Tag Archive for: FederalDebt

Budget; What Budget?

Estimated Reading Time: 3 minutes

Our leaders have failed at a national balanced budget. They do not even begin to address whether we are anywhere near the possibility of a balanced budget.  Charges are flying back and forth about whether anyone wants to cut Social Security and/or Medicare as some demagogue the issue.  It is time to take a simple “helicopter” view of what is actually happening.

In 2022, our federal government spent $6.48 trillion.  The breakdown:

  1. Social Security — $1.22 trillion, comprised of three parts: Payments to seniors $1.03 trillion, $144.7 billion for disability; $48.4 billion – other.
  2. Defense – $1.03 trillion, composed of $759.8 billion for defense and $271 billion for veterans.
  3. Medicare $756.1 billion.
  4. Transfers to states – $1.21 trillion.
  5. Transfers payments – $619.3 billion. Only $36.3 billion of that is paid for by the recipients as those are payments related to unemployment insurance.
  6. Interest payments – $483.5 billion.

The government received $5.03 trillion in revenue:

  1. Payroll Taxes – $1.50 trillion comprised principally of $1.09 trillion Social Security and $344 billion for Medicare.
  2. Income taxes and other taxes — $3.50 trillion.

Clearly, there are many items to discuss.  First, you can see that Social Security already has expenditures exceeding collections.  There is no fund saved somewhere to make up the difference. If there were no massive payments for disability and “other,” the fund would be solvent. No question that there are many deserving recipients of disability benefits but there are many who are not.  The disability recipient pool expands dramatically any time there is an economic downturn, and no one polices that.

Notice the expenditures for Medicare are more than twice the revenues.  This is after significant increases in the tax base occurring in the ACA passed during the Obama Administration.  Not clear how this can possibly get close to being balanced.

Why so much money is paid out to the states instead of the states making their own tax collections remains a mystery. Over $600 billion of this is for medical care programs. That means the federal government is funding over $1 trillion for unfunded medical care.

The taxpayers of the states are unwilling to vote themselves to be taxed, but the feds are willing to simply print more money.  The feds enjoy supplying the funds because it gives them control over the state and municipal governments.  Without all these transfers the budget would have been close to balanced. 

The interest payments are already skyrocketing with the return to more normal interest rates.  Our irresponsible elected officials were willing to incur greater debt when the interest rates were much lower.  They had to know that would change and we would have a serious problem.  The massive amount of interest has already increased from over $300 billion to $783 billion annualized and it is a good bet that will go higher.

Some people keep harping on the fact that we should increase tax collections on wealthy individuals and corporations.  We have already increased tax collections as the reduced rates spurred higher collections.  The top 1% of earners pay 40% of income taxes while earning a far smaller share of that income. Does anyone really believe we can close this $1.45 trillion budget imbalance simply by collecting more from large corporations and the very financially successful ones? If we collected 100% of high-earners’ income we would still be nearly a trillion dollars short of a balanced budget.  Seems implausible to me. 

If we combine the four factors of defense, social security, medical care, and interest payments, the current amount being paid out is $4.4 trillion. That is almost the entire revenue of the federal government.  Since two of those expenses are programs people have paid into to receive benefits and defending the country is the primary aspect of what the federal government should be doing, there is little flexibility.  The problem is everything else the federal government does and for the most part badly.

Our President is spending much time criticizing Republicans about phantom proposals to cut Social Security and Medicare. On the other side, Republicans are swearing fealty to an unsustainable system.  Biden appears unwilling to negotiate on reducing any element of the budget to create a positive atmosphere to raise the debt ceiling. He is proposing even greater levels of expenditures. All of these talking points may change but currently makes little sense.

The CBO (Congressional Budget Office) has stated unless there is a change, the increase in the national debt will be $19 trillion over the next decade. The CBO likewise stated federal spending on Social Security and Medicare will explode over the next decade.

You can evaluate for yourself whether our current national finances are sustainable year after year with trillion-dollar deficits. It seems to me something has to change and change quickly.


This article was published in Flash Report and is reproduced with permission by the author.



Krugman’s Accounting of the National Debt is Jailworthy

Estimated Reading Time: 6 minutes

The national debt has risen at a blistering pace over recent decades and is now higher than any era of the nation’s history—even when adjusted for inflation, population growth, and economic growth (GDP).

Denying this reality, Nobel Prize-winning economist Paul Krugman recently wrote two columns for the New York Times in which he claimed that the debt is an “overhyped issue” and “isn’t all that unusual” from a historical perspective. His attempts to support these assertions employ the kind of fraudulent accounting that could land a corporate executive in jail.

Projections v. Realities

Krugman insists that taming the “federal debt should be well down the list” of government “priorities” after “climate change” and “child poverty” because debt projections have become “much less dire” over the past decade or so. In reality, the debt is far higher than projected, and Krugman’s own words prove it.

In 2009, when the Democrat-controlled Congress and President Obama began racking up debt and projecting $9 trillion in deficits over the coming decade, Krugman wrote that “even if we do run these deficits,” federal debt would be 90% of GDP in 2019, or “substantially less than it was at the end of World War II.”

The debt in 2019 turned out to be 109% of GDP, which is 21% higher than Krugman projected and just 8% below the debt from World War II.

That was one year before government reactions to the Covid-19 pandemic drove the debt/GDP ratio to unprecedented heights. This was mainly caused by state government lockdowns that crushed the GDP as the federal government spent liberally on “Covid relief.”

Even though GDP rebounded as lockdowns were lifted, and the worst inflation in 40+ years has temporarily reduced the debt/GDP ratio, it is still higher than any other period of U.S. history, clocking in at 123% of GDP at the end of 2022.

Worse yet, the national debt is on a trajectory that makes the current debt look small by comparison. Under CBO’s decade-old projections, which have thus far undershot reality, the U.S. debt/GDP ratio is on track to eclipse Britain’s after it was intensely firebombed during World War II.

Because the debt from WW II was highest in U.S. history, Krugman and other scholars used to argue that the modern debt situation isn’t awful by comparison. What they failed to mention is that the war debt was a passing anomaly caused by the deadliest and most widespread conflict in world history, while the modern debt is a systemic, escalating problem driven by ongoing federal policies.

If left on autopilot, the debt is on track to double WWII levels in the coming three decades and grow thereafter to about nine times the peak of WWII.

Current Law v. Current Policy

Beyond ignoring his own debt projection, Krugman spins a yarn that is diametrically opposed to reality by exploiting his readers’ ignorance about differing types of debt estimates published by the Congressional Budget Office (CBO).

At various times, CBO has calculated two major types of projections for the national debt. The first reflects current law and is called the “extended baseline,” while the other is based on current policy and is called the “extended alternative fiscal scenario.” There are often major differences between these projections, as shown by the chart on the cover page of a 2011 CBO report.

The main reason for these differences is that federal laws are commonly rife with accounting gimmicks and other provisions that understate future debt.

A prime example is the 2010 Affordable Care Act, informally known as Obamacare. This legislation was enacted with a CBO analysis showing it would “produce a net reduction in federal deficits of $143 billion” over the coming decade. In reality, most of the deficit-reducing provisions of the bill weren’t implemented, while nearly all of deficit-increasing ones were.

