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Culture War Roundup for the week of February 26, 2024

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Our treasured colleague Kulak is at it again with another post on his Substack.

I know that a slow-moving budget crisis is not the spiciest meatball, but the fiscal situation in the United States is looking bad. Debt to GDP is now above the previous high set at the peak of WWII. But whereas the post-wars years saw demographic and technological tailwinds, the current epoch is characterized by low fertility and productivity growth.

It gets worse:

The real crisis is the Unfunded liabilities, all the promises the US has made to Boomers (who dominate the vote) and others about money they’re GOING to spend.

As of now total Unfunded liabilities stand at 213 trillion dollars, $633,000 per US Citizen (Man woman, and newborn babe)… These are all dollars the US has promised to pay to someone somewhere at some point: Social Security, Medicare, Medicaid, Federal pensions, VA Benefits, etc. And cannot in any politically feasible way restructure or get out of.

While it might be possible to split a shrinking pie and remain friends, it is definitely IMPOSSIBLE to split a pie when more than 100% of the pie has already been promised to one person or another. Give a person a dollar, they are mildly happy. Take a dollar away and they are FURIOUS.

At this point, I'd encourage you to find a nearby senior citizen. Please explain to them that they don't deserve their social security check. You see, the money that was supposedly SAVED was in fact already SPENT. Far from saving money, their generation actually left a sizeable DEBT to future generations. So not only would seniors have to give up their government checks, they would have to pay hundreds of thousands of dollars in additional taxes just to get to even.

I'll wait.

Just how irrational are the expectations of our Boomer rulers? Slobodan Milošević understood.

Milosevich promised, and other politicians promised, their followers the old communists pensions would be honored and paid… And even at the height of the wars they won every election because of that base of aging pensioners…

The last politician to even contemplate reforming Social Security was George W. Bush, who claimed to have earned "political capital" shortly after his re-election in 2004. By March of 2006, his approval rating had fallen from the high 50s to just 31. Nowadays, politicians in either party don't even mention Social Security except to praise it effusively and promise to defend it at all costs.

We are well and truly fucked. The Federal government will be forced to default or inflate away its debts within the next 10-20 years. And this is BEFORE the numerous suggestions to somehow EXPAND the welfare state, whether they be student loan forgiveness, payments to favored racial groups, or universal basic income. After all, ours is a great laboratory of democracy. So while the Federal government enters a slow fiscal doom loop, some states like Illinois, California, and New York seem to be attempting a speed run.

How do we get out of this? Kulak has a few ideas, but I'm a little less dramatic.

  1. AI. Maybe we will somehow thread the needle between doom and nothingburger. 🤷

  2. Immigration. The U.S. could escape this problem by cherry picking the best citizens from other countries and telling everyone else to GTFO. We are still, after all, the best country (>10 million population subdivision). This would work, but it would never happen and it's probably a bad thing for the world at large.

  3. Inflation. Many liabilities are indexed to inflation such as Social Security and Medicare. But we could inflate away all the existing debt. Debt to GDP actually decreased in 2022 because of 9% inflation. That level of inflation for a decade or two could make the problem less bad. It would also be helpful if the official inflation numbers were even more fake.

  4. Things are just shittier in the future. Brazil is still a country. This is your future.

The problem with huge debts is not that you have to come up with the money. You can just borrow more to pay for whatever unfunded liability you have. The issue is the growing interest bill reduces your capacity to spend on things that people actually want, for any given level of taxation. The system doesn't collapse, you just have shitty roads, underfunded police, and high taxes.

The solution is simple, if difficult. Balance the budget. Hell, you don't even need to go that far, just get the rate of debt growth below the rate of economic growth. Keep it that way, and the problem becomes steadily more and more manageable over time.

As a digression, this is one of the differences in political culture between Australia and America that I think defies the standard view of Australia being more left wing. America seems to have just given up on even pretending they're going to ever address the problem. Australia doesn't always balance the budget but our governments, Liberal or Labor, are always under pressure to do so. We currently have a left wing government delivering tax cuts and budget surpluses. I'm not sure why the difference exists, but it's notable.

...Or just default on the debt. Lending to Uncle Sam in the current situation is irresponsible behaviour, after all - you wouldn't* lend to an alcoholic during a binge.

Defaulting on debt is not much of a plan if you're not also balancing the budget.

Easier to balance a budget when not paying close to a trillion a year in interest payments.

True! But that's still only half the deficit.

"wouldn't", surely, unless you're really black-pilled even by TheMotte standards.

Officially the debt clause may make default tricky. Unofficially hyperinflation is just as "good" and still an option.

an alcoholic during a binge.

For an extra-close metaphor, imagine you're planning to try to collect the debt from the alcoholic's kids.

Section 4 Public Debt

[...] But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States

Declare past US governments illegitimate.

That's a great way to finance an insurrection.

Until recently there wasn't a large difference in the U.S. either. In fact, Republicans (Reagan, Bush, Trump) seemed to be much more spendthrift than Democrats (Clinton, Obama).

That seemed to shift with the election of Biden who has spent beyond all restraint, racking up nearly record deficits during an economic boom.

