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!

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I have been writing this blog, It Does Not Add Up, for eight years.  I describe myself as a non-ideological fiscal conservative and social moderate.  Democratic countries are often confronted with serious problems.  The solution to big problems usually is not obvious and, furthermore, it takes time for the democratic process to work its will.

Consider where we are at the present time:

• We are emerging from a rare, 100 year, pandemic. It broke out of China very suddenly 16 months ago and spread quickly around the world.   The U.S. has responded very successfully to this major threat.  First of all, our decentralized political system, with the states in charge, quickly and efficiently implemented social distancing and mask mandate policies.  The drug companies Pfizer, Moderna, and Johnson-Johnson quickly developed effective vaccines which have now been widely distributed around the country.  In fact, we have by now achieved the herd immunity needed to greatly slow down the future spread of the Covid-19 virus.
• Our unique democratic form of government is highly functional. Yes, Congress is polarized between the two political parties but so are the states, and the people.  A contentious national election was held last year, in the middle of the pandemic, with only a few relatively minor instances of voting irregularities.
• Our economy is very strong and rapidly recovering from the pandemic.
• The American dream is alive and well.  Income inequality is greatly exaggerated when taxes and government transfers are taken into account.  Likewise, social and economic mobility between generations is far more robust than generally acknowledged.

  

• Race relations are getting better all the time, in spite of George Floyd’s death, and minorities are rapidly moving up the economic ladder.
• Global warming is serious but solvable. The key to real progress is getting China on board because its carbon emissions are much greater than any other country’s.  Also, technological developments like carbon capture and storage have much potential to help.

  

• The national debt. Ouch!!!  It is awful and getting worse.  Furthermore, there is a high risk of a big increase in inflation in the very near future.  Major inflation, when it does occur, will force the Federal Reserve to raise interest rates which will, in turn, dramatically increase interest payments on our rapidly accumulating debt.  This, in turn, will lead inevitably to a new, and much worse, financial crisis than the last one we had in 2008.  We simply must greatly reduce the size of our annual deficits in order to fix the debt problem (much more later!).

  

Conclusion.  As you can see from the above, I consider most of our current major problems to be eminently solvable.  Our rapidly exploding debt is the only exception.  It may take another, and much worse, fiscal crisis to force our national leaders to act.  A surge in inflation will be the straw that breaks the camel’s back, so to speak.  Right now such a surge is quite possible, even if not yet likely.  But whenever inflation does inevitably reappear in the future, hold on to your hats because the outcome will not be pretty.

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The United States is rapidly recovering from the Covid-19 pandemic, as evidenced by the steadily decreasing rate of new daily infections.  In fact, we have probably already reached herd immunity, meaning that the percentage of those infected plus those vaccinated is approaching (or exceeding) 70%.

With the economy recovering so rapidly, we’re almost back to normal, so to speak, with only the usual problems to worry about!  Here they are, in roughly decreasing order of severity:

• Our exploding national debt, at an all-time high and growing rapidly.  Although a few national leaders will talk about it from time to time, virtually no one with sufficient authority is willing to propose the painful course of action (curtailing spending or raising taxes or both) necessary to address it.  Eventually, it will lead to a new fiscal crisis and, the longer this takes to happen, the worse it will be when it does.
• Inflation. It was 4.2% in April, on a yearly basis. Neither the Biden Administration nor the Federal Reserve are taking inflation seriously.  The $1.9 trillion American Rescue Plan is a deficit spending blowout.  Especially its extra $300 per week in unemployment benefits is worsening the employment shortage and therefore also the supply bottlenecks, both of which lead to higher prices.  The Fed has promised low-interest rates until 2023 and says it is too early to unwind its bond- buying.  The return of out-of-control inflation will nevertheless force the Fed to raise interest rates, which will in turn speed up the coming of the next debt crisis.
• Our racialized, identity politics.  Everyone understands that there are racial disparities in American society.  African-Americans have the fewest financial assets, fare the worst in school, have the hardest time finding work, live the shortest lives and spend the most time in jail.  Democrats say that their aim is to ensure that all races share equally in economic growth and get a fair shake in the justice system.  Republicans say that Democrats are abandoning equality of opportunity for equality of results, i.e. equity.  This is a very difficult problem with no obvious solution.  It is what “wokeness” is all about.
• The rise of China is our biggest international challenge. China’s economy will soon be larger than ours.  But we have many strengths in the coming struggle.  Working closely with our democratic allies in Asia will help greatly to “contain” China.
• Global warming and the cost of healthcare are also big problems but of lesser urgency, see here and here.  Of course, the need for healthcare entitlement reform is a major part of the debt problem.

