Well, first of all, in order to avoid showing just how much it will balloon the national debt, the new budget operates on different accounting rules than normal, using what’s called “current policy baseline” instead of the standard method of assuming that policies will end after 10 years.
They aren’t even cutting spending to offset these tax cuts. This budget only includes a paltry $4 billion in spending cuts—less than 0.1% of the budget. (I mean, sure, $4 billion is a lot of money for a person; but for a whole country as rich and large as ours? It’s a rounding error.) And then it includes $521 billion in spending increases, over 100 times as much.
They are talking about making more cuts, but they’ve been cagey as to where, probably because the only plausible ways to save this much money are the military, Medicaid, Medicare, or Social Security. Obviously Republicans will never cut the military, but the other three programs are also enormously popular, even in deep-red states. It would be not only very harmful to millions of people to cut these programs—it would also be harmful to the Republicans’ re-election chances. They could also get some savings by cutting income security programs like SNAP and TANF, which would probably be less unpopular—but it would also cause enormous suffering.
This new budget is estimated to add some $6.9 trillion to the national debt over 10 years—and even more after that, if the policies actually continue.
I am not exactly a “deficit hawk”; I don’t think the budget should always be balanced. But this is not the time to be increasing the deficit. When times are good, we should balance the budget, so that when we have to go into debt during bad times, we can afford to do so.
And bad times are probably on the horizon, since Trump’s tariff policy is already such a disaster. So are we going to borrow even more then? While bond yields are rising? We’re going to end up spending most of our budget on debt payments! And all this injection of money into the system won’t be good for inflation either (and on top of the tariffs!).
The only sensible thing to do right now is raise taxes on the rich. We need that revenue. We can’t just keep going deeper into debt. And the rich are the ones who would be least harmed by raising taxes—indeed, if you focused the hikes on billionaires, they would barely feel anything at all.
But the Republicans don’t care about what’s in the interest of ordinary Americans. They only care about the interests of the rich. And that’s why they passed this budget.
American public opinion on government spending is a bit of a paradox. People say the government spends too much, but when you ask them what to cut, they don’t want to cut anything in particular.
Democrats have a relatively balanced view, with about a third in each category. Republicans overwhelmingly agree that the government spends too much.
Let’s focus on the general population figures: 60% of Americans believe the government spends too much, 22% think it is about right, and only 16% think it spends too little. (2% must not have answered.)
This question is vague about how much people would like to see the budget change. So it’s possible people only want a moderate decrease. But they must at least want enough to justify not being in the “about right” category, which presumably allows for at least a few percent of wiggle room in each direction.
I think a reasonable proxy of how much people want the budget to change is the net difference in opinion between “too much” and “too little”: So for Democrats this is 34 – 27 = 7%. For the general population it is 60 – 16 = 44%; and for Republicans it is 88 – 6 = 82%.
Of course, it’s totally possible for 88% of people to agree that the budget should be cut 10%, and none of them to actually want the budget to be cut 22%. But without actually having survey data showing how much people want to cut the budget, the proportion who want it to be cut is the best proxy I have. And it definitely seems like most people want the budget to be cut.
But cut where? What spending do people want to actually reduce?
Not much, it turns out:
Overwhelming majorities want to increase spending on education, healthcare, social security, infrastructure, Medicare, and assistance to the poor. The plurality want to increase spending on border security, assistance for childcare, drug rehabilitation, the environment, and law enforcement. Overall opinion on military spending and scientific research seems to be that it’s about right, with some saying too high and others too low. That’s… almost the entire budget.
This AP NORC poll found only three areas with strong support for cuts: assistance to big cities, space exploration, and assistance to other countries.
The survey just asked about “the government”, so people may be including opinions on state and local spending as well as federal spending. But let’s just focus for now on federal spending.
The federal government accounts for only a tiny portion of overall government spending on education, so for this purpose I’m just going to ignore that category; anything else would be far too misleading. I had to separately look up border security, foreign aid, space exploration, and scientific research, as they are normally folded into other categories. I decided to keep the medical research under “health” and military R&D under “military”, so the “scientific research” includes all other sciences—and as you’ll note, it’s quite small.
“Regional Development” includes but is by no means limited to aid to big cities; in fact, most of it goes to rural areas. With regard to federal spending, “Transportation” is basically synonymous with “Infrastructure”, so I’ll treat those as equivalent. Federal spending directly on environmental protection is so tiny that I couldn’t even make a useful category for it; for this purpose, I guess I’ll just assume it’s most of “Other” (though it surely isn’t).
