Budget Deficits Are Accounting. Government Spending Is the Crisis

Budget Deficits Are Accounting.  Government Spending Is the Crisis
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“We have lied to our kids,” the “crisis is worth paying attention to” for “the sake of our children and grandchildren,” and we’re continuing down the road to “ruin.” Those are the recent words of a right-of-center scholar.  They’re about Social Security.  When it comes to hysteria, the left don’t monopolize emotion.  While they’ve been predicting climate-related doom for decades, so have the right been predicting fiscal collapse.  Market signals call for both sides to relax. 

Indeed, while the left continue to promote a flooding of the world’s coastal cities absent action to combat the theory that is global warming, people, businesses and voluminous investment continue to migrate toward those same coastal cities.  Whatever the truth about global warming, market signals suggest that even if real, it’s very manageable. 

Market signals similarly mock alarmism on the right about “national fiscal ruin" related to entitlements. The pessimism has supposedly been given new life by a recent Social Security trustees report which “estimates that the health-care program for seniors will hit technical insolvency by 2026, three years sooner than last year’s estimate.” 2026 is less than ten years away.  Funny about the prediction is that the 10-Year Treasury note, a heavily traded income stream that would seemingly sniff out the federal government’s looming insolvency, is presently yielding 2.98%.  Apparently the markets don’t share the pessimism of some on the right, but like the left they pay markets little mind.  Why let sober market stats get in the way of splashy predictions of “crisis.”

Digressing from so-called “crises” for a second, it should be said up front that Social Security is a comically awful idea on its very best day.  Talk about unnecessary.  The U.S. is home to some of the greatest minds and greatest financial companies on earth.  As such, savings vehicles are everywhere.  And they’re heavily used.  Evidence supporting the previous claim is the size of the financial services industry in the U.S., along with the lucrative nature of the money management businesses within these financial behemoths.  In short, we don’t need Social Security.  We never did.  If savings with a late-in-life income stream are the goal, the private sector can provide in abundance. 

But is Social Security leading us toward “national fiscal ruin”? That’s about as serious as lefty predictions about climate doom unless we all adopt their religion.  It’s not serious when the left go nuts, and it’s similarly not serious when the right do.  The fiscal hysteria obscures a happy policy opportunity that would amount to freeing Americans from having to participate in what is absurd. 

The problem is that the right like their alarmism to be interrupted about as much as the left do.  And because the very idea of doom seems to energize them, they talk about how we’ve “lied to our kids.” Really? About what? Lamebrained as Social Security is and always was, the checks keep coming.  But the alarmists hit right back with aforementioned Social Security trustees' report, unfunded liabilities related to Social Security that amount to $37 trillion, plus Medicare (a much dumber idea than Social Security, if possible) liabilities have the U.S. Treasury “in even worse shape.”

It all sounds so scary until we remember that investors continue to line up to lend to Treasury at rates that don’t signal a funding crisis.  Not in one year, ten years, or thirty years.  That markets aren’t worried is worth taking seriously in much the same way that market signals mock climate alarmism.  Who knows, but presumably the market’s message here is that the Social Security trustees are using static measures of future federal revenue growth that ignore just how dynamic the U.S. economy of the future will be.  Stating the obvious, investors don’t lend in size fashion with a vision of suffering major haircuts.  So without defending the ridiculous growth of government thanks to programs like Social Security and Medicare, it’s apparent that paying off what shouldn’t exist won’t be a problem.

All that, plus there’s a silver lining to what’s awful in that per the alarmist scholar, Medicare and Social Security “alone account for some 40 percent of all federal spending.” The scholar contends in downcast fashion that federal debt “will continue to grow” even with major spending cuts in discretionary spending, but he perhaps misses the point.  Ridiculous as Medicare and Social Security are, they’re thankfully swallowing up more and more of the federal budget.  Amen to that.  Indeed, assuming the scholar’s alarmism is even remotely well-founded in ways that the markets aren’t yet discounting, the handcuffing of Congress by these two programs means that it will be much more difficult for the political class to introduce new bad ideas (“guaranteed income” and job guarantee programs come to mind) in the future. 

Implicit in the entitlement reform cheered on by the scholar is that money saved will somehow be returned to the electorate.  Lots of luck there.  Congress spends.  Always.  Money saved means money for terrible new ideas.  Seemingly missed by left and right is that the only answer to shrinking Washington is to cut tax rates so low that federal revenues actually shrink. 

Instead, scholars offer platitudes; the one most often used typically focused on our “children and grandchildren.” Supposedly we’re burdening them with debt and “national fiscal ruin.” Oh well, market signals mock the former, while the latter just isn’t true.  Indeed, the real burden foisted on children and grandchildren is a much less advanced world thanks to all the government waste.  Debt is accounting as the markets keep telling us, while the damage that springs from spending is truly deadly simply because it’s unseen. Unseen are the companies, the cures, and the technological advances not revealing themselves thanks to all the federal waste that would otherwise be directed toward market-disciplined ideas in the private sector.   

The shame is that spending isn’t talked about.  It gets in the way of a tangible “crisis” that the right thrill to discuss.  Yet debt is accounting, while spending is more government control over the economy.  In their zeal to predict “crisis,” the right focus on what isn’t while ignoring what is

John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His new book is titled They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers. Other books by Tamny include The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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