The chasm between what the Affordable Care Act specified and what actually occurred is so great that its true costs are still unknown. Congress’ Joint Committee on Taxation wrote that it hasn’t calculated the realized budgetary impact of Obamacare “because of the many modifications to that law,” and CBO says it “cannot readily provide a retrospective analysis” of the law.

The bottom line is that the current law scenario made the Affordable Care Act seem like it would lower the debt, but the actual outcome was so different that federal budget agencies don’t know the real number.

Bait and Switch

With those facts in mind, watch how Krugman craftily jumps between current law and current policy projections.

In another of his columns about debt that proved to be dead wrong, Krugman declared in 2013 that “budget office projections show the nation’s debt position more or less stable over the next decade.” Emphasizing that point, he wrote, “So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.”

Krugman’s basis for that claim was CBO’s current law projections, which showed the publicly-held debt/GDP barely changing from 76.3% in 2013 to 77.0% in 2023, a rise of only 1%. What Krugman neglected to reveal is that the current policy projection showed the debt growing by 14% in the same period. And for the record, it has actually grown by about 28%, or 28 times the current law projection cited by Krugman.

Fast forward to 2023, and Krugman is arguing that CBO’s latest debt projections have become “much less dire” since 2011. To support this claim, he compares current policy projections from CBO in 2011 to current law projections from CBO in 2022. He then compares those projections for 2035, thereby avoiding a comparison with actual outcomes.

Adding another layer of deceit, Krugman refers to the 2011 current policy projections in his recent column as “the most realistic scenario.” Yet, he cites the 2022 current law projections in the very same column without giving his readers a hint that he is using the least realistic scenario. He also does the same in his 2009 and 2013 columns.

In short, Krugman stealthily switches between CBO’s current law and current policy projections to weave a counterfactual narrative while avoiding his own failed projections.

Interest Payments

In one particular case, Krugman does compare a projection to an actual outcome. This is CBO’s 2011 current policy projection for interest payments on the national debt in 2021. Krugman correctly notes that CBO projected interest payments would be 4.4% of GDP in 2021, but they turned out to be less than half of that.

Krugman, however, skirts the fact that this outcome comes at a steep cost. During the Great Recession of 2007–2009 and the Covid-19 pandemic, the Federal Reserve suppressed interest rates by minting money to buy federal debt. This temporarily lowers interest payments on the debt, but it also shifts wealth from middle-income households to high-income ones and stokes inflation, which hurts people in the present and drives up interest costs in the future.

In the words of Federal Reserve economist Christopher J. Neely, “unexpected inflation will tend to raise the cost of servicing future U.S. debt” because investors won’t buy it unless interest rates are high enough to account for the inflation.

Krugman gives a tepid nod to that reality by writing that interest payments “will rise as existing debt is rolled over at higher interest rates,” but this is a far cry from admitting all of the harm this portends.


One of the most nefarious aspects of government debt is that it hurts people through economic mechanisms that aren’t always obvious to them. This murkiness is aggravated by politicians who run up debt and falsely blame others for the common effects of excessive debt.

Those effects—documented in publications of the Government Accountability Office, the Congressional Budget Office, the Brookings Institution, and Princeton University Press—can manifest gradually or abruptly in the form of:

reduced “living standards” and “wages.”

“higher inflation” that increases “the size of future budget deficits” and decreases “the purchasing power” of citizens’ savings and income.

“losses for mutual funds, pension funds, insurance companies, banks, and other holders of federal debt.”

increased “probability of a fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget, and the government would be forced to pay much more to borrow money.”

The consequences of government debt are not just potential dangers lurking in the future. They may have already begun. Although association does not prove causation, the rapidly rising national debt of the past few decades has been accompanied by episodes of historically poor growth in GDP, productivity, and household income. These economic outcomes cause a host of negative impacts on human welfare in areas like education, nutrition, healthcare, and life expectancy.

And when such problems occur, politicians and people like Krugman use these hardships to justify running up even more debt. Hence, the harmful effects of government debt continue and escalate.


During the infamous Enron corporate accounting scandal of the late 1990s to early 2000s, the federal government prosecuted and jailed Enron’s executives because they “hid Enron’s true financial condition” and “materially understated” the “amount of debt carried by Enron….”

Paul Krugman has been doing that with the U.S. national debt for more than a decade. Although the right to free speech forbids laws that would punish columnists who mislead their readers like executives who mislead their investors, Krugman’s actions have the potential to cause more harm than Enron’s. That’s because Enron’s deceptive statements were measured in billions of dollars, while Krugman’s are in the trillions. Thus, Krugman’s disinformation can damage the entire country and generations to come if lawmakers and voters act on it.

This article was published by The Heartland Institute and is reproduced with permission.

Our National Debt Crisis – Let’s Begin by Throwing Big Bird Off The Cliff

Estimated Reading Time: 3 minutes

The initial sparring and positioning over the debt limit have begun and not surprisingly, the Democrats are pulling out their past winning arguments that have kept any of the huge entitlement programs off limit to any kind of reform. The past arguments can be summarized as “pushing Granny off the cliff”, a theme derived from the famous TV commercial where a Paul Ryan lookalike kills his grandmother. It was one of the most deceptive, yet effective political TV ads ever.

Voters will be told that any kind of proposed cut is equivalent to ruining Social Security and Medicare. This effectively ties the attempt to cut spending to cutting off the elderly who have been given government promises, around which they have planned their retirement.

The counterargument would be to tie cuts in spending to egregious programs which only help rich liberals.

At one time, Republicans had a slogan of “defund the Left.” It basically was designed to cut programs where progressives have mobilized tax dollars to use on their side of the political fight. This can range from NPR and PBS, and government agencies funding nonprofits for “voter registration”, to funding UNESCO and other UN left-wing initiatives. How about cutting funding for research so Chinese scientists cannot make new plagues to harm mankind? Is there not a dollar of waste in the defense budget? How about cutting all funds for Critical Race Theory in the Pentagon? I mean, talk about a target-rich environment!

It is also possible to roll back any program not associated with Social Security and Medicare, such as ObamaCare and Medicaid expansion. That could include a modest cut in so-called discretionary spending (spending other than entitlements, defense, and interest payments.)

In truth though, the long-term deficit problem cannot be addressed without eventually getting around to these two demographically flawed programs as they are growing at such speed and consume so much of the budget already that they are becoming the blob that will eat the entire budget.

Most of the Budget Goes Toward Defense, Social Security, and Major Health Programs


Looking at the chart above, it really is amazing how little is spent on law enforcement, for example, a primary function of government, and how much is spent on income transfer programs.  Today, the government has largely become a mechanism not to protect safety and liberty but to move money from one taxpayer to another and move money from one generation to another.

But for the time being, baby steps are necessary.

America has not exercised its budget-cutting muscles in a long time. They are so completely atrophied, that success should first be realized with more modest steps. We need to show the political parties, the populace, and the markets; that actual cuts, however modest they may be, can be accomplished. Right now cynicism dominates because previous attempts have led to political disaster for those daring to cut any kind of government spending.

