The US Federal Government’s annual expenses are $1.9 trillion more than its revenues. That’s a violation of the eighth commandment, and it is economically unsustainable.
You will be poorer every day, for the rest of your life, because the Biden administration has increased the national debt in the last three years. That’s the message I gave my sophomores at Dallas Baptist University recently. Going back a little further, the Wall Street Journal reports this week that Federal debt held by the public mushroomed from less than $5 trillion in mid-2007 to more than $21 trillion in 2020.
Sorry for being the bearer of bad news. They never liked prophets in the Old Testament either. Or, as I often say, “I’m just the boy at the edge of the crowd shouting, “The Emperor has no clothes!” I’m not responsible for who feels naked as a result.
I arrived early to lead some Certified Public Accountants through a management seminar in Pittsburg in the winter of 1998. Trying to start a conversation with stereotypically reserved accountants was difficult. Reading the local newspaper, I asked, “How did the Pittsburg Penguins of the National Hockey League manage to go bankrupt?” There was no answer. I waded in again, “How did an NHL team go broke?” Finally, one of the participants answered, “Expenses exceeded revenues in the long term.” At the time, I was a columnist for a publication called Sports Business Journal. My column the next week was titled, “When expenses exceed revenues in the long term.”
The Eighth Commandment & National Debt
Expenses are exceeding revenues in America today. This is unsustainable. According to the US debt clock, this year the federal government will have $4.4 trillion in revenue and spend $6.3 trillion You can’t continue to spend 30% more than you take in. I don’t care if it’s your personal checkbook, your business, your church, or the federal government. Consuming without paying for it is stealing, and it violates the eighth commandment.
So why do we continue to do it? When President Bill Clinton was asked why he had sexual relations with an intern, he flatly, answered, “Because I could.” And, that’s why the Federal government continues to spend more than they receive. Here’s how Investopedia explains it: “The nature of debts changed after the Great Depression and the rise of Keynesian economics. The extent to which British economist John Maynard Keynes influenced government spending in the 20th century can hardly be overstated. While both the Hoover and Roosevelt administrations extended public works projects and experimented with fiscal deficits in the face of the Great Depression, it was Keynes who provided the macroeconomic justification for running large budget deficits to stimulate aggregate demand and fight recessions.”
Danielle Lacalle at the Epoch Times has this to say in a recent article titled The US Deficit Road to Ruin, “According to the U.S. Treasury, year-end data from September show that the deficit for the full year 2023 was $1.7 trillion, $320 billion higher than the prior year’s deficit.” This is going in the wrong direction.
On the Wrong Side of the Laffer Curve
The Biden administration increased taxes, but revenues declined. That means we’re on the back side of the Laffer Curve. Arthur Laffer’s simple curve shows a starting point on the bottom left of the graph, where a tax rate of zero produces zero revenue. At the bottom right, a tax rate of 100% produces zero revenue. So, logically, there has to be a hump in the curve. Christina Romer was the Chief Economic advisor to President Barack Obama. She determined the hump was at 33%. That means tax rates above 33% reduce revenue to the Treasury.
When the Trump administration reduced taxes, revenue to the Treasury increased, proving we were on the back side of the Laffer Curve in 2017. Apparently, we still are.
Mr. Lacalle again, “There simply is no excuse. The different arguments for Keynesianism are all debunked. High government spending hasn’t created higher growth or rising real wages. There is no fiscal multiplier. Tax receipts don’t rise with tax rate increases. Furthermore, government spending is the only real source of the enormous deficit that is creating both an inflationary problem and a challenge for the U.S. dollar as a world reserve currency.”
When the Multiplier Subtracts
I have lots of articles in my files that show that the supposed multiplier does not work. The old fiction is that, if you give money to folks, they will spend it, let’s say on a car. The car dealer then spends the money on a suit, and the tailor spends the money on movie tickets, etc etc. The money supposedly gets multiplied.
But, as I’ve often said, there’s never been a one-armed economist, because she will always say, “On the other hand.” And on this “other hand”, is Milton Friedman’s famous statement, “There is no free lunch.” Or, as I’ve often repeated, “The government has NO MONEY. It only has the money it has forcefully extracted from its citizens. That money was going to be used in the private sector, where the multiplier is GREATER than the government multiplier. So don’t forget this: Money that is extracted from the private sector and spent in the government sector always produces less via multiplying.
There is no Keynesian government multiplier. It’s the government subtractor.
It’s Always a Spending Problem
If you listen to Dave Ramsey for a while, you will hear that phrase. And he’s correct, both at the personal and governmental level. People have always wanted to have something without paying for it, all the way back to when Cain killed Abel. The only thing that’s changed, is how people get something for nothing.
Dave Ramsey has told people for years, “You have enough revenue, you’re just spending too much!” And, that’s true of the federal government. Really, do I have to publish a podcast on all the wasted money that the government spends?
But the leftists always drag out this old saying, “Tax the rich.” Phil Gramm, writing in his recent book The Myth of American Inequality points out that “If the government seized all of the after-tax income of the 400 richest households in America, it would fund the federal government for less than six days.” And I’d like to point out that you would have killed the goose that laid all those golden eggs.
You can’t collect enough revenue to match spending, when the deficit is at $1.9 trillion, according to today’s US debt clock.
I’ve often told my macro students at Dallas Baptist University that the benevolent dictator would need perfect vision through two “eyes,” but it’s not spelled e-y-e-s, it’s the letters I, which stand for perfect information and perfect intent. Friedrich Hayek had a lot to say about imperfect information. That’s why he had such great admiration for the market, where all the information was contained. His point was that one person could not have all the information that’s contained in the market. And the lack of perfect intent comes from the Christian worldview. We believe God made a perfect world, and fallen humans have messed it up. We move the world back to God’s more perfect world intention, when individuals make choices, rather than having governmental bureaucrats make choices for them. That’s how we believe salvation works. We don’t gain it by government edict, we each stand before the creator God and confess our sins. God is merciful to forgive our sins, and we are accepted, as individuals, not as groups.
It makes no difference who’s holding the pen when you draw supply and demand curves. You can change economic policy, but you can’t change economic laws. Policies that promote production are all that separate rich from poor nations. And, it has made the United States the greatest economic engine in the history of the world. But, when expenditures exceed revenues in the long term, that engine will sputter and die.
Tell the Truth
Earn a Profit
FOLLOW THE CHRISTIAN ECONOMIST ONLINE:
- Donate Today | https://pushpay.com/g/davearnott
- Odysee | https://odysee.com/@TheChristianEconomist
- Rumble | https://rumble.com/c/c-1147611
- Spreaker | https://www.spreaker.com/show/the-christian-economist-by-dave-arnott
- YouTube | https://www.youtube.com/c/TheChristianEconomist