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Eschatologist #5: A Trillion Here, a Trillion There, and Pretty Soon You're Talking Real Money
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I’ve spent the last couple of newsletters talking about the knobs of society, the way technology allows us to “turn them up” in the pursuit of knowledge and progress. While I could continue to put things in terms of that metaphor, possibly forever, at some point we have to move from the realm of parable to the realm of policy. Policy is many things, but behind all those things is the government deciding how much money to spend on something, and more controversially how much to go into debt for something.
You’ve almost certainly heard of the trillions of dollars the government spent attempting to mitigate the economic effects of the pandemic. And you’ve probably also heard of the trillions more Biden proposes to spend between the American Jobs Plan and the American Families Plan. In mentioning Biden I do not intend to lay specific blame for anything on the Democrats. During the Trump Presidency the national debt increased by nearly $8.3 trillion dollars. This is enough money, in today’s dollars, to refight World War II twice over.
It’s not just Biden, we’re all big spenders now.
One would think that this is a problem, that the debt can’t keep going up forever, that eventually something bad will happen. And mostly, people don’t think that it can go up forever, but short of “forever” there’s huge disagreement over how long the debt can go up for and how high it can go to.
Part of the problem is that historically there has been a lot of worry about the debt. Republicans mostly didn’t bat an eye when Trump proposed a $2 trillion stimulus package at the beginning of the pandemic, but when Obama was trying to pass an $800 billion stimulus package at the beginning of his presidency, not a single Republican voted for it, and there were many predictions of doom and financial ruin. Those predictions appear to have been wrong.
Going farther back in time I’m old enough to remember Ross Perot’s charts and their warnings of out of control spending during his run for president in 1992. He lost and Bill Clinton became president, and by the end of that presidency we were actually running a small budget surplus. All of which is to say, that people have been worried about this issue for a long time, and since then the debt has gotten astronomically worse, but yet the sky hasn’t fallen. (Astronomically and sky, get it?)
No one believes that the sky will never fall, but there are a lot of people who still think such an event is a long way off. Some believe that as long as interest rates are low that it borders on the criminal to not borrow money as long as there are people still in need of it. Others believe that it doesn’t matter if the government takes in less than it spends, all that matters is inflation, and that if inflation starts going up then you just raise taxes, which takes money back out of the economy and reduces inflation.
These people seem to imagine that the knobs of society can be set to whatever they want. That when necessary they can easily turn down the spending knob and turn up the taxes knob and we can go about our merry way. But as it turns out the spending knob is much easier to turn up than to turn down, particularly when that’s the only direction we’ve been turning it for decades. And it’s the exact opposite for the taxes knob.
If we’re agreed that the spending knob can’t be turned up forever, then what happens when we run out of time? Do we default on our debt, sending the world into chaos? Do we end up with runaway inflation like in the 70s or worse like in Germany before World War II? I suspect it will be along the lines of the latter, and I suspect it’s already started.
I suspect a lot of things, but a couple of things I know. I know that everytime we turn the spending knob up, the harder it becomes to turn it down, and that this level of spending really can not last forever.
I said “we’re all big spenders now” and by “all” I mean everyone, even you. The kind of big spender who donates to blogs because he likes the content, or just because I asked.