Several economists, opining on the 2019 federal budget, lambasted the President for spending too much. They concluded that Trump must be stopped, and that, in particular spending on national security needs to be reined in. If not, we’ll be overtaken by the deficit and face economic ruin. Their solution appeared to be to vote for the democrat congressional candidates who would contain Trump and not let him spend us into even greater debt. (How they reconcile their fear of the debt with the proposed spending schemes of the Democrat’s platform wasn’t clear.)

They’re at least partly right: the debt is a true existential problem. We need to act now and not kick the can further down the road.

Our national debt is huge. Depending on how you count it, it’s at least $20 trillion. Or perhaps $200 trillion, the value of all annuities the US Government (USG) has promised to pay out over the next 40 – 50 years. With a GDP of about $20 trillion, there are lots of reasons to worry.

Then there’s the federal budget. Total national security spending in 2019 will be almost $720 billion. Other USG discretionary spending will be almost $530 billion, so about $1.2 trillion – discretionary spending. Total government spending – including entitlement programs, will total $4.4 trillion. Defense spending therefore equals 16% of USG spending, and less than 4% of GDP.

Meanwhile…

In the last 100 years the US has only successfully cut budgets after World War I, World War II and the Korean War. There were some budget reductions during the great Depression under FDR – as there were during the Great Recession under Obama, but these followed truly massive increases in spending for several years, and then spending levels dipped slightly from the new highs. The last real reduction in spending – year to year, was from 1964 to 1965 – a $300 Million reduction in overall spending. Since then the budget has grown steadily, in good years and bad, no matter what Congress says. In short, Washington doesn’t know how to cut the budget.

Cutting defense spending is another issue.

During WWII, total USG spending accounted for 43% of GDP; and defense spending reached just over 40% of GDP. Defense spending dropped below 10% of GDP in the 1960s, below 5% in the 1990s and has cycled between 3% and 4% since 2000. The 2019 defense budget remains in the range of 3.6 – 3.8% of GDP (depending on GDP estimates for 2019).

So?

1) Economists since the 1930s have used an ever-expanding money supply to make old debt smaller. But that generates more debt and spurs inflation, erasing the savings of ordinary citizens. George Bernard Shaw once observed, “if you laid all the economists in the world end to end, you still wouldn’t reach a conclusion.” The mainstream economists continue to make speeches and print papers. But listening to them will not reduce the debt they created.

2) Congress is NOT going to cut spending. We’ll search in vain for a Congress that would generate real spending cuts. And with the democratic slate drifting further into the socialist-democrat orbit, advocating new spending programs (free college, guaranteed incomes, etc.), a Democrat Congress would translate into even larger deficits.

Further, establishment lobbyists and powerbrokers in Washington are in lockstep with Congress; they won’t solve this problem either.

3) Cutting defense spending even more won’t solve the problem. Total elimination of all national security spending would still leave more than a $200 billion deficit for 2019, add several million to the unemployment rolls, and shut down several major US industries, while leaving the nation undefended.

Which leaves us where? One place: grow the economy faster. Real economic growth will eventually produce real surpluses, and in the long-term lead to a reduction in the debt. We’re on that track right now with 4% real growth, low unemployment (below 4%) and rising wages. The President has directed further trimming of the various departments and agencies of the government. That will help. But the real solution here is real growth. Trump appears to be the only person who gets that.

Meanwhile, most of the Democrat candidates advocate programs that would substantially increasethe debt. Let’s hope voters recognize that fact in 2 weeks and decide to vote for real economic health and a Congress that will, at least, not interfere with the President’s efforts to grow the economy.

Copyright 2018 Arrias
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