Conclusion.  The U.S. has challenging problems to address.  The hardest one by far is to fix the debt.  The current flare-up of inflation is a vivid reminder of how urgent the debt problem is.  Our highly polarized politics is made worse by the perceived racism in American society.  Nevertheless, I am (mostly) optimistic about America’s future!  Stay tuned!

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Now, just over one hundred days into his presidency, Joe Biden has already made several major blunders that are likely to come back and haunt him and the Democratic Party.  Consider:

• Exploding national debt. The bloated, totally deficit funded, $1.9 trillion American Rescue Plan, ensures the next, debt-related, fiscal crisis will occur that much sooner.  Furthermore, along with the Fed’s promise to maintain low-interest rates into 2023, “the unprecedented combination of monetary and fiscal stimulus” creates a big risk of setting off a new round of uncontrollable inflation.

  

• The jobs slowdown.  With 7.4 million job openings, U.S. employers added a net of only 266,000 jobs in April.  The problem is the additional $300 weekly federal jobless bonus that means too many unemployed workers can make more money by staying home than returning to work.  Even when average hourly earnings rose 8.4% in April (on an annual basis) and even faster for low-income workers.

  

• The coming chaos in Afghanistan. President Biden has decided to pull all U.S. troops out of Afghanistan by 9/11/2021.  This is a major mistake and will lead to utter chaos as the Taliban and al Qaeda take control and exact revenge on civilian and military supporters of the U.S.  In fact, it is already starting to happen with a school bombing yesterday in Kabul.

  

• The crisis on our southern border. President Biden has proposed an eight-year path to citizenship for all 11 million illegal immigrants and the result is not surprising.  Our southern border is swamped with individual adults, families, and unaccompanied minors entering the U.S. illegally.  They are putting a huge strain on our immigration officials at the border.  It will be politically impossible to solve our undocumented immigrant problem until firm border control is established.

  

• The vaccine IP debacle.  President Biden has endorsed a patent waiver for Covid vaccines and treatments.  This would simultaneously destroy billions of dollars in U.S. intellectual property and set a destructive precedent that will reduce pharmaceutical investment and surrender America’s advantage in biotech.  Pfizer, BioNTech, Moderna, and AstraZeneca are already ramping up production to meet worldwide demand.  Why would the U.S. want to give IP away to China, for example, when we are so concerned about China stealing IP from us?

Conclusion.  Under the strong influence of the progressive left, Mr. Biden is risking calamity in both domestic and foreign affairs.  Of course, the Democratic Party will pay a steep price for these missteps in the 2022 midterm elections.  But how much lasting damage will he have created in the meantime?

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Considering all the racial turmoil during the past year, after the death of George Floyd in the custody of Minneapolis police officers, it is remarkable how much race relations have improved in the past 50 years.

A new report, The Social Construction of Racism in the United States, by Eric Kaufmann of the Manhattan Institute, delineates this huge progress.  Consider:

• Liberal whites are more supportive of punitive Critical Race Theory (CRT) than blacks, who aspire to agency and resilience. CRT appears to have a detrimental effect on African-Americans’ feeling of being in control of their lives.
• Terms like “systemic racism” and “unconscious bias” are increasingly common but white racist views have been in steady decline whether with regard to having black co-workers, classmates or neighbors.
• The share of white Americans who agree that it is permissible to racially discriminate when selling a home declined from 60% as late as 1980 to 28% in 2012.
• Approval of black-white intermarriage rose among whites from around 4% in 1958 to 45% in 1995 and 84% in 2013. The actual share of interracial newlyweds rose from 3% in 1967 to 17% in 2015.  In 2017, fewer than 10% of whites in a major PEW survey said that interracial marriage was a “bad thing.”