While Australians are uniquely blessed with immense resources (such as coal and iron) and a tiny population, I wouldn't count your blessings just yet. Debt to GDP has risen from 10% in 2006 to 35% in 2023.

https://en.wikipedia.org/wiki/Australian_government_debt

I do hope that the lucky country will continue to be lucky. But the rot which spreads from Los Angeles and New York seems to reach fertile soil in Australia. Hard to believe that left-wing governments will resist extravagant spending.

What?

I don’t know how you can look at this graph and conclude Republicans are “spendthrift.” Edit: looks like I had the valence reversed! Spendthrift is a defensible description.

The last balanced U.S. budget was signed by Clinton. Bush flipped the other way by April 2001, even before the War on Terror.

What about the Tea Party? Responses to the 2008 crash were expensive enough to spawn a grassroots movement dedicated to dunking on Obama fiscal conservatism. Unfortunately, those Republicans have been near-completely subsumed by the Trump wing, which was profoundly uninterested in balancing the budget.

I think it’s ridiculous to insist that Biden is the only one without any mitigating circumstances. I’m saying that as someone uncomfortable with the direct payments, the rent distortions, and the education subsidies. If Republicans want a reputation for fiscal conservatism, they have to earn it.

We agree. Spendthrift means "given to spending money freely or foolishly : wasteful with money". It is an antonym of thrifty, not a synonym. Probably a common confusion.

Well, heck. I’ll edit accordingly.

Still think it’s a bit weird to describe Biden as particularly bad, given the state of the economy when he took office. Maybe you’re right; I certainly don’t understand where all that money is going.

I should probably avoid using the word "spendthrift" since it would appear to mean the opposite of what it does.

Still think it’s a bit weird to describe Biden as particularly bad, given the state of the economy when he took office.

Biden took office during the best economic conditions possibly ever. Nominal GDP increased by 14.5% in 2021 alone. https://fred.stlouisfed.org/series/NGDPNSAXDCUSQ

Biden's entire Presidency has been one debt-fueled spending bonanza, although I agree it's slightly unfair to pin it all on him as other people in his party want to go much further.

What examples come to mind of rot spreading down under?

American attitudes towards social justice seem to have taken root in Australia even more firmly than in America.

The recent effort to give Aboriginal Australians a veto over elected governments (which thankfully failed) is an example of this.

The greatest budget deficit ever was under Trump, though Biden continued very large but smaller deficits.

Yes but that was the pandemic and Democrats wanted even more deficit spending.

Biden's deficits are truly remarkable given there is no crisis and in fact the economy is booming.

I'm very aware of our recent fiscal history. We fell into deficits during the GFC, and kept running them all the way until covid, and have only recently climbed out. Obviously that period of time is going to leave a significant amount of debt (though still a fraction of what the US is burdened with).

But it's also true that all that time we were running deficits, outside of the immediate emergencies of the GFC and covid, those deficits were controversial. Wayne Swan loudly and repeatedly promised to return us to surplus, and was roundly mocked when he failed. Joe Hockey loudly and repeatedly promised to return us to surplus, and was roundly mocked when he failed. Scott Morrison went a step further and brazenly claimed to have already returned us to surplus and produced commemorative coffee mugs celebrating the achievement... based on projections for 2020. Of course covid happened and he got mocked even more roundly than his predecessors.

It was the current left wing government that ended the deficits. I'm under no illusions that Labor sincerely cares about fiscal responsibility of course, and their cheerleaders in the media are constantly agitating for them to tax and spend more. But the party is very serious about winning elections and they know that normal Australians don't like deficits or taxes.

But the party is very serious about winning elections and they know that normal Australians don't like deficits or taxes.

This is partly an answer to your question in another comment: complaints about "deficits" and spending got coded in America as right-wing, and then tribal instincts took over. It doesn't help that the government is broadly understood as a left-wing institution, and therefore cutting it is a partisan act. (A lot of Democrats believe, at a basic level, that Republicans trying to shrink the government sre really trying to cripple it, for example.)

This year Debt concerns have been in the news a few times, as Congress repeatedly passes halfway stop-gap funding. Every time without fail NPR has had some economist on to explain how concerns about the debt are really unreasonable, because Modern Monetary Theory proves we don't have to worry about debt.

People nowadays will ask: "What about Trump? He presided over the greatest deficits?" So, quickly: Trump correctly perceived that this was not a winning political issue. Voters don't really care that much. If you balance the budget you habe to cut spending somewhere, and Americans like government funding more than they like balanced budgets. And there were things Trump wanted to spend money on. (If you wanted to be really cynical, we could discuss the different demographics of Australia and America -- some groups get out more than they pay in.)

Budget balancing really has more to do with Congress than the president. The President can lead well enough, but when an unbalanced budget passes Congress no one wants to torpedo the whole budget over something persnickity like debt.

Dubya was the turning point in GOP debt reduction good faith. Clinton--Gingrich ran a surplus the year before Dubya won the presidency. Dubya expanded DC massively, built whole new federal departments ((Biden may actually be the first president in decades not to introduce a whole new federal department)), started wars, all while endeavoring to cut taxes while raising spending.

After Dubya we have not seen any mathematically serious effort by the GOP to balance the budget. Paul Ryan came close, but without addressing increasing revenue it was ultimately unrealistic.

In terms of solutions, simplifying the tax code to eliminate deductions and improving collections is more important that increasing rates. The IRS should be abolished and replaced by private tax collection contracted out to financial institutions. They'll do a better job.