Assistance to the poor is also a major category, and as well it should be. Debt interest is also pretty substantial, especially now that interest rates have increased, but that’s not really optional; the global financial system would basically collapse if we ever stopped paying that. The only realistic way to bring that down is to balance the budget so that we don’t keep racking up more debt.
After that… it’s all pretty small, relatively speaking. I mean, these are still tens of billions of dollars. But the US government is huge. When you spend $1.24 trillion (that’s $1,240 billion) on Social Security, that $24 billion for space exploration really doesn’t seem that big.
So, that’s what the budget actually looks like. What do people want it to look like? Well on the one hand, they seem to want to cut it. My admittedly very rough estimate suggests they want to cut it about 11%, which would reduce the total from $4.3 trillion to $3.8 trillion. That’s what they say if you ask about the budget as a whole.
But what if we listen to what they say about particular budget categories? Using my same rough estimate, people want to increase spending on healthcare by 12%, spending on Social Security by 14%, and so on.
The resulting new budget looks like this:
Please note two things:
The overall distribution of budget priorities has not substantially changed.
The total amount of spending is in fact moderately higher.
This new budget would be disastrous for Ukraine, painful for NASA, and pleasant for anyone receiving Social Security benefits; but our basic budget outlook would be unchanged. Total spending would rise to $4.6 trillion, about $300 billion more than what we are currently spending.
The things people say they want to cut wouldn’t make a difference: We could stop all space missions immediately and throw Ukraine completely under the bus, and it wouldn’t make a dent in our deficit.
This leaves us with something of a paradox: If you ask them in general what they want to do with the federal budget, the majority of Americans say they want to cut it, often drastically. But if you ask them about any particular budget category, they mostly agree that things are okay, or even want them to be increased. Moreover, it is some of the largest categories of spending—particularly healthcare and Social Security—that often see the most people asking for increases.
I think this tells us some good news and some bad news.
The bad news is that most Americans are quite ignorant about how government money is actually spent. They seem to imagine that huge amounts are frittered away frivolously on earmarks; they think space exploration is far more expensive than it is; they wildly overestimate how much we give in foreign aid; they clearly don’t understand the enormous benefits of funding basic scientific research. Most people seem to think that there is some enormous category of totally wasted money that could easily be saved through more efficient spending—and that just doesn’t seem to be the case. Maybe government spending could be made more efficient, but if so, we need an actual plan for doing that. We can’t just cut budgets and hope for a miracle.
The good news is that our political system, for all of its faults, actually seems to have resulted in a government budget that broadly reflects the actual priorities of our citizenry. On budget categories people like, such as Social Security and Medicare, we are already spending a huge amount. On budget categories people dislike, such as earmarks and space exploration, we are already spending very little. We basically already have the budget most Americans say they want to have.
What does this mean for balancing the budget and keeping the national debt under control?
It means we have to raise taxes. There just isn’t anything left to cut that wouldn’t be wildly unpopular.
This shouldn’t really be shocking. The US government already spends less as a proportion of GDP than most other First World countries [note: I’m using 2019 figures because recent years were distorted by COVID]. Ireland’s figures are untrustworthy due to their inflated leprechaun GDP; so the only unambiguously First World country that clearly has lower government spending than the US is Switzerland. We spend about 38%, which is still high by global standards—but as well it should be, we’re incredibly rich. And this is quite a bit lower than the 41% they spend in the UK or the 45% they spend in Germany, let alone the 49% they spend in Sweden or the whopping 55% they spend in France.
Of course, Americans really don’t like paying taxes either. But at some point, we’re just going to have to decide: Do we want fewer services, more debt, or more taxes? Because those are really our only options. I for one think we can handle more taxes.
I thought we had put this behind us. I guess I didn’t think the Republicans would stop using the tactic once they saw it worked, but I had hoped that the Democrats would come up with a better permanent solution so that it couldn’t be used again. But they did not, and here we are again: Republicans are refusing to raise the debt ceiling, we have now hit that ceiling, and we are running out of time before we have to start shutting down services or defaulting on debt. There are talks ongoing that may yet get the ceiling raised in time, but we’re now cutting it very close. Already the risk that we might default or do something crazy is causing turmoil in financial markets.
Because US Treasury bonds are widely regarded as one of the world’s most secure assets, and the US dollar is the most important global reserve currency, the entire world’s financial markets get disrupted every time there is an issue with the US national debt, and the debt ceiling creates such disruptions on the regular for no good reason.
I will try to offer some of my own suggestions for what to do here, but first, I want to make something very clear: The debt ceiling should not exist. I don’t think most people understand just how truly idiotic the entire concept of a debt ceiling is. It seems practically designed to make our government dysfunctional.