  

• Police killings of African-Americans declined by 60-80% from the late 1960s to the early 2000s and have remained at this level ever since.
• According to a Washington Post database, police shot and killed 999 people in 2019, including 424 whites and 252 blacks. Twelve of the black victims were unarmed, versus 26 of the white victims.  This is in a country where annual arrests number more than 10 million.  It is hardly an “epidemic” of police use of lethal force against blacks.
• What explains the wide perception of racial retrogression at a time when surveys show that racial attitudes and behaviors have never been better? One explanation is that social media allows for wide publicity of statistically rare incidents that are in reality getting even rarer.

  

Conclusion.  “At a time when measures of racist attitudes and behavior have never been more positive, pessimism about racism and race relations has increased in America.”  “The willingness of so many in the media to play down or ignore the truth about America’s racial progress is not simply wrong, but also dangerous.”

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President Biden has pledged to cut U.S. carbon emissions 50% below 2005 levels by 2030. (https://www.nytimes.com/2021/04/20/climate/biden-climate-change.html) This will have big implications for the U.S. economy.  But it is important to keep things in perspective. Consider:

• Global warming is real. (https://itdoesnotaddup.com/2017/09/04/the-evidence-for-global-warming-a-summary/) The evidence is overwhelming: rising temperatures, shrinking arctic sea ice, ocean acidification, rising sea levels, etc.

  

• What should the U.S. role be in addressing this global problem? (https://www.wsj.com/articles/bidens-10-year-climate-plan-11619132440) As the world’s strongest economy, the U.S. has a responsibility to provide leadership.  But the U.S. accounts for less than 15% of global emissions.  Achieving Biden’s goal could conceivably require the U.S. to double its share of carbon-free power to 80% by 2030 from 40% today, half of which is provided by nuclear.  Most coal plants would have to shut down and wind and solar power would have to increase six to sevenfold.

  

• What is China’s role? The problem is that the developing world, especially China, is responsible for the continuing increases in emissions worldwide. Under the 2015 Paris agreement, China will not even begin to decrease carbon emissions until 2030.  In fact, right now, China is still increasing coal power more than the entire rest of the world combined (see chart). (https://www.nytimes.com/2021/04/20/climate/coal-climate-change.html)

  

• Worldwide emissions are growing. (https://www.nytimes.com/article/climate-change-global-warming-faq.html) Even though the U.S. and Europe have already started to reduce carbon emissions, the developing world is increasing emissions at a much faster rate (see chart). (https://www.nytimes.com/article/climate-change-global-warming-faq.html) which means that global emissions are still increasing rapidly overall.

  

• Better world balance is needed. Why should the U.S. and Western Europe strain their economies to cut carbon emissions when overall world carbon emissions will still continue to increase?  World leaders like the U.S., Germany, France, and the U.K. should still do what they reasonably can on their own while waiting for more serious participation by China (and India), for example.
• Carbon Capture and Storage should be a large part of the solution. (https://www.wsj.com/articles/exxonmobils-plan-to-capture-carbon-11618871420) A large oil producer, ExxonMobil, estimates that 500 billion metric tons of CO2 could be stored underground along the Gulf Coast.  Establishing a price on carbon (e.g. through a carbon tax or carbon offsets) would provide an economic incentive for industry to speed up the development of CCS.

  

Conclusion.  The U.S. should definitely provide world leadership in reducing carbon emissions.  But de-carbonizing is more economically and politically feasible than de-fossilizing.  In fact, the developing world will not agree to de-fossilize because they will continue to use coal for many years to come in order to catch up with the West in standard of living.  There are limits to how fast solar and wind energy can grow.  The best way for the U.S. to provide useful leadership is to promote the expansion of nuclear energy as well as faster development of CCS technology.

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President Biden has announced that all U.S. troops will be withdrawn from Afghanistan by September 11, 2021. The U.S. has had troops in Afghanistan ever since 9/11, the longest war in U.S. history.  Of course, most Americans would like this war to end.

But many Afghans are dreading what will happen to them without U.S. and NATO protection.  Women especially have made enormous gains in the last 20 years.  These gains will be at risk if the Afghan government forces are unable to prevent the Taliban from returning to its former dominance.

