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In 1980 total U.S. federal debt was roughly $900 billion. Today it’s $31 trillion.

It all brings up a “trick” question of sorts: With total federal debt over thirty times greater than it was roughly 40 years ago, wouldn’t borrowing costs for the U.S. Treasury be much higher to reflect the debt explosion? Wouldn’t they in particular be much higher in consideration of the various “unfunded liabilities” that Treasury’s on the hook for, and that deficit scolds continue to remind us of?

It seems that more than a few would reasonably respond that Treasury’s borrowing costs must be higher to reflect all the debt. Except that they’re not. While Treasury paid 11 percent for funds in 1980, the yield on a 10-year Treasury note today is roughly 1.5 percent.

To see why borrowing is so much cheaper, imagine individuals taking out loans. Imagine a $100,000 per year earner borrowing $300,000 to purchase a condominium versus a centi-millionaire borrowing $10 million. Which of the two would pay a higher rate of interest? Obviously the $100,000 earner. Even though the centi-millionaire has much more debt, this same individual has much more credible means to pay back monies owed.

With governments it’s no different. Their borrowing capacity and the rates at which they borrow is a consequence of market expectations. Does the government have the means to pay back monies borrowed?

With the United States, it’s very apparent that investor trust in Treasury’s ability pay off its debts is very high. Arguably with good reason. Treasury has a piece of the present and future earnings of the world’s most economically productive people. Since it does, borrowing is very simple for it. Can Peru’s central government borrow as much as Treasury can, and at rates as low? No trick to this question. It answers itself.

Up front, none of what’s been written so far should be construed as an endorsement of government spending. Quite the opposite.

Government spending is a tax. And it’s a burdensome tax from the very moment the money is spent. That’s the case because governments only have money to spend insofar as they extract resources from the private sector first. In terms of the U.S., government spending is the process whereby Josh Hawley and Elizabeth Warren substitute their “investment” acumen for that of Henry Kravis and Stephen Schwarzman. Hawley and Warren are politicians, and allocate in political fashion. Kravis and Schwarzman are profit-motivated investors. That the economy is burdened by Kravis and Schwarzman putting fewer dollars to work so that Hawley and Warren can put more to work is one of those blinding glimpses of the obvious that should go without saying.

Except that it needs saying. It does because if you throw a rock in Washington, D.C. or Manhattan, you’ll hit some Left-wing economist claiming that government spending actually stimulates the economy. No, it doesn’t. It’s an immediate burden. Pull up YouTube videos of Hawley and Warren if you’re still confused. At which point those on the Right shouldn’t be so smug.

Though there are fewer Right-wing economists in Washington and New York (assuredly a compliment to the Right), when your rock strikes pay dirt it’s near certain that the right-leaning PhDs will strike a pose in favor of “balanced budgets.” Arguably their hearts are in right place in that their expressed goal is “limited government.” Better yet, their limited government stance has a moral basis to it. They don’t want to burden future generations with debt, so it’s essential that budgets be balanced now. But they're unwittingly contradicting themselves about the morality of what they desire, along with the belief that they're promoting limited government. Quite the opposite. 

To see why, please look at what investors charge Treasury to borrow. The low borrowing costs are a fairly clear market signal that future federal revenues will be enormous. Why else would borrowing be so cheap amid so much debt unless the markets expected major revenue growth in the future?

About what was said and asked in the above paragraph, it’s once again not an endorsement of a little or a lot of government spending. Spending is an economic somnolent. Period. 

On the other hand, it is a warning that that the size of government is set to grow, and grow. Politicians exist to spend, and if Treasury yields are to be believed, they’ll have a great deal more to spend in the future. They might even “balance” the budget, so sizable will revenues be. All of which speaks to the folly of putting the false notion of a “balanced budget” on a pedestal. It has nothing to do with limited government. Particularly not in a rich country like the U.S.

Which leads to another question: which is the better economic, moral, and pro-grandchildren scenario: $6 trillion in annual spending with none of the money “borrowed,” or $1 trillion in annual government spending with half of the money taxed, and the other half borrowed? The answer to this question may be the most obvious of them all. The deficit “scenario” by far beats the balanced budget scenario economically, morally, and with the “grandchildren" top of mind. Think about it.

For one, the horrid tax that is government spending is quite a bit less burdensome in the deficit scenario. $5 trillion less in the way of annual political control of the economy. Which is very moral.

Indeed, with $5 trillion fewer dollars being consumed by politicians, that means $5 trillion more that will be matched with entrepreneurs and businesses working feverishly to create a much better present and future for grandparents and grandchildren. Government spending is an immoral tax precisely because it burdens future generations with a much less evolved world. And what about the “debt” left to the grandkids? This is the easiest question of all.

If it’s accepted that government spending is a tax, and it is, what’s most immoral is the size of the government left to future generations. To focus on dollars owed by Treasury now is for economists to take their eyes off of the proverbial tax ball. The true burden and tax owed is government itself, at which point $500 billion in annual deficits will seem microscopic for the “grandchildren” versus no debt, but a much bigger government built on “balanced budgets.” A dollar spent today immediately saps economic growth, and the burden is one that multiplies over time given the tendency of government programs to grow exponentially. 

The amount of government spending is the only number that matters morally, for the grandkids, but also economically. To focus on debt over total spending is to miss the real tax that is always and everywhere government itself.   

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His new book is titled When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason. Other books by Tamny include They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers, 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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