A U.S. Economic Perspective

Heather’s recent newsletter addressed the current funding bill that would both keep the government from shutting down and prevent a default on the U.S. debt. The bill was passed by the House of Representatives — the vote being 220 to 211 (all Democrats voting in favor and all Republicans voting against). 

The following was submitted as a comment to Heather’s commentary and, IMO, needs to be read by anyone who is interested in the current U.S. economic situation. It was written by a CEO (Harbour Bridge Ventures) and, for me, clearly explains what this bill is all about. 

By sharing this person’s remarks, I’m hoping those who are FAR more knowledgeable about this subject than me will offer their thoughts and opinions. Do you agree with his perspective? Or does he have it all wrong? 

Remedial Economics 101 for Republicans

While I do not claim to know as much about Economics as Janet Yellin, I do have at least a moderate academic background in the subject thanks to an education that included studies in Economics and Finance. This does, however, leave me with the view that my knowledge in Economics and Finance far surpasses that of every Congressional Republican who collectively appears to know zip all. Here are a few points that even a relative economic dunce like me gets.

1. A raise in the debt ceiling is to cover spending already approved by Congress in the form of past budgets and already Congressional mandated spending. In fact, it is silly that we even have to go through the charade of approving a raise in the debt ceiling since objections to the spending should be over once budget bills are approved by Congress and the spending is then Congressionally mandated. Refusing to raise the debt ceiling is like denying responsibility for your credit card bill when received after already having incurred charges on the card. The real answer to this is that we should stop taking sham votes on raising the debt ceiling and just suspend it. The time to object to spending is before you actually make it, not when the bill comes due.

2. Let’s briefly discuss the idea that spending $3.5 trillion on human infrastructure and social spending is “too much.” So let’s start with the fact that yes, $3.5 trillion is a lot of money. But … compared to what? Compared to the $8 trillion added to the federal debt during the Tя☭mp administration? Hmmm, less than half of that and that was added in only 4 years, not over the 10 year spending period proposed in the Biden/Democratic proposal. In fact, retrospectively we now understand the Tя☭mp / Republican tax cut will wind up costing the U.S. $10 trillion (in lost revenue) over a similar 10 year period. About three times the amount proposed now by Democrats over 10 years.

OK, let’s put politics aside for a moment and stick to economics. The annual size of the U.S. economy at present is approximately $23 trillion. Over the coming 10 years, the total size of the U.S. economy (remember to account for anticipated growth, just based on trend lines now) is estimated at a total of $300 trillion. This means a 10 year spend of $3.5 trillion is just a little over 1% of the total anticipated size of the U.S. economy. Are we as a country willing to spend an additional 1% of our economy over the coming 10 years on improving conditions for working families, dealing with climate change perils, improving healthcare, and all the other components of the Democratic proposal?

Now let us also remember this is not only spending. The bill also raises revenues by an estimated $2.9 trillion. So the net additional spend is really only about $600 billion. This is even a much smaller proportion of our overall economy.

Now if we account for the fact that investments are expected to generate actual returns and apply the multiplier effect of social spending (by the way, social spending has a higher multiplier effect than any other government spending, unlike tax cuts which actually have a negative multiplier effect), it is possible we may actually see the investments generate more returns than their costs.

By any measure, as a country, we can certainly afford the $3.5 trillion over a 10 year period.

So, when you hear others say $3.5 trillion is too much or try to justify not raising the debt ceiling because we “have to live within our means,” now you will know just how ignorant they are on economics, finance, and government spending. Remember that when you decide who to vote for in 2022 and 2024.