We suspect Republicans will learn from past mistakes and will use the debt ceiling to effectively cut wasteful, politically motivated spending. If we are reading the political tea leaves correctly, it appears that McConnell understands the newly elected House has the power in the negotiations to be had and that in turn, a hard core of conservatives holds excessive power because of the very narrow victory. Let’s hope they use that power wisely and in a politically savvy way.

What could be the argument to maintain NPR and PBS? Not only is its biased coverage lavishly funded by tax-free foundations and the public donations, but its fundamental purpose was also designed in the era of three dominant TV networks. But today, there are so many channels, podcasts, streaming services, and networks that have educational and nature-inspired programming, news programming, and cultural programming, it is redundant and outmoded.

Before we even attempt to reform Social Security, let’s throw Big Bird off the cliff first.


The Long Odds of Solving the Budget Crisis

Estimated Reading Time: 6 minutes

The budgetary crisis in the US has reached a critical phase. The debt ceiling fight about to unfold will simply be the latest phase.

Experts say it is irresponsible to “play a game of chicken” with the debt ceiling. In the past, this means, Congress should increase the debt limit without resistance.

The Democrat Congress has played a game of chicken with a blowout budget and now we will be told the only reasonable thing to do is fund it. But the debt ceiling can be used as a lever to get spending concessions. To use it in this way is considered by Democrats as more dangerous than excessive spending. Is it really worse than a giant omnibus bill passed in the dead of night? A bill, hardly anyone even read? Are all previous spending decisions forever untouchable? Under pressure, can’t Congress go back and cut some spending? If Congress was balancing the budget we would not have to raise the debt ceiling in the first place. Let that last point sink in.

Is not raising the debt ceiling like facilitating a “spendaholic” and giving him the booze for another bender? Unlike the failed attempt to stop the spending done last session, the new Republican House majority will not be frozen out of the process.

It is too bad it comes down to this but every previous attempt to restrain spending has failed so why not use this tool for leverage to get some budgetary sanity? It is only because of a lack of alternatives that we find ourselves where we are in this process.

Yes, it runs the risk of destabilizing markets and politics but so does national bankruptcy. It is only a question of when we get destabilized.

As we recently pointed out,  we now have a series of positive, self-feeding feedback loops operating simultaneously and largely outside of normal political control. Any one of these trends such as the increase in interest costs or the demographic crisis hitting Social Security would be sufficient cause for alarm. But to have so many negative trends operating at the same time is really quite unique and dangerous.

The political machine in the US certainly has tried on occasion to restrain itself but deficit spending has been the norm since the mid-1960s with the adoption of the Great Society. Much of the expansion of government is simply an extension of that original idea. And the Great Society itself was an addition to FDR’s New Deal.

Some may fondly remember the Balanced Budget Act of 1997, which briefly gave us a short interlude of balanced budgets because Bill Clinton and Newt Gingrich had some maneuvering room after the end of the Cold War. Then there was Pay Go, a Congressional rule that any party suggesting an increase had to show from whence they would get the money. And remember the spending caps? Congress has broken free of all of these attempts to restrain them.

Nothing tried previously has worked, in part because America decided that it desired a very large and very expensive government. After a few budget surplus years in the late 1990s, we got back to the long-term deficit spending trend which has now reached the parabolic stage. That is why the debt ceiling fight is now so important. There may not really be an alternative to having this fight right now.

Conservatives and Libertarians see government playing a diminished role in the personal life of Americans, greater freedom, greater personal responsibility, and a smaller and less expensive government. Except for funds to defend the homeland and run the courts and the like, they see a small  Federal Government. The bulk of the social safety net should be on a state level because states must balance their budgets because they don’t have the power to print and borrow as does the Federal government. Further, if states become too oppressive, citizens can move.

As attractive as we think that vision is, it has not been embraced by the American people for a long time. Pitting self-responsibility against free stuff from the government has been hard to sell.

Some say it is because we have done a poor job of explaining our vision and the consequences of progressivism. It is true we have been shut out of institutions such as schools, the clergy, and the mainstream press.  It does not alter the outcome. We are losing.

We think it goes deeper than even that. Our voice is being heard, maybe not to the extent we think it should.  But the sad fact is the public is not buying what we have been selling. Americans have not wanted a small government and self-responsibility. They want a welfare state. They want to be taken care of and they don’t want to pay for it.

Progressives and Liberals want an almost total government with a government providing welfare, healthcare, education, child subsidies, a huge military for international intrigue, changing the climate of the earth, reformulating families and sexual relationships, a national security state, and a censorship state, a reparations state, a union with both labor and capital in a fascist like structure. Government should play a role in every aspect of life and individuals are to be cared for by the state.

This by its nature, requires a huge and expensive government. Democrats remain convinced it can be funded by taxing the rich, without negative consequences to productivity and incentives. They also maintain the fiction that all this can be achieved without compulsion.

Rolling debt out to the future plays into the Progressives’ hands. They get to promise the benefit and the cost is pushed mysteriously onto everyone through inflation and the debt onto future generations. No wonder the American people think a welfare state can be a free lunch.

The Progressive view has largely prevailed, and the conservative forces have put up ineffectual rear guard action.  We have not convinced people this financial shell game will end in ruin.

Democrats have their own internal divisions but they are much less consequential. Democrats largely move lockstep with one another and centrist elements have largely been purged from the party.

So-called nonpartisan organizations such as the Concord Coalition, The National Taxpayers Union, and the Committee for a Responsible Federal Budget crank out very interesting commentary and statistics but they too have also been ineffectual at stopping the spending and the piling up of debt.  

In the end, the American people are largely at fault for desiring the warm embrace of government payments without the real desire to pay for it. They wish to borrow production from the future for the benefit of today, largely forgetting what burden they leave on future generations.

Sadly, it seems no amount of argument seems able to innoculate us from the very real human foible of wanting things for free. Get what you can for yourself, as long as someone else is paying for it. It never dawns on many who that someone else would likely be.

We are sorry to reach such a dour conclusion but even if we are wrong, we are likely now too far along in the process to stop it before serious consequences hit.

The hope is the coming financial crisis itself will awaken some common sense in the populace and the crisis itself will be the catalyst to finally get reforms that put America back on a sound financial path. However, the pain of such a crisis is no guarantee the political ball will bounce our way. Often such crises simply make the government even bigger and more draconian because the crisis will require self-responsibility from a population that has forgotten what that is.

Educating the public is the best way to ensure the political ball bounces into the possession of those wanting freedom and limited government and that it does not bounce into the hands of those that want total government intervention.

In that regard, the Concord Coalition put together a list of lessons after observing years of budget battles that the American people need to understand.

