Prognostications on the Deficit

We all knew this would happen.

First, we had a tax cut for the rich, which, according to Treasury Secretary Steve Mnuchin, will not only pay for itself, but will also help pay down the debt. We wonder how such a magical formula for generating revenue had escaped the attention of mankind throughout the ages.

Not all Republicans are convinced, however.  Low taxes are not the problem, they aver, but too much spending.  While there is a bipartisan consensus that we should cut spending, there is less agreement as to which spending that should be. Some say that we should cut the amount spent on defense, while others say domestic spending needs to be reduced.  So, they compromise and increase spending on both.

To show that their hearts are in the right place, Republicans plan on voting for a balanced budget amendment to the Constitution.  When Democrats refuse to vote for it, the world will see who really is to blame for the grievous fiscal situation we are in.

By refusing to raise taxes to pay for all the things they want to spend money on, members of Congress are sometimes said to be placing the burden on future taxpayers.  That would be reason enough, I suppose, to explain the motive behind deficit spending.  Future taxpayers cannot yet vote.  And by the time the future taxpayers become future voters, present politicians will have long since retired. But it’s worse than that.  Not even future taxpayers will have to pay for all this deficit spending, because then they will be voting for future politicians. I mean, really!  Does anyone suppose that future politicians will make future taxpayers pay enough in taxes to balance the budget, let alone retire the national debt?

While it is unrealistic to think that future taxpayers will pay more than present ones, it is quite realistic to cut spending on future beneficiaries of government programs. This can be done in one of two ways.  First, Congress can pass laws that will begin to affect people negatively fifteen years from now, because there is a heavy discount applied to years extending beyond that time frame.  It is often said that benefit cuts to the entitlements should be designed to affect only people that have at least fifteen years to go before they become eligible for them.  This way they will have time to adjust.  In reality, people with fifteen years to go will not adjust, because they don’t really care about what happens fifteen years from now.  And since they don’t care, they won’t vote against politicians that cut benefits fifteen years hence.  At least, that’s the theory. The second way to cut spending on future beneficiaries is to do nothing.  This is much safer, politically speaking, because it requires that no votes be taken at all.

However benefits are cut, people will die as a result.  But the dead don’t vote. And however benefits are cut, people will suffer.  But those who suffer don’t vote either.  They are too miserable to worry about voting in an election.  And so it is that policies that cause death and suffering may be politically viable.

Somewhere along the way, taxes will be raised, but not by much.  And somewhere along the way, spending will be cut, but not by much.  And so, we’ll borrow what we can and print the rest.  The borrowing will come first, and it will last until interest rates get too high.  Then we’ll print.  The quantitative easing during the last decade was a figurative form of money printing. There is a lot of brave talk by the Federal Reserve about reversing this through quantitative tightening.  But you know how it is. A taboo broken once is more easily broken a second time.  And this will be especially true considering the salubrious effect of the first go-round. That’s the way things usually are.  A little money printing can be a good thing.  But if some is good, the thinking goes, then more will be better. Unemployment is up? Print some money.  The stock market is down?  Print some more.  The big banks are in trouble?  Print a lot!

Then, when inflation has gotten completely out of hand, we’ll repudiate the debt and introduce a new currency, with far fewer zeroes.  All the death and suffering will soon be forgotten.  It will be new day in a new nation.  And a new Congress will start over again.  Of course, one of the first acts of that Congress will be to run a deficit.  And amazingly enough, we will have no trouble finding people willing to lend us money.

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