000 for a family of four, more than twice the median household wealth.

The consequences of this are horrendous to contemplate. The Trump administration is using interest rates of 3.5 percent for its projections. If they rose to 5 percent—a standard number before the financial crisis—the interest costs alone on the projected debt would total $1 trillion annually. As the Washington Post economists note, “More than half of all personal income taxes would be needed to pay bondholders.”

The Culprit

Where is all this red ink coming from?

It is not tax cuts. The Budget and Economic Outlook for 2018 to 2028 released by the Congressional Budget Office in April reveals that, as a share of GDP, tax revenues are currently 17.3 percent of GDP. The CBO actually forecasts this to rise to 18.5 percent in 2028. The argument that the cut in federal corporate tax rates is a cause of the increased deficits and debt is absurd. The tax’s revenue amounted to just 1.5 percent of GDP in 2017, and the CBO forecasts that it will still be 1.5% in 2028.

The real answer is out-of-control spending. The CBO forecasts that spending will rise from 20.8 percent of GDP now to 23.6 percent in 2028. But it is not increased “discretionary” spending such as defense or education that are driving spending upward. In fact, from 2018 to 2028, the CBO forecasts that discretionary spending will fall from 6.4 percent of GDP to 5.4 percent. Defense spending, for example, is projected to fall from 3.1 percent of GDP in 2018 to 2.6 percent in 2028.

The CBO is unequivocal that this increase in spending is being driven by out-of-control entitlement outlays. Between 2018 and 2028, spending on Social Security, Medicaid, and Medicare is projected to rise from 12.7 percent of GDP to 15.2 percent. Social Security spending is expected to increase from 4.9 percent of GDP to 6.0 percent, Medicare from 3.5 percent of GDP to 5.1 percent, and Medicaid from 1.9 percent of GDP to 2.2 percent. This is what is driving America’s catastrophic indebtedness.

Why Aren’t Politicians Taking Action?

America’s politicians see all these numbers. They can see the vast problems this orgy of borrowing is creating. But still they carry on. Why? A new paper titled “Rising Government Debt and What to Do About It” by economist Pierre Yared seeks to address this question.

Yared dismisses the idea that these elevated levels of government debt represent an “optimal” policy response to either foreseen or unforeseen fiscal shocks. Foreseeing a problem with aging populations, governments would be expected to reduce their debt in preparation for the increased expenditures an older population will require. In fact, the opposite has happened; governments across the developed world have increased their debts. Neither can unforeseen pressures like the 2008 crash or wars in the Middle East be the primary cause; the increases in government indebtedness both long predate 2008 and are present in countries that did not intervene in the Middle East.

Instead, Yared turns to political economy theories of government debt. These “predict that the presence of an aging population, political polarization, and electoral uncertainty cause governments to be shortsighted and to promote immediate goals at the expense of long-term ones. These political factors affect the long-run size of government deficits and therefore the long-term trend of government debt.” Yared argues that “over the past four decades, changes in these political factors can explain the long-run trajectory of government debt.”

Yared asserts that aging populations care less about the future, citing evidence that younger households place a larger value on fiscal responsibility than older households. Political polarization produces something like a ‘tragedy of the commons’ where “political parties acting independently engage in excessive targeted government spending since they do not internalize the shared financing costs of government debt.”

As a result, according to evidence presented by Yared, “countries with a large number of constituencies or deep disagreements in spending priorities across constituencies will incur larger government deficits, resulting in faster government debt accumulation.” Finally, electoral uncertainty “causes the current government to be impatient, since the party holding power recognizes that it may not have the opportunity to benefit from spending in the future.” Again, Yared presents evidence that this political uncertainty has increased in recent decades as government indebtedness has risen.

If Yared is right, America’s fiscal outlook isn’t encouraging. None of these factors are going away anytime soon. America’s population is projected to continue aging for the next couple of decades. By 2035, according to the Census Bureau, there will be 78 million people 65 years and older compared to 77 million under the age of 18.

Neither is the political appetite for dishing out goodies with little regard to who picks up the tab likely to decrease. Recently, a colleague of mine testified before the Joint Economic Committee of Congress in Washington, DC. At one point, the ranking Democrat on the committee, Senator Martin Heinrich, asked whether those testifying were in favor of cuts to programs like Social Security and Medicare, which seniors have come to rely on. Rely on them they might, but if the money isn’t there, it isn’t there. It doesn’t magically appear simply because politicians like Sen. Heinrich find it politically expedient.

Finally, who would predict that political polarization in the US is going to decrease much anytime soon?

The promises government makes cannot be supported by any reasonable expectation of tax revenue. Printing the money to cover these liabilities will result in inflation. At some point, the irresistible force of insufficient government revenues is going to meet the immovable object of entitlement commitments.

Until then, we face the prospect, year after year, of yawning deficits and increasing floods of red ink. You may visualize the scene from The Shiningwhere the elevator doors open and a torrent of bright red blood pours out.

Happy Halloween.

Source: Foundation for Economic Education: Is America Going Broke? An Ivy League Economist on Why Government Debt Is Surging