  1. Fiscal Policy Remains Unsustainable
  2. Demographics Drive Our Long-term Fiscal Challenges
  3. Popular Options, Like Cutting Waste, Fraud and Abuse or Growing Our Way Out of Debt, Are Not Enough
  4. The Independence and Credibility of the CBO Are Essential
  5. The American People, if Presented with Credible and Understandable Information, Can Make Tough Fiscal Policy Trade-offs
  6. Making Health Care Programs Sustainable Depends on Controlling Costs
  7. Doing Nothing Is Not a Plan to Fix Social Security
  8. Trust Fund Accounting Obscures Fiscal Problems of Social Security and Medicare
  9. It’s Important to Distinguish Between Short-Term Cyclical Deficits and Long-Term Structural Deficits
  10. Bipartisan Policy Changes Can Put the Debt on a Downward Trajectory
  11. It’s Easier to Correct Overshooting on Deficit Reduction Than Undershooting
  12. A Balanced Budget Amendment to the Constitution is Not Necessary for Responsible Fiscal Policy
  13. Tax Cuts Don’t Pay for Themselves
  14. The Debt Limit is More Trouble Than It’s Worth
  15. Mandatory Spending Growth Means the Budget Debate is Increasingly Focused on a Shrinking Part of the Budget
  16. The Broken Budget Process Should Be Refocused on Long-Term Planning
  17. Expressions of Concern About the Deficit Are Not Always What They Seem
  18. ‘Tax Expenditures’ Should Be Considered Large Spending Programs
  19. PAYGO is an Important Standard
  20. Both Sides are Guilty of Budget Gimmicks
  21. Changes in Borrowing Costs Can Have a Dramatic Impact on the Federal Budget
  22. Entitlement Reform Should Reduce Subsidies for Those Who Don’t Need Them
  23. Budget Process Changes or Trigger Mechanisms Can Not Substitute for Political Will
  24. Sequestration is a Bad Way to Make Budget Cuts
  25. Everything Needs To Be On the Table in Budget Negotiations


Congress Guts Budget Rules and Misses Chance to Cut Spending

Estimated Reading Time: 3 minutes

Republicans in Congress missed a huge opportunity to begin putting our country’s fiscal house in order.

Inflation caused by runaway government spending and money printing was the top issue on the minds of voters in the November midterm elections.

The Left’s reckless pursuit of these disastrous policies has been a boon for fiscally conservative politicians bold enough to honor their promise to the American people.

“Across the country, conservative candidates who offered courageous leadership and a clear policy agenda were rewarded,” Heritage Foundation President Kevin Roberts explained. “Candidates who focused solely on blaming President Joe Biden for the country’s problems, without offering any solutions, were disappointed.”

The lesson for politicians should be that they need to understand the issues that matter to American families, identify solutions to those challenges, and then boldly go on offense to achieve results by taking advantage of legislative opportunities.

The most important solution lawmakers could advance to address the country’s largest problem, inflation, is reducing government spending.

Republican lawmakers were handed a golden opportunity this week to single-handedly cut spending.

That’s because President Joe Biden’s $1.9 trillion American Rescue Plan Act–the spending bill that lit the inflationary fire–violated the Statutory Pay-As-You-Go rules put into place by President Barack Obama.

The Statutory PAYGO law requires deficit-increasing laws like the American Rescue Plan to be paid for with cuts elsewhere in the budget. If Congress doesn’t do its job, then the president is required to automatically carry out specified spending cuts.

Biden’s bill for his spending was set to come due in January, when the President would have been required to cut $132 billion out of the $6 trillion budget.

To reduce inflationary government spending, all Republican senators had to do was absolutely nothing. It would have been a perfect opportunity to help American families.

Of course, Biden wants to keep government spending as high as possible, inflation be damned. And some Republicans wanted to avoid the specific cuts required by Obama’s Statutory PAYGO law, which would include a 4% haircut to Medicare payments to providers.

They could have negotiated other spending cuts to replace the automatic reductions. The $80 billion IRS slush fund to add 87,000 agents would have been a popular place to start.

Because Republicans didn’t vote for the American Rescue Plan Act that triggered Statutory PAYGO rules (they didn’t vote for the Statutory PAYGO law either), they would have been totally blameless if Biden ultimately rejected common sense solutions and instead decided to enact the automatic spending cuts.

Republicans held all the leverage.

What ended up happening?

The massive omnibus spending bill introduced by the leadership of both parties in the Senate included a provision that simply turned off enforcement of the Statutory PAYGO rules not just this year, but next year as well. This would result in a $260 billion deficit-fueled spending hike.

Comically, the provision turning off budget enforcement rules were written in such a way that they violated another Senate budgetary rule.

Senator Rand Paul, R-Ky., raised a point of order, stating:

Today’s legislation breaks the Congressional Budget Act rules, so Congressional leaders have included in this monstrous spending bill language to simply waive the PAYGO rules. Congress has time and time again waived its own rules and the result has been over $31 trillion in debt, inflation, and a weakened economy. Let’s respect the American people by being responsible stewards of their tax dollars and adhering to our own budget rules.”

Unfortunately, 16 Senate Republicans and all Democrats voted to “waive all applicable budgetary discipline.”

Paul tweeted “That Point of Order was waived with the help of 16 REPUBLICANS. If it had been upheld, this monstrous spending bill would have been stopped until there were SERIOUS cuts.”

Eighteen Senate Republicans ultimately voted for final passage of the omnibus, pushing American taxpayers further into debt and increasing inflationary pressures.

Not taking advantage of the leverage to achieve results for the American people presented by Statutory PAYGO is a big, missed opportunity. One that will cost taxpayers hundreds of billions of dollars.

Next year will feature several important policymaking inflection points that should be opportunities for conservative lawmakers to reduce inflationary government spending by trillions of dollars, including the debt limit, government funding, and the farm bill.

The American people expect–and deserve–bold leadership. Congressional leaders must be prepared to seize these and every chance to slow the growth of government spending and save our country.

This article was published by The Daily Signal and is reproduced with permission.

Twelve Questions on Economic Issues for the Next Congress

Estimated Reading Time: 4 minutes

We are now experiencing an economic crisis that could get worse. Financials are in bear markets. Inflation is roaring. The recession could soon become official.

Many voters are looking to their elected representatives to address the problem. What follows are questions that I would like to pose to any and all candidates for office concerning their views on essential issues related to the economic well-being of Americans. I was prompted to put them together by a primary debate for a U.S. Congressional race in Tennessee at which I was a questioner.

1. Every poll shows economic concerns rank very high among the public concerns right now. Congress has some but not all authority over policies that affect people’s lives in this respect. Let’s first address the issue of spending over which Congress has primary control.

Before pandemic lockdowns, federal spending stood at $5 trillion per annum (five times as high as when Ronald Reagan said the budget was out of control and needed to be slashed). This soared over six months by 82% to $9.1 trillion. The total pulled back a bit to $6 trillion before soaring under Biden to $8 trillion. It seems to have settled back to $5.8 trillion but Congress is now being pushed more spending.

In the course of two and a half years, the federal debt skyrocketed from $23 trillion to $30.5 trillion, or 32.6% in a mere 28 months. The national debt now stands at 125% of GDP.

All of this spending was approved by Congress.

Do you see this as sustainable?
What do you believe needs to be done to repair the damage to the balance sheet?
With Biden as president, what can Congress do in the area of spending?

2. Inflation ranks very high among the concerns of voters today. The Biden administration has attempted to blame Putin, oil companies, meat packers, and of course the broken supply chains for the problem. He has suggested prosecuting companies for raising prices too high too quickly. But many economists are pointing to deeper structural problems.

What in your mind bears primary responsibility for the dramatic fall in the purchasing power of the dollar? What if anything can Congress do about it?

