A U.S. Economic Perspective

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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.

10 thoughts on “A U.S. Economic Perspective

  1. Hello Nan. I have not studied economics but I do understand what the Republicans are trying to do. They are trying to make the Democrats use their last remaining reconciliation bill this year for raising the debt ceiling so they cannot use it for the larger infrastructure bill. See when the Republicans are in charge the Democrats go along with raising the debt limit for the good of the country and approving aid packages for states, but when the situation is reversed with Democrats in charge the Republicans play games with the debt ceiling and vote no on aid packages. Last time they did that the credit rating of the US took a hit. Yup we got our credit rating lowered because Republicans preferred to play games rather than govern. Republicans know that Democrats care about the people and the country’s needs, Republicans seem able to ignore both of those. Hugs

    Liked by 7 people

  2. Hello Nan. I also want to point out it is not the spending in the larger infrastructure bill that the Republicans and corporate Democrats are so against, but the revenue raising parts. They are bought by the wealthy and paid to make sure the wealthy get ever more of the country’s money. The smaller bipartisan infrastructure bill has no tax or fee raises on the wealthy and gives a bunch of public assets to the wealthy to charge the public fees to use, like toll roads and toll bridges. The larger infrastructure bill does tax and raise fees on the wealthy and has no give backs to them. So they, the wealthy, want it killed no matter what. Sort of makes clear what is going on in the US and who is making the rules right now. Hugs

    Liked by 7 people

  3. Anything and everything Trumplicans say and do has but one aim, regardless of the merits (or lack thereof) of the issue at hand: win every possible election in 2022 and 2024, the good of the country and its people be damned. Forget the principles and patriotism they pretend to stand for in making their stands; it’s shameless power politics, pure and simple As the disgusted Ohio Republican congressman Anthony Gonzalez said in defense of dropping his re-election bid, Trump is a cancer on America, and there is no longer a place in the GOP for principled Republicans. Sad beyond words.

    Liked by 7 people

  4. First say no to raising taxes on the wealthy, then raise the taxes on the poor and middle clases. Why should they have to pay taxes when the poor can pay for the? Trickle up wealth, you’ve heard of that haven’t you?

    Liked by 4 people

  5. Nan, the last time we almost defaulted on our debts due to not raising the debt ceiling was caused by Senator Ted Cruz. It took ten female Senators to tell the men to get out of the pool as they solved this problem literally within twenty-four hours of default. It should be noted that Ted Cruz voted in 2017 to increase the debt by $2 trillion with an unneeded tax cut for the rich and corporations. That is hypocrisy, plain and simple. He should be asked to explain.

    We do have a debt and deficit problem, but both parties are to blame and have been for years. The Republicans only say they care when a Democrat is in the White House. We need both spending cuts and revenue increases, but neither side want to discuss the problem as it should be discussed. At this same time, our infrastructure needs are ten years over due. Capital spending is needed, but again we need to be mindful of the debt.

    There will be a point in the next several years where the Interest Cost will rival our two biggest budget items. That will not be good.

    What should be noted is Bill Clinton handed George W. Bush a balanced budget. Bush cut taxes over his Treasury Secretary’s objection and then invaded two countries. Obama gets credit for something called Sequestration which was designed to make cuts if an impasse occurred – it of course did. What disappointed me most about Obama is he shelved a pretty good document called the Simpson-Bowles Deficit Reduction Plan.

    Then along came Trump and his tax cut and other changes that increased the deficit and debt. So, I we need to be mindful of what we spend, but not increasing the debt ceiling is just theatrics.

    Keith

    Liked by 2 people

    • I was pretty sure I would hear from you on this topic, Keith. 🙂

      Thank you for your input. The topic is considerably over my head, but I did appreciate the response offered to Heather’s newsletter because he seemed to bring it down to “my” level of understanding.

      It’s a very complicated issue and I tend to believe there are only a few who totally recognize the ramifications involved.

      Liked by 3 people

      • Thanks Nan. I have shared this before, but there is an exercise that can be done in a group setting to solve the Social Security deficit. Armed with about a dozen ideas with deficit reducing numbers, a table of regular people can solve the Social Security deficit in about one hour. It is a matter of sitting down to discuss it armed with data. Keith

        Liked by 2 people

        • Hello Keith. I agree with you that data is important to improving the issues. But the fact is economist have changed their ideas since the Simpson-Bowles Deficit Reduction Plan. In fact the idea of what is considered too much debt for a nation has been revamped. I watch a lot of Robert Reich and he has repeatedly addressed both these issues and is adamant that cuts on lower incomes harms the nation’s economy and growth. Simpson-Bowles came out in 2011 and Bowles-Simpson was basically an eight-year plan, with savings estimated for fiscal years 2013 through 2020. The way they got to that savings was basically 1 trillion in cuts from the military and massive cuts in the social safety nets mostly social security. Economist now say that not only is the amount of debt a country can safely carry much higher than thought before but that those cuts in the military and social security would lead to a huge boost in unemployment and a crash in the economy as whole sections of the population wouldn’t be able to afford housing or food, more so than we have even now. Social Security has not kept up with inflation and so cutting it in anyway would lead to homelessness and food insecurity. Anyway, I find Reich very persuasive. Hugs

          Liked by 1 person

        • Scottie, the word “judicious” was left out of my comments, which I usually include. With data, we can make the cuts that are needed and be less harmful. What many do not realize is major corporations with multiple businesses make cuts in some areas at the same time they increase investments in others.

          At the same time we are doing that, we must increase revenue. What Republicans and Democrats fail to understand, per the non-partisan Committee of a Responsible Federal Budget and the non-partisan Concord Coalition, we must do both as the math will not work. Before the pandemic, we had $3.4 trillion in revenue and $4.4 trillion in expense, a $1 trillion annual deficit. Economist will tell you that is not a sustainable model for growth. Now it is worse and the debt is near $25 trillion expected to grow to $40 trillion.

          You are right, defense is the biggest nut to cut as we are still spending unwisely here on stuff we do not need. But, we will have to venture down a path of other cuts and revenue increases. And, both parties need to start doing something about and stop the posturing.

          Keith

          Liked by 2 people

        • Of course it doesn’t help that tRump spent the government’s money as if it were his own. Wait! I take that back! Not like his own … since he stiffs people all the time … more like it was someone else’s … which it was!! No skin off his teeth … or dents in his money bags.

          Liked by 1 person

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