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  • Victor C. Bolles

Non-Trivial Pursuits



The newly constituted Republican House of Representatives has been busy kicking Democrats off of various committees, assigning nut-jobs to replace the Democrats, setting up special investigative committees (similar to what the Democrats did in the previous session), planning the impeachment of Biden administration officials and vowing to have the United States default on its humongous debt obligations if the Democrats don’t agree to cut back on spending already authorized by Congress (which they have vowed not to do). Some of these antics may appeal to the MAGA Republican base but they leave most Americans scratching their heads.


It is not that some of these things don’t need to be done. Some of them do. It is that there are more important things to be addressed. And the Republicans seem intent on using up whatever limited political capital they may possess on trivial matters of interest to only a few zealots, leaving nothing in the tank for really important stuff that needs to be done.


A good example of the Republican’s quixotic adventures is House Speaker Kevin McCarthy’s plan to refuse approval of an increase in the federal government’s debt ceiling in order to extract spending concessions from the Biden Administration. Keep in mind that all those expenses have been approved and appropriated by, not President Biden, but by Congress. The House is supposed to appropriate spending bills for the country and has already done so through various appropriation bills in the previous session including the infamous omnibus appropriations bill. What Speaker McCarthy is trying to do is undo law that has already been approved and signed into law.


The Debt ceiling was originally conceived as a mechanism to facilitate the Treasury’s management of the public debt. Previously, each government debt issuance had to be approved by Congress, a process that can subject each and every issue of debt to political wrangling and posturing. I have seen this process firsthand in several of the countries I advised while working for the Treasury Department. The debt ceiling was intended to separate the debt management process from politics, but these days everything has become politicized.


What Republicans don’t seem to realize is that firstly, they actually have very little leverage to get the Biden Administration to make any concessions, and secondly, all the negative impacts that could result from not increasing the debt limit (government shutdowns, delayed Social Security checks and Medicare payments, lowered credit ratings and possibly default) will be blamed on the Republicans. The debt ceiling is the Kobayashi Maru (a no-win scenario for non-fans of Star Trek) and Kevin McCarthy is no Captain Kirk.


But the real reason the tactic of not raising the debt limit is such as disaster is that the debt ceiling is not the cause of the problem or the solution to the problem it is the result of the problem. The problem is the so-called discretionary spending of the government (all the budget items that are needed to keep the government running) in combination with the ever-increasing non-discretionary expenditures (Social Security, Medicare, et cetera). But discretionary spending isn’t the real problem either. Discretionary spending as a percent of GDP has declined from around 10 percent of GDP in 1988 to around 5 percent now. Mandatory spending soared from less that 8 percent of GDP to around 12 percent during the same period. The Congressional Budget Office projects that spending just for Medicare and Medicaid will be twelve percent of GDP by 2035. Meanwhile, revenues from payroll taxes are not sufficient to cover Social Security benefits causing a depletion of the Social Security Trust Fund such that benefits will have to paid from the general fund in the very near future (the estimates vary based on changing assumptions).


The demand for social welfare benefits is limitless while the resources to pay for such benefits are limited. Worse, the more resources directed toward social welfare the less resources are available to create the economic growth needed to fund increased benefits. Sweden (Bernie Sanders favorite social welfare state) found that out and had to cut back on their benefits. Even though the main proponents of the Swedish welfare state, the Social Democrats, began the moderation of the welfare benefits years ago, a right wing coalition vowing further cutbacks ousted them in the 2022 elections.


The problem is that governments resist innovation and reform in favor of stability. But stability brings with it entropy. People become inured to current benefits and want more, people prefer benefits over work and government service becomes drudgery instead of a calling. The social welfare state is constantly in the process of becoming the DMV.


The German economist Wilhelm Roepke asserted, “The desire for security, while in itself natural and legitimate, can become an obsession which ultimately must be paid for by the loss of freedom and human dignity—whether people realize it or not. In the end, it is clear that whoever is prepared to pay this price is left neither with freedom and dignity nor with security, for there can be no security without freedom and protection from arbitrary power.”. Sounds sort of like Benjamin Franklin’s "Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety."


 

In a January 19, 2023 campaign video, former president Trump told Republicans, “Under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security to help pay for Joe Biden’s reckless spending spree.” This isn’t kicking the can down the road. This is denying that there is a can. It may be good politics for the next upcoming election. But it is not good policy for America, especially since there is always an upcoming election.


The American entitlement system is on an unsustainable trajectory. This trajectory wasn’t started by President Biden. It didn’t take a hiatus under President Trump’s watch. It has been increasing inexorably since FDR created a politically motivated pension system that is, in actual fact, an enormous Ponzi scheme, relying on new contributions to fund payouts to current beneficiaries.


But Social Security is the least of our worries. It will be Medicare and Medicaid that breaks the back of government finance even without conversion to the Medicare for All touted by the progressive left. England’s national Health Service is on its last legs. The Economist reports, “it has 6.8m people on waiting lists, up from 4.2m before the pandemic. Wards are full; people wait hours for an ambulance; public satisfaction has fallen.” Euronews states, “The French healthcare system was once considered one of the best in Europe and the world. Now, however, it is facing an unprecedented crisis.” And DW News reports, “Germany's health care system is in crisis.” All the government run healthcare systems are confronting governmental entropy. All governments resist change and delay reforms until the cost in human suffering becomes unacceptably high. The United States is also coming close to reaching that point.


The Committee for a Responsible Federal Budget estimates that it would take a decade or more to balance the budget. Social Security must be reformed. The entire medical system (which the CBO estimates will absorb almost a third of GDP by 2035) must be rebuilt from the ground up. Something similar to the Simpson-Bowles Plan will be necessary but because the situation has become strikingly worse in the intervening years, a more drastic plan will be necessary as the debt has increased by 268% since the Simpson-Bowles Plan was conceived 13 years ago. This will hit some people very hard which is why it must be done incrementally over a number of years.


It is irresponsible for former president Trump to stand in the way of progress toward a solution to this existential threat to our nation. It is irresponsible for President Biden to keep adding to the problem instead of working toward a solution. And it is irresponsible for Speaker McCarthy and the Freedom Caucus to throw a wrench into this precarious and failing Rube Goldberg machine without offering a solution. Kevin McCarthy needs to offer a plan that can be accepted by the responsible members of the House and Senate even if it does not pander to his base. Maybe he should give Paul Ryan a call.

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