3. I would like to address the sufferings of small businesses today. Most estimates are that one-third or more of small businesses closed during the lockdowns and have not come back. Large businesses, particularly tech companies, thrived as never before. Small business optimism is at a 48-year low. Is it possible to construct policies that seek some kind of redress? What kinds of things can Congress do to make life easier for small businesses?

4. History bears witness to how both parties were initially supportive of lockdowns that shut business, schools, churches, playgrounds, and divided workers into essential and nonessential. There has since been a strange silence among Republicans about this event. Do you believe that the Republicans in Congress at the time should admit responsibility for this panicked reaction? Are there conditions that you think would warrant governments stepping in to shut businesses and other institutions in the future?

5. The US today faces myriad trade conflicts in the world today both concerning imports and exports, as well as outsourcing and foreign investment in the US. The US Constitution clearly gives the trade power to Congress, in Article I, Section 8: “Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises.” Today, the power over trade has been given to the US president. Do you believe that Congress should take it back and what effect do you believe that would have on US international relations in the economic realm?

6. The Supreme Court in the case of EPA vs. West Virginia sought to curb the power of the administrative state, not just the EPA but the full range of agencies that regulate and effectively make law without legislation. We all know that President Trump sought to curb the role of the administrative state but with limited success. How can Congress go about taking back the power to make policy from the agencies? If agencies need to be cut or abolished, which would you name as part of that list?

7. Related to the previous question, the problem of the concentration of power in the US economy has presented itself in many forms over the last years, including the role of Big Pharma at the Food and Drug Administration, Big Tech in the Department of Homeland Security surveillance, and Big Media at the Federal Communications Commission. It appears to many that these agencies have been captured by the largest players in the industry. Do you have opinions on this topic and what Congress can do?

8. This question concerns American energy needs. Treasury Secretary Janet Yellen told the Senate that the US needs to transition from oil and coal and instead use the “wind and sun” for energy needs. Right now, her preferred sources account for perhaps 10% of US energy production, and even achieving that has required vast government subsidies. What is your view on choice in energy, including nuclear, and how US energy policy should proceed?

9. Are there any conditions under which you would support tax increases of any form?

10. What is your plan to reduce the size and scope of government, if that is what you desire? What do you hope a new Republican-controlled Congress can achieve, not just in this term but the next too?

11. Many economists have suggested that the Fed is not doing the job it was founded to do. Under Article I, Section 10, of the US Constitution, the authority to oversee money was clearly given to Congress, specifying that no state can “make any Thing but gold and silver Coin a Tender in Payment of Debt.” Should Congress curb the power of the Fed and take back its role in managing monetary affairs?

12. Ronald Reagan often emphasized that an enterprising and prosperous society requires limits on government to unleash the creativity of the human spirit. What to your mind is the role of government in a free and prosperous society and how will you use your seat in Congress to promote that?


This article was published by The Brownstone Institute and is reproduced with permission.

A Time for Reckoning

Estimated Reading Time: 6 minutes

Consumer prices are up almost nine percent from where they were a year ago. For the median U.S. household, that’s equivalent to an almost $6,000 pay cut. Politicians have blamed corporate greed, the Ukraine war, and the supply chain because they are keen to get voters to latch on to any explanation as long as it isn’t the correct explanation.

The correct explanation implicates the entire political class.

For four decades, economists have warned, and warned, and warned again that the federal government should not spend money it doesn’t have. But during each of a string of crises, politicians insisted that a “temporary” bout of deficit spending was necessary to get us through to the other side. Deficit spending was needed, politicians said, to deal with the Soviet threat in the 1980s, then the Savings and Loan crisis in the 1990s, then 9/11 in the 2000s, then the housing crisis in the 2010s, then COVID in the 2020s. If they have their way, next up will be more deficit spending in the 2030s to deal with the looming Social Security insolvency crisis. In today’s dollars, politicians added $3 trillion to the debt in the 1980s and again in the 1990s. They added $6 trillion in the 2000s, then almost $10 trillion in the 2010s. According to the Congressional Budget Office, we can expect politicians to add more than $17 trillion in the 2020s. Each generation of voters has complained about the debt, and each generation of politicians has kicked the can down the road, despite knowing that future generations would have to deal with the consequences.

We are that future generation and the inflation we’re seeing today is just one of the consequences.

Today, the federal government collects, from all taxes combined, around $4 trillion per year. But it owes $30 trillion and has committed to paying another $100 trillion to $250 trillion (beyond what it collects in future payroll taxes) to future Social Security and Medicare recipients. For perspective, that’s like a household with a $60,000 income being $450,000 in debt, and then promising to pay for 18 kids to attend four-year private colleges. If that sounds unsustainable, you’re beginning to understand economists’ concerns over the past forty years.

What happened?

Despite all this borrowing, inflation has been very tame for a very long time. What changed is that the debt has become so large that the government is now running out of places on planet Earth to borrow more. American citizens, businesses, and state and local governments lend money to the federal government. So too do foreign citizens, businesses, and governments. Until recently, the largest lender was the Social Security trust fund. Until 2010, Social Security collected more in payroll taxes than it paid out in retirement benefits and loaned the difference to the federal government. But around 2010, the surplus dried up. For the past decade, not only has Social Security had nothing to loan to the government, it’s been needing back money it previously loaned.

As the government has needed to borrow more and more, and the Social Security trust fund has been able to lend less and less, the Federal Reserve has had to take up the slack. But, unlike any other lender, when the Federal Reserve loans money, the money supply increases. And if the money supply increases faster than the economy grows, we get inflation.

The cure for inflation is to contract the money supply, but contracting the money supply raises interest rates. That’s good news for lenders and bad news for borrowers – and the single largest borrower on the planet is the federal government. At $30 trillion, just a one-percentage-point increase in interest rates would cost the federal government an additional $300 billion annually. A two-percentage-point increase in interest rates would cost the federal government almost as much as the entire Department of Defense – every year.

The growth in the federal debt has painted the Federal Reserve into a corner. The Fed must now choose between preserving the purchasing power of the dollar and preserving the financial stability of the federal government. If the Fed contracts the money supply, it keeps inflation down but interest rates go up. If the Fed expands the money supply, it keeps interest rates down but inflation goes up.

But if it’s true that printing money causes inflation, why has it taken so long for the inflation to materialize? The lion’s share of the recent bout of money printing occurred in 2020 when the Fed increased the money supply by a whopping 20 percent. Over just four months, from March to July 2020, the Fed increased the money supply by as much as it had over the prior five years. Yet, inflation remained low through January of 2021. Where was the inflation?

For a clue, notice something strange. From April through August of 2020, the S&P 500 rose 60 percent, more than reversing the plunge it took at the start of the lockdowns. What’s strange is that the S&P 500 was showing a strong recovery during the same period in which the economy was suffering its worst contraction since the Great Depression. Large swaths of the economy were shut down, unemployment peaked at 14 percent – quintuple what it had been just a few months earlier. No one knew how long any of this was going to last, nor what condition we’d be in when it finally did end. Yet, here was the stock market chugging along at a dot-com era pace.