The current minimal U.S. presence of 2500 troops, plus a few thousand additional from NATO,  are enough to prevent a Taliban takeover.

Now is not a good time for the U.S. to appear weak and impotent.  Consider:

• China has lately become much more aggressive in the South China Sea.  This adversely affects allies such as the Philippines, Vietnam, Malaysia, Indonesia, and Taiwan. The U.S. should forcefully oppose China’s attempt to dominate these countries.
• Russia has amassed over 100,000 troops, as well as tanks, along its border with Ukraine.  This is viewed in Europe as a test for the Biden administration. Can Russia scare the U.S. and NATO away from supporting Ukraine against Russian aggression?
• The last ten years have seen many gains on the international stage by both Russia and China.  Russia has invaded Georgia, annexed Crimea, and supported Assad in Syria. China has tightened its hold on Tibet, launched an aggressive campaign in Xinjiang, crushed Hong Kong’s autonomy, attacked India, and conducted a massive buildup aimed at Taiwan.  American foreign policy has been mostly inert in the face of this gathering storm.  Now is no time to appear soft in the face of this aggression.
• An overt attack by either China or Russia on the vital interests of the U.S. is unlikely, if only because they are each weaker than the U.S. militarily. Also, it would be difficult for them to gang up together on us.  Nevertheless, they are pushing us to see what they can get away with.  We need to appear strong especially at a time like this.

Conclusion.  By a complete withdrawal from Afghanistan, the U.S. is putting at great risk the gains that have been made, especially by women, in the last 20 years.  Furthermore, such a withdrawal makes the U.S. appear weak at a time when both China and Russia are flexing their muscles against us.

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After passing an unneeded $1.9 trillion Covid-Relief Stimulus plan, which already risks setting off a new round of inflation, the Biden Administration is now back with a bloated $2.3 trillion infrastructure plan.

Here’s an outline of what is at stake:

• The U.S. economy is now surging with 916,000 jobs being added by employers in March, which means that more government stimulus is a bad idea.
• Most U.S. transportation infrastructure is not deteriorating, as evidenced by the decreasing fatality rate over time for interstate highway travel (see chart, where the solid line represents the national total).
  Furthermore, infrastructure spending in a broader sense, including education and training, R&D, and physical capital, has stayed relatively constant for the past 35 years (see chart) and is already well funded.

  

• Raising the corporate tax rate from 21% to 28% is a bad idea. Tax reform in 2017 lowered the corporate tax rate from 35% to 21%.  This led multinational companies to repatriate $1.6 trillion from overseas to the U.S. in the years 2018 – 2020.  The repatriation total for the previous three years was only $495 billion.  In the meantime, many other developed countries have also lowered their corporate tax rate and the U.S. needs to remain internationally competitive.  And corporations don’t really pay taxes anyway.  They are really just vehicles for collecting taxes which are ultimately paid by customers in higher prices, workers in lower wages and shareholders in lower returns on investment.
• There are several worthwhile projects in the Biden plan such as high-speed broadband for rural areas ($100 billion), electric grid upgrades ($100 billion), and climate technology ($35 billion), among others.
• But they need to be paid for! The problem is that most of Biden’s proposed tax increases fall on corporations, which makes them harmful to the economy. This means new taxes should be derived from other sources such as high-income individuals, for example, or perhaps by putting a price on carbon, which is a far more efficient way to cut carbon emissions.

Conclusion.  The two biggest hurdles for the Biden infrastructure plan are that U.S. infrastructure is overall in good shape and that it would be a big mistake to raise corporate tax rates.  But there are other ways to raise smaller amounts of new revenue for other types of projects.  In other words, the Biden plan should be scaled way back and, of course, this is what will likely happen if it becomes a bipartisan plan.

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The progressive left rolls on.  Having passed a $1.9 trillion Covid-relief Stimulus Package, the Senate will now move on to HR1, “For the People Act”, already passed by the House.  It would nationalize many election procedures such as voter registration, voter identification, and mail-in voting.

