When President Obama nearly doubled the national debt, raising it by almost $9 trillion during his two terms in office, Republicans howled in alarm. Although interest rates were being kept artificially low by the U.S. Fed and global central banks in the aftermath of the Great Recession, there would certainly be a reckoning down the road when the bill came due.
So incensed were Americans by the profligate borrowing by the federal government that it caused a political revolt in the form of the Tea Party. Tea Party politicians took Congress by storm and demanded accountability for the fiscal irresponsibility our country had engaged in. Tea Party-affiliated politicians called on congressional Republicans to be willing to shut down the government in order to force congressional Democrats and President Obama to agree to deep cuts in spending and to repeal the Affordable Care Act. And, for the first time in decades, Congress refused to pass a continuing resolution (in lieu of a final budget deal) to raise the debt ceiling, which forced Government shutdowns in 2013.
One of the central tenets of the Republican Party has been a commitment to fiscal conservatism, which consists of three central prongs: low taxes, low debt and small government. America’s burgeoning national debt, sprawling government bureaucracy and incredible burden of liabilities—that is promises to pay in the future—seem to belie this set of ethics.
So, when President Trump agreed to lower taxes as part of his economic plan in 2017, most Republicans thought it was a step in the right direction. We believed it was good for the economy, and many signs—including our current state of full employment and robust stock market expansion—seem to bear that out. However, lowering the taxes only affects one side of the government balance sheet. In order to be done responsibly, lowered taxes have to be accompanied by lowering spending.
And that is something the president has woefully failed to do. As of 2019, the U.S. national debt at roughly $22 trillion reached 100% of our GDP for the first time in American history. Despite the fact that our economy generates an incredible 20 trillions dollars of wealth annually, we borrow at least that amount in addition to our income to finance our current expenditures. Were America a country without a reserve currency like Greece, we would already be facing an economic emergency. We once derided Obama as the king of debt. But at this point in his presidency, Trump seems to have happily inherited and continued the mantle.
The economic reasoning behind Trump’s decision to lower taxes without lowering expenditures is a particular form of economic voodoo that reasons that the ‘fiscal multiplier’ caused by putting more money back into people’s pockets will stimulate increased economic investment and consequently economic growth. That economic growth will produce increased tax revenue that exceeds the amount of the tax cuts themselves. This looks great in theory, but that is where it belongs. Because economic growth has not outpaced government expenditure over the past two years.
Despite campaigning on a promise to eliminate the national debt, Trump is on track to match or exceed Obama’s debt increases. The only difference—and this is a key one—that there is no opposing party in Congress who seems to be capable of checking the madness. There is no more Tea Party, and fiscally conservative republicans have been notably silent. President Trump has not only proven to be fiscally irresponsible like his predecessor, he has also played a dangerous political game of publicly coercing the Federal Reserve to keep interest rates artificially low. The massive fiscal stimulus the Fed has engaged in over the past decade has kept the U.S. economy afloat. But it has also so burdened the Fed’s balance sheet that it has very few tools left at its disposal should a real economic crisis occur.
The logic of continuing to goose the economy with debt and monetary stimulus even after it has reached nominal full employment is akin to sending the drunkest guy at the bar out into the night with a full bottle of vodka in hand. Something tragic is bound to happen. At least Obama had the excuse that he needed to stimulate an almost moribund economy in the midst of a deep recession. What’s Trump’s?
President Trump has had a long-enough track record in business to understand both the healthy and perilous effects of debt. In a healthy growing organization, debt can be used in order to invest in capital goods and other investments that can multiply growth. However, in declining and weakening firms, debt is often used to mask poor growth and pay for current expenditures—all of which causes a vicious cycle eventually leading to bankruptcy and failure. In America, we seem to be doing the latter when it comes to our national balance sheet. We are using cheap (for now) long-term debt to cover immediate expenses that should be covered out of current revenue. We are not using debt to invest in any capital goods—damns, roads, ports and other infrastructure—that can make America more economically competitive. Instead, we are spending on current consumption, in the form of entitlements, health care, military expansion and government bureaucracy.
What happens when the bill comes due? Already there are signs that the new bubble is the ‘risk-free’ asset that is the U.S. dollar. So much global investment has gone into U.S. debt that we are currently gorged on debt. However, if countries like China, Saudi Arabia, Japan and Europe decide to reduce their investments, the results could be catastrophic. At debt levels equaling or even exceeding GDP, even a 1% rise in debt service on U.S. debt could put extreme pressure on the government’s ability to meet current obligations.
To make our country great again, we need to become more, not less, fiscally responsible. We are simply not in a position of strength to engage in tough negotiations on trade and other geopolitical issues when we put ourselves in such a precarious position of owing the world a ton of money.
Armstrong Williams is manager/sole owner of Howard Stirk Holdings I & II Broadcast Television Stations and the 2016 Multicultural Media Broadcast Owner of the year. Listen to Mr. Williams on Sirius XM126 Urban View nightly 6-8 p.m. EST. Follow me on Twitter @arightside