A possible explanation for the missing inflation is that it was hiding in financial markets. If those trillions of dollars the Fed pumped into the money supply landed in financial markets, rather than goods and services markets, then we’d expect to see prices of financial assets rise while prices of goods and services remained steady. Since prices of financial assets aren’t included in inflation calculations, official inflation numbers would remain low despite the massive increase in the money supply. And, if indeed the inflation were hiding in financial markets, then when the covid crisis subsided, that money would start to move out of financial markets and into goods and services markets, causing stock prices to top-out or even fall, while goods and services prices skyrocketed.

And that’s exactly what happened.

In September of 2020, the stock market’s steady upward march faltered, and at the same time, inflation numbers, which were already showing signs of rising, broke out into territory not seen since the 1980s.

A comparison of money growth to prices over the past decade appears to show no link between the money supply and inflation. It appears that it didn’t matter for inflation whether money growth was large or small.

But, if we add together inflation and the growth in the S&P 500 (understanding that the combination is an ad hoc measure), the expected relationship emerges. On average, as the money supply has risen, the sum of inflation and stock price growth has risen also. This suggests that inflation can hide in financial markets, making it appear that increasing the money supply has no deleterious effects.

What comes next?

Defenders of large government will argue that the COVID crisis is simply a hiccup. They will argue that we have a long history of deficit spending combined with low inflation and that, once the supply chain and Ukraine problems are sorted out, we’ll be able to return to business as usual. They’ll argue that we can keep kicking the can down the road.

That’s incorrect. We’ve reached the end of the road, and that end is Social Security. The Social Security board of trustees estimates that Social Security will be insolvent thirteen years from now. At that point, one (or a combination) of three things must happen if Social Security is to continue: (1) payroll taxes must rise by 25 percent; or (2) retiree benefits must be cut by 20 percent; or (3) the Federal Reserve must print an additional $250 billion per year, which, other things equal, would permanently boost inflation even further. 

Social Security’s looming insolvency is a financial fork in the road. One path, increased taxes, leads to more pain for workers. Another path, cutting benefits, leads to more pain for retirees. The third, printing money, leads to more pain for consumers as we all struggle to afford things that were once affordable.

What went wrong?

What went wrong is that we allowed the limited federal government the Founders created to escape its limits. First, politicians discovered that they could win elections by paying off voters with other people’s money. And so modern elections have become contests in which politicians vie with each other to offer “free” stuff to their constituents. “Free” phones, housing, health care, and education are free only to the recipients. Politicians simply force others to pay the bill.

Second, the Supreme Court decided that its job was to “rewrite” the Constitution by reading all manner of things into the document that the plain words on the page didn’t say. Ironically, this began at the same place that the story will ultimately end: Social Security. Politicians and voters wanted Social Security, yet nowhere in Article I, Section 8’s list of federal powers was any mention of establishing a national retirement and disability program. The Supreme Court shot down Social Security. Politicians tried again. The Supreme Court shot it down again. This continued until the Supreme Court finally gave in and concluded that despite the plain words on the page, the Constitution did, after all, empower the federal government to create Social Security. From there, it was simply more of the same to get the CDC, the FDA, the EPA, ATF, and the thousands of federal departments, agencies, programs, and initiatives we have today.

Third, we abandoned the gold standard. Because the quantity of gold is (largely) fixed, when dollars are tied to gold, the quantity of dollars is fixed also. And when the quantity of dollars is fixed, not only can the Fed not wantonly print money, but also the federal government is restrained because the only way it can grow is by taxing the people more. This gives voters an incentive to apply the brakes to runaway government. 

The inflation we feel today is the beginning of the end of a century-long experiment in unlimited government. By kicking the cost of government down the road, generations of politicians have managed to make it look like unlimited government is affordable – possibly even “free.” But we’ve reached the end of the road and found that the people who must ultimately pay for unlimited government is us. Whether through taxes or inflation, pay we will.


This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.

A Balanced Budget Constitutional Amendment May Be Our Only Hope.

Estimated Reading Time: 3 minutes

Over the last few decades, no force on earth has been able to halt the explosive growth of US federal debt.

At the conclusion of WWII, fiscal conservatives were aghast that our national debt had ballooned to $259 billion. By the end of the Vietnam war it stood at $533 billion and, despite urgent warnings, was over $5,674 billion by the end of the century. Today it stands at $30,000 billion ($30 trillion) after the Biden administration’s horrific spending spree conducted under the pretext of limiting the fallout from Covid.

The reason is pretty simple. Spending other peoples’ money is politically popular. Taxes are not and budget-cutting is risky.

We have developed a political culture in which the reelection of incumbents is the highest of all priorities. It is considered perfectly acceptable to just kick the can down the road and let future generations sort out the consequences of our selfishness.

So, for example, when Bush 43 attempted to propose desperately needed reforms for Medicare and Medicare, he was mercilessly demagogued for “pushing granny over the cliff”. His Republican allies deserted him and the effort collapsed.  Nobody has tried any such thing since, although debt reduction is mathematically impossible without entitlement reform.

It doesn’t take a genius to see where this is going. Interest rates are rising, while serious geopolitical threats are forming. We’re backing ourselves into a position of severe internal and external weakness at just the wrong time.

Yet the political class remains unmoved. Some pay lip service to fiscal discipline, but the spending goes on unabated.  Student loans, accommodations for illegal immigrants, and missiles for Ukraine on the condition that no Russians will be harmed by their use are all embraced as if unlimited funds are available.

Fortunately, our forefathers anticipated that the government they created would attempt to exceed its limited constitutional powers. They gave the states a powerful tool to defend themselves – the right to amend the constitution on their own.

Article V of the constitution mandates that Congress “shall” call a constitutional convention when requested to do so by 2/3 of the states and that any amendments proposed when ratified by 3/4 of the states become “Part of this Constitution”.

The founders would be disappointed to know that the states have never exercised this extraordinary privilege. Thomas Jefferson, knowing how these things go, thought a convention of the states would be needed every generation or so to reign in federal government encroachments.

Instead, the states have stood meekly by as the federal government has far surpassed them in power and prestige to the point where calling a convention of the states is seen as an act of rebellion against authority.

But nothing else has worked to restrain federal spending. Millions of dollars have been spent to elect self-described fiscal conservatives, yet it’s beyond obvious that Congress will never reform itself.

Of course, the convention-of-the-states idea has its enemies. Opposition from the spenders on the left is understandable because they don’t want to end their gravy train. But it is the alliance between the left and conservative stalwarts like the Eagle Forum and John Birch Society which have effectively stalled progress.

Their arguments are fear-inspired. Their principle objection is the perceived threat of a “runaway convention“, the fear that in a constitutional convention, there would be nothing to stop special interest groups from pushing their agendas from banning abortion to banning guns.

Hogwash. Even if the state legislatures fail to limit the authority of Convention delegates, 38 states must ratify any proposed amendments. That historically has been very strong protection.

Right-wing opposition seems mostly concerned that the convention could inflict lasting damage to the sanctity of our Constitution. The opposite is the truth.

Nothing could honor and strengthen the constitution more than using its own provisions to enable us to address our most urgent modern threat.  The other option is the Left’s practice of declaring a “living“ constitution that says whatever judges say it does.