This is not like a credit card limit, where your bank imposes a limit on how much you can borrow based on how much they think you are likely to be able to repay. A lot of people have been making that analogy, and I can see why it’s tempting; but as usual, it’s important to remember that government debt is not like personal debt.
As I said some years ago, US government debt is about as close as the world is ever likely to come to a perfect credit market: with no effort at all, borrow as much as you want at low, steady interest rates, and everyone will always be sure that you will pay it back on time. The debt ceiling is a limit imposed by the government itself—it is not imposed by our creditors, who would be more than happy to lend us more.
Also, I’d like to remind you that some of the US national debt is owned by the US government itself (is that really even “debt”?) and most of what’s left is owned by US individuals or corporations—only about a third is owed to foreign powers. Here is a detailed breakdown of who owns US national debt.
There is no reason to put an arbitrary cap on the amount the US government can borrow. The only reason anyone is at all worried about a default on the US national debt is because of this stupid arbitrary cap. If it didn’t exist, they would simply roll over more Treasury bonds to make the payments and everything would run smoothly. And this is normally what happens, when the Republicans aren’t playing ridiculous brinkmanship games.
As it is, they could simply print money to pay it—and at this point, maybe that’s what needs to happen. Mint the Coin already: Mint a $1 trillion platinum coin and deposit it in the Federal Reserve, and there you go, you’ve paid off a chunk of the debt. Sometimes stupid problems require stupid solutions.
Aren’t there reasons to be worried about the government borrowing too much? Yes, a little. The amount of concern most people have about this is wildly disproportionate to the actual problem, but yes, there are legitimate concerns about high national debt resulting in high interest rates and eventually forcing us to raise taxes or cut services. This is a slow-burn, long-term problem that by its very nature would never require a sudden, immediate solution; but it is a genuine concern we should be aware of.
But here’s the thing: That’s a conversation we should be having when we vote on the budget. Whenever we pass a government budget, it already includes detailed projections of tax revenue and spending that yield precise, accurate forecasts of the deficit and the debt. If Republicans are genuinely concerned that we are overspending on certain programs, they should propose budget cuts to those programs and get those cuts passed as part of the budget.
Once a budget is already passed, we have committed to spend that money. It has literally been signed into law that $X will be spend on program Y. At that point, you can’t simply cut the spending. If you think we’re spending too much, you needed to say that before we signed it into law. It’s too late now.
I’m always dubious of analogies between household spending and government spending, but if you really want one, think of it this way: Say your credit card company is offering to raise your credit limit, and you just signed a contract for some home improvements that would force you to run up your credit card past your current limit. Do you call the credit card company and accept the higher limit, or not? If you don’t, why don’t you? And what’s your plan for paying those home contractors? Even if you later decide that the home improvements were a bad idea, you already signed the contract! You can’t just back out!
This is why the debt ceiling is so absurd: It is a self-imposed limit on what you’re allowed to spend after you have already committed to spending it. The only sensible thing to do is to raise the debt ceiling high enough to account for the spending you’ve already committed to—or better yet, eliminate the ceiling entirely.
I think that when they last had a majority in both houses, the Democrats should have voted to make the debt ceiling ludicrously high—say $100 trillion. Then, at least for the foreseeable future, we wouldn’t have to worry about raising it, and could just pass budgets normally like a sane government. But they didn’t do that; they only raised it as much as was strictly necessary, thus giving the Republicans an opening now to refuse to raise it again.
And that is what the debt ceiling actually seems to accomplish: It gives whichever political party is least concerned about the public welfare a lever they can pull to disrupt the entire system whenever they don’t get things the way they want. If you absolutely do not care about the public good—and it’s quite clear at this point that most of the Republican leadership does not—then whenever you don’t get your way, you can throw a tantrum that threatens to destabilize the entire global financial system.
We need to stop playing their game. Do what you have to do to keep things running for now—but then get rid of the damn debt ceiling before they can use it to do even more damage.
I am now back in Long Beach, hence the return to Pacific Time. Today’s post is a little less economic than most, though it’s certainly still within the purview of social science and public policy. It concerns a question that many academic researchers and in general reasonable, thoughtful people have to deal with: How do we remain unbiased and nonpartisan?
This would not be so difficult if the world were as the most devoted “centrists” would have you believe, and it were actually the case that both sides have their good points and bad points, and both sides have their scandals, and both sides make mistakes or even lie, so you should never take the side of the Democrats or the Republicans but always present both views equally.
