My last post listed many of the positive things going on in our country at the present time: rapid pandemic recovery, growing economy, much more economic mobility and equality than generally recognized, much-improved race relations, global warming being addressed BUT, unfortunately, also a massive debt crisis approaching us most likely in the near term.
Let’s look at this dichotomy more closely:
- The pandemic has accelerated a shift away from the expensive coastal cities. Cities like Indianapolis, Salt Lake City, Austin, Dallas-Fort Worth, and others have already recovered from the pandemic. It is the mostly northern “blue” cities like Minneapolis, Seattle, San Francisco, Los Angeles, Portland, Chicago, and New York where homelessness and violent crime are on the upswing.
- Millions of workers will continue, after the pandemic, to work from home offices and avoid the central cities altogether. The shift to online work is encouraging a surge of new company formations. In the 53 metropolitan areas with a million or more residents, more than three-quarters of African-Americans and Hispanics now live in suburban or exurban areas. At the same time that Florida was voting to reelect Donald Trump as President, it also voted for a $15 an hour minimum wage.
- Americans of all colors want both justice and prosperity. The American Dream of home-ownership and upward mobility is very much alive and well.
But there is also a dark, menacing, fiscal reality just below the surface:
- President Biden’s proposed $6 trillion budget for FY 2022 accelerates a trend going back to 1970 of spending more than current revenue as a matter of routine.
- In 1970, about 36% of federal spending was in benefits to individuals: Social Security, Medicare, Medicaid, unemployment compensation, and means-tested welfare benefits. Benefits spending is now 76% of total spending.
- We have created a powerful new principle of political economy: the government provides large numbers of voters with immediate personal benefits greatly exceeding what it charges in taxes, billing the difference to future generations. In other advanced democracies, healthy revenue is raised from broad-based (and regressive) taxes on consumption, such as value-added taxes. The U.S., by contrast, relies on a highly progressive income tax that doesn’t produce enough revenue. Furthermore, the IRS has been partially converted into a social welfare agency with a profusion of tax credits for “desired” social policies. In effect, the U.S. tax system is increasingly an adjunct of a borrowed-benefits policy, a means of distributing benefits rather than paying for them.
- This “borrowed-benefits syndrome” is a major disease: 1) the so-called “investments” in people will never generate the economic growth necessary to pay for them and, 2) the provision of borrowed benefits is deeply corrupting of democracy. It absolves citizens and politicians of accountability for managing the conflicts and constraints of today’s society. Instead, it encourages the fantasy that there are enough “rich” people out there to pay for everyone’s benefits.
Conclusion: Lots of things are going well in the U.S. right now and much social progress is being made. But the “borrowed-benefits syndrome” is slowly and gradually eating us alive. The unprecedented aggressiveness of the new Biden Administration continues and accelerates a fifty-year buildup of fiscal folly. We obviously can’t go on like this much longer. Will we be able to turn this terrible predicament around before it is too late? Keep your fingers crossed and stay tuned!