It’s time for us to flex our democratic muscles and fulfill our destiny as free, optimistic, and proud Americans.  Our republic may be in the balance.


Thomas C. Patterson, MD is a retired Emergency Medicine physician, Arizona state Senator and Arizona Senate Majority Leader in the ’90s. He is a former Chairman, Goldwater Institute.


Federal Fiscal Shortfall Nears $1 Million Per Household

Estimated Reading Time: 6 minutes

The U.S. Treasury has published a major report revealing that the federal government has amassed $124.1 trillion in debts, liabilities, and unfunded obligations. To place this shortfall in perspective, it equates to:

  • $955,407 for every household in the U.S.
  • 29 times annual federal revenues.
  • 86% of the combined net worth of all U.S. households and nonprofit organizations, including all assets in savings, real estate, corporate stocks, private businesses, and durable consumer goods like automobiles and furniture.

The new data reflect the government’s finances at the close of its 2021 fiscal year on September 30, 2021. Unlike other estimates of the federal government’s red ink which extend into the infinite future, the figure of $124.1 trillion only includes Americans who are alive right now. Thus, it measures the financial burden that today’s Americans are placing on future generations.

Officially called the “Financial Report of the United States Government,” this 258-page publication is mandated by a federal law which requires the Treasury and White House to produce a full accounting of the government’s “overall financial position” each year. Beyond the national debt, this also includes the government’s explicit and implicit commitments. This methodology approximates the accounting standards that the federal government imposes on publicly traded corporations.

Although the report discloses information of crucial import to the citizens of the United States, Google News indicates that no major media outlet has informed anyone about it since it was released on February 17, 2022.

A Comprehensive Accounting

As explained in the report, the federal government’s budget is “prepared primarily on a ‘cash basis’.” This is an incomplete measure of its finances because cash accounting is the simplistic process of counting money as it flows in or out. For example, cash accounting ignores the pension benefits promised to federal workers until these benefits are actually paid, which is often years or decades after they are promised.

In contrast to cash accounting, this Treasury report uses accrual accounting, which measures financial commitments as they are made. The U.S. Government Accountability Office, the official watchdog of Congress, explains that the report uses accrual accounting “to provide a complete picture of the federal government’s financial operations and financial position.”

The federal government requires large corporations to use accrual accounting for their pension plans because this is the “most relevant and reliable” way to measure their financial health. The same applies to other retirement benefits like healthcare. The official statement of this rule explains that “a failure to accrue” implies “that no obligation exists prior to the payment of benefits.” Since an obligation does exist, failing to account for it “impairs the usefulness and integrity” of financial statements.

Nevertheless, the media and politicians routinely cite the federal budget and national debt, while ignoring the far more comprehensive and bleaker data from this Treasury report.

Federal Employee Retirement Benefits

The differences between the federal budget and the broader Treasury data have major consequences for future taxpayers, partly because pension and other retirement benefits are a large part of the compensation packages for government employees. When these benefits are included, civilian non-postal federal employees receive an average of 17% more total compensation than private-sector workers with comparable education and work experience. Postal workers receive even greater premiums ranging from 25% to 43%.

In 2020, federal, state, and local governments spent $2.13 trillion on employee compensation, which amounts to an average cost of $16,556 for every household in the United States.

The Treasury report shows that the federal government currently owes $10.2 trillion in pensions and other benefits to federal employees and veterans. To pay the present value of these benefits will require an average of $78,372 from every household in the United States.

Social Security & Medicare

A similar situation exists with social insurance programs like Social Security and Medicare because, contrary to popular belief, these programs don’t save workers’ tax payments for their retirements. Instead, they immediately spend the vast majority of those taxes to pay benefits to current recipients. Thus, they are called “pay-as-you-go” programs.

In stark contrast, the U.S. Bureau of Economic Analysis states that “federal law requires that private pension plans operate as funded plans, not as pay-as-you-go plans.” The reasons for this, as explained by the American Academy of Actuaries, are to increase “benefit security” and ensure “intergenerational equity.” Social Security and Medicare, on the other hand, have levied increasing tax burdens on succeeding generations of Americans and have accumulated trillions of dollars in unfunded obligations.

Federal actuaries measure the unfunded obligations of Social Security and Medicare in several different ways, but only one of them approximates accrual accounting. This is called the “closed-group” unfunded obligation, which is the money needed to cover the shortfalls for all current taxpayers and beneficiaries in these programs.

In the words of Harvard Law School professor and federal budget specialist Howell E. Jackson, the closed-group measure “reflects the financial burden or liability being passed on to future generations.” These burdens are $43.2 trillion for Social Security and $47.8 trillion for Medicare. To place these figures in context:

  • Social Security’s unfunded obligations amount to an additional $247,327 from every person who currently pays Social Security payroll taxes.
  • Medicare’s unfunded obligations amount to an additional $183,614 from every U.S. resident aged 16 or older.

Those shortfalls are what remain after the federal government has paid back with interest all of the money it has borrowed from Social Security and Medicare. This debunks the common myth that Social Security’s financial problems are caused by the federal government looting it to pay for other programs. Just the opposite, the federal government has repeatedly boosted Social Security by raising its payroll tax rate, increasing its inflation-adjusted taxable maximum, and injecting other taxes to its income stream.

Yet, the program is still facing insolvency, mainly because the ratio of workers paying taxes to people receiving benefits has fallen by 47% since 1960 and is projected to fall further.

Social Security and Medicare differ from true pensions because taxpayers don’t have a contractual right to receive these benefits. Nevertheless, paying these benefits is an implied commitment of the federal government, and federal law requires that these programs be included in the Treasury report.

Other Obligations

Beyond the national debt, federal employee retirement benefits, and Social Security and Medicare shortfalls—the Treasury details other obligations of the federal government. These, include, for example:

  • $123 billion in accounts payable.
  • $613 billion in environmental and disposal liabilities.
  • $231 billion in loan guarantee program liabilities.

Federal Assets

The Treasury report also measures the federal government’s commercial assets, such as:

  • $475 billion in cash and other monetary assets.
  • $1.2 trillion in property, plants, and equipment.
  • $1.7 trillion in receivable loans, mainly comprised of student loans.

The report, however, doesn’t account for federal stewardship of land and heritage assets, such as national parks and the original copy of the Declaration of Independence. While these items have tangible value, the report explains that they “are intended to be preserved as national treasures,” not sold to the highest bidder to cover debts.

In total, the government owned $4.9 trillion in commercial assets at the close of its 2021 fiscal year.

The Grand Total

Adding up the federal government’s debts, liabilities, and unfunded obligations and then subtracting the value of its commercial assets yields a fiscal shortfall of $124.1 trillion.