Sadly, this is not at all the world in which we live. While Democrats are far from perfect—they are human beings after all, not to mention politicians—Republicans have become completely detached from reality. As Stephen Colbert has said, “Reality has a liberal bias.” You know it’s bad when our detractors call us the reality-based community. Treating both sides as equal isn’t being unbiased—it’s committing a balance fallacy.
Don’t believe me? Here is a list of objective, scientific facts that the Republican Party (and particularly its craziest subset, the Tea Party) has officially taken political stances against:
And that’s not even counting the Republican Party’s association with Christianity and all of the objectively wrong scientific claims that necessarily entails—like the existence of an afterlife and the intervention of supernatural forces. Most Democrats also self-identify as Christian, though rarely with quite the same fervor (the last major Democrat I can think of who was a devout Christian was Jimmy Carter), probably because most Americans self-identify as Christian and are hesitant to elect an atheist President (despite the fact that 93% of the National Academy of Sciences is comprised of atheists and the higher your IQ the more likely you are to be an atheist; we wouldn’t want to elect someone who agrees with smart people, now would we?).
The craziest belief by a standing Democrat I can think of is Dennis Kucinich’s belief that he saw an alien spacecraft. And to be perfectly honest, alien spacecraft are about a thousand times more plausible than Christianity in general, let alone Creationism. There almost certainly are alien spacecraft somewhere in the universe—just most likely so far away we’ll need FTL to encounter them. Moreover, this is not Kucinich’s official position as a member of Congress and it’s not something he has ever made policy based upon.
If you get to include Marxists on the left, then we get to include Nazis on the right. Or, we could be reasonable and say that only the official positions of elected officials or mainstream pundits actually count, in which case Democrats have views that are basically accurate and reasonable while the majority of Republicans have views that are still completely objectively wrong.
There’s no balance here. For every Democrat who is wrong, there is a Republicans who is totally delusional. For every Democrat who distorts the truth, there is a Republican who blatantly lies about basic facts. Not to mention that for every Democrat who has had an ill-advised illicit affair there is a Republican who has committed war crimes.
Actually war crimes are something a fair number of Democrats have done as well, but the difference still stands out in high relief: Barack Obama has ordered double-tap drone strikes that are in violation of the Geneva Convention, but George W. Bush orchestrated a worldwide mass torture campaign and launched pointless wars that slaughtered hundreds of thousands of people. Bill Clinton ordered some questionable CIA operations, but George H.W. Bush was the director of the CIA.
I wish we had two parties that were equally reasonable. I wish there were two—or three, or four—proposals on the table in each discussion, all of which had merits and flaws worth considering. Maybe if we somehow manage to get the Green Party a significant seat in power, or the Social Democrat party, we can actually achieve that goal. But that is not where we are right now. Right now, we have the Democrats, who have some good ideas and some bad ideas; and then we have the Republicans, who are completely out of their minds.
There is an important concept in political science called the Overton window; it is the range of political ideas that are considered “reasonable” or “mainstream” within a society. Things near the middle of the Overton window are considered sensible, even “nonpartisan” ideas, while things near the edges are “partisan” or “political”, and things near but outside the window are seen as “extreme” and “radical”. Things far outside the window are seen as “absurd” or even “unthinkable”.
Right now, our Overton window is in the wrong place. Things like Paul Ryan’s plan to privatize Social Security and Medicare are seen as reasonable when they should be considered extreme. Progressive income taxes of the kind we had in the 1960s are seen as extreme when they should be considered reasonable. Cutting WIC and SNAP with nothing to replace them and letting people literally starve to death are considered at most partisan, when they should be outright unthinkable. Opposition to basic scientific facts like climate change and evolution is considered a mainstream political position—when in terms of empirical evidence Creationism should be more intellectually embarrassing than being a 9/11 truther or thinking you saw an alien spacecraft.And perhaps worst of all, military tactics like double-tap strikes that are literally war crimes are considered “liberal”, while the “conservative” position involves torture, worldwide surveillance and carpet bombing—if not outright full-scale nuclear devastation.
I want to restore reasonable conversation to our political system, I really do. But that really isn’t possible when half the politicians are totally delusional. We have but one choice: We must vote them out.
I say this particularly to people who say “Why bother? Both parties are the same.” No, they are not the same. They are deeply, deeply different, for all the reasons I just outlined above. And if you can’t bring yourself to vote for a Democrat, at least vote for someone! A Green, or a Social Democrat, or even a Libertarian or a Socialist if you must. It is only by the apathy of reasonable people that this insanity can propagate in the first place.
Human Economics 