Moreover, the actual figure may be significantly worse because the Treasury’s data is based on federal agency assumptions that are optimistic in these respects:

  • A 2012 paper in the journal Demography found that the Social Security Administration is using an antiquated method to project life expectancies, and as a result, the program “may be in a considerably more precarious position than officially thought.”
  • When the federal government makes student loans, it projects that it will eventually reap a 9% average profit from interest on the loans. However, the Congressional Budget Office (CBO) has determined that if the federal government accounted for the market risk of these loans, it would show an average loss of 12% on every dollar it lends. If President Biden forgives more student loans, as he is saying he may do, this would further increase the fiscal burden on future generations.
  • The Board of Medicare Trustees has stated that the program’s long-term costs may be “substantially higher” than projected under current law. This is because the price controls in Obamacare will cut Medicare prices for many medical services over the next three generations to “less than half of their level under the prior law.” The actuaries have been clear that this will likely cause “withdrawal of providers from the Medicare market” and “severe problems with beneficiary access to care.”

The Future is Here

In 2013, CBO ran a long-term projection of the publicly held debt, a partial measure of the national debt often cited by federal agencies and media outlets. This projection was unique in that it estimated what would occur under current federal policies and their economic effects, as opposed to other CBO projections that use unrealistic assumptions and budget gimmicks.

CBO’s 2013 projection estimated that the debt would grow over the next two decades to unprecedented levels unless the government changed course. Nine years later, the actual outcomes have been far worse, mainly due to more than $5 trillion in spending on “Covid relief” laws:


Contrary to the media narrative that tax cuts and military spending are to blame for the runaway national debt, the primary cause is greater spending on social programs which provide healthcare, income security, education, nutrition, housing, and cultural services. These programs have grown from 21% of all federal spending in 1960 to 73% in 2020:

Under current laws and policies, CBO projects that almost all future growth in spending will be due to social programs and interest on the national debt.

Harmful Effects

broad range of academic publications explain that excessive government debt can cause far-reaching negative outcomes, such as lower wages, increased inflation, weak economic growth, higher taxes, reduced government benefits, or combinations of such results.

Likewise, the U.S. Government Accountability Office warns that “the costs of federal borrowing will be borne by tomorrow’s workers and taxpayers,” which “may reduce or slow the growth of the living standards of future generations.”

Such effects may have already begun. Although association does not prove causation, the national debt has risen dramatically over past decades, and with this, the U.S. has experienced episodes of historically poor growth in gross domestic productproductivity, and household income. Along with this, rapid inflation has set in, another common consequence of excessive government debt.

While some believe the U.S. government can spend and borrow with abandon because it can print money, one of the most established laws of economics is that there is no such thing as a free lunch. The prolific economist William A. McEachern explains why this is so:

There is no free lunch because all goods and services involve a cost to someone. The lunch may seem free to you, but it draws scarce resources away from the production of other goods and services, and whoever provides a free lunch often expects something in return. A Russian proverb makes a similar point but with a bit more bite: “The only place you find free cheese is in a mousetrap.”


This article was published by Just Facts and is reproduced with permission.

How the United States Conquered Inflation Following the Civil War

Estimated Reading Time: 4 minutes

Americans today are once again the victims of price inflation brought on by runaway government spending and printing of unbacked paper money.


According to the most recent polling data, the American public’s approval of Congress stands at a dismal 21 percent. Almost four times as many people disapprove of the job it’s doing.

That’s par for the course in recent decades. It’s the major reason the Washington sausage grinder earns so little praise. To be fair, though, let’s review an occasion when lawmakers got something right. I’m prompted to share this story now because its lessons are especially relevant considering today’s concerns about rising price inflation. The year was 1875.

The Civil War (1861-65) produced disastrous hyperinflation in the Confederacy and considerable currency depreciation of paper greenbacks in the North as well. A decade after Appomattox, Congress still had not made good on its promise to make its paper money redeemable in gold. But in January 1875, alarmed by the rise of pro-inflation agitators (the “Greenbackers,” later to become “silverites”), Congress passed the Specie Payment Resumption Act, which President Ulysses S. Grant later signed into law.

Politicians often break their promises, and this was yet another opportunity to do so. Congress could have declared, “We don’t have the gold necessary to honor our pledge, so we’ll pay gold for greenbacks at 50 cents on the dollar.” But lawmakers chose to be honest for once, and to meet their obligations fully. The Act provided that all paper greenbacks would be redeemable on demand “at par” (100 percent of the earlier promise), beginning on January 1, 1879.

When Rutherford B. Hayes succeeded Grant as President in March 1877, he knew his administration had less than two years to prepare the Treasury and the nation’s banks for redemption. He and his Treasury officials believed the best way to avoid a run on the banks in January 1879 was to shore up the country’s gold reserves. They did so largely by selling bonds to Europeans in exchange for gold.

Redemption Day came amid rumors that people would flood the banks with their paper greenbacks and demand the promised gold, but just the opposite happened. Hardly anybody showed up at bank teller windows asking for the yellow metal. Why? Because the Treasury had accumulated more than enough gold to take care of convertibility, and the public knew it. The lesson? When people have good reason to believe their paper money is “as good as gold,” they prefer the convenience of paper.

Former United States Circuit Judge Randall R. Rader writes,

The year 1879 brought the resumption of the redeemable currency. The consumer price index stabilized at 28 in that year. For more than three decades thereafter (World War I interrupted the price tranquility), the index never rose above 29 or dipped below 25. The index remained at 27 for a decade. Never did it rise or fall more than a single point in a year. The gold standard worked throughout that entire period to keep prices remarkably stable.

Americans today are once again the victims of price inflation brought on by runaway government spending and the printing of unbacked paper money. Does the Specie Payment Resumption Act of 1875 offer a model that could solve the problem? Yes and No.

Certainly, tying the dollar to a precious metal would exert a discipline desperately needed in monetary policy. Putting the Federal Reserve out of business would be a meaningful and positive reform as well; since its inception in 1913, it has given us one Great Depression, a bunch of recessions and a currency worth maybe 1/20th of its 1913 value. The Fed is an inflation factory, stumbling and fumbling from one self-inflicted crisis after another. Gold convertibility, as the 1875 act provided, would signify a restoration of integrity and monetary sanity that we haven’t seen in a hundred years.

But two big, fat elephants ensure that an 1875-like reform would immediately collapse unless they are summarily escorted out of the room. One is dishonest politicians. Washington is overrun with them—people who are interested first and foremost in short-term power and re-election and least of all in the long-term economic health of the country. Many are (pardon my bluntness) economic morons, oblivious to the red ink even as they drown in it.

The other elephant—the presence of which is a confirmation and consequence of the first—is a massive, annual budget deficit.

For half a century from 1865 until World War I, the federal government ran an almost unbroken string of budget surpluses. Today, it produces trillion-dollar deficits without batting an eye, and the President demands trillions more in spending and debt. If he announced today that the dollar would henceforth be backed by gold, the world would laugh, and you and I would rush to the banks with our paper before the gold ran out.

In other words, monetary discipline goes hand in hand with fiscal discipline. A return to sound money is impossible without a simultaneous return to sound budget management. In the face of a monstrous budget deficit and an even more frightening $30 trillion national debt, Congress just voted to ship $40 billion to Ukraine without cutting so much as a penny from anything else.

We have neither a Congress nor a President, and perhaps no public consensus either, that would permit anything remotely resembling the 1875 Specie Payment Resumption Act.

And until we do, the dollar is destined for further depreciation. Just as elections have consequences, so do destructive monetary and fiscal policies.


This article was published by FEE, Foundation for Economic Education and is reproduced with permission.