What is wrong with uniform national election procedures?  A lot!  Consider:

• HR1 is clearly unconstitutional.  Election procedures are mentioned nowhere in the U.S. Constitution.  The 10^th Amendment states that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
  The 14^th Amendment says that “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States;”
  Election procedures are necessary and the constitution specifies that the states are in charge and have the responsibility to do this in such a way that does not “abridge the privileges” of any citizen.
• A very important goal with election law is to maintain trust in our election procedures. The U.S. has a well-established “complex, multilayered, decentralized process of running elections that are safe, accessible, reliable and fair.”  It is important to preserve this successful system that we now have.

  

• State legislatures have become highly polarized in recent years.  31 state legislatures now have both houses Republican (including Nebraska with a non-partisan unicameral which leans Republican), 18 states with both houses under Democratic control, and only one state, Minnesota, has a divided legislature. HR1 is, in effect, an attempt by a (blue) Democratic Congress to dictate election procedures to 31 red states.

  

• In spite of an attempt by the mainstream media to label recent changes in Georgia’s voting procedures as racist, this is untrue as any honest examination of the specific wording will show.

  

• This entire proposed assault on the U.S. Constitution can be avoided if the Senate keeps its Filibuster rule requiring 60 votes to pass most legislation. In this case, a minimum of 10 Republican votes would be required to pass any specific bill which would ensure bipartisan compromise in the whole process.  Do the Democrats really want to have a showdown over proposed federal election procedures which will almost surely be struck down by the courts if passed into law?

Conclusion.  The strength of our democracy is in the competition between the two political parties.  When one party overreaches, as the progressive left is now doing on the Democratic side, it will most likely get struck down in the next election.  By proposing an unconstitutional federal takeover of election procedures, the Democratic Party is playing with fire and is likely to get burned.

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“The legislative filibuster is the most important distinction between the Senate and the House.  Without the 60 vote threshold for legislation, the Senate becomes a majoritarian institution, just like the House, much more subject to the winds of short-term electoral change.  No Senator would like to see that happen.”
Democratic Senator Chuck Schumer, April 2017

Now that the Democrats hold 50 seats in the 100 seat Senate, and the Democratic Vice-President can break ties, many Democrats want to change the Senate rules and eliminate the filibuster.  This is a terrible idea, which will lead to governmental chaos if enacted.

Consider:

• Why is the U.S. such a strong and successful country? For many reasons, of course, including a powerful economy and favorable geography spanning a whole continent and sharing a common border with only two other countries, both of which are friendly democracies.  But also because of our amazingly stable constitutional form of government, which has now survived for 233 years (the constitution was ratified in 1788).  This has happened because we are able to work out our differences in a mostly peaceful (except for the Civil War!) way.
• Ending the bipartisan comity resulting from a 60 vote threshold for most legislation in the Senate will mean, as Senator Schumer says, a Senate much more subject to the winds of short-term electoral change. Without the filibuster, Senator Mitch McConnell adds, “As soon as the Republicans wound up back in control, we wouldn’t stop at erasing every liberal change that hurt the country.  We’d strengthen America with all kinds of conservative policies with zero input from the other side.”  In other words, once the filibuster is eliminated, it is gone for good.
• But there are lots of other ways the 50 Republicans in the Senate can fight back immediately. The filibuster is only one of 44 standing rules, most of which are designed to enhance the rights of individual senators at the expense of the powers of the majority.  Unanimous consent is required to open the Senate before noon, to dispense with the reading of the previous day’s journal, to move to business, to avoid reading out loud the text of every amendment and resolution, and to avoid roll call votes.  Without unanimous consent, every task requires a physical quorum of 51 senators on the floor, not counting the vice-president.  Would the 50 Democratic Senators plus the Vice-President eliminate all of these other procedural rules as well?
• In 2013, the Democratic majority, under Senator Harry Reid, eliminated the filibuster for judicial appointments. We now have three new conservative justices on the Supreme Court.  Is this really the type of strictly majoritarian Senate the Democrats want from now on?

Conclusion.  By eliminating the Senate filibuster, the Democrats are playing with fire and can end up getting badly burned.  It will result in a “scorched-earth Senate,” which will be ugly to watch in action and will stir up even more partisan animosity along the way.  U.S. politics is already way too polarized.  Do we really want to make it even worse?  The U.S. a strong and stable democracy.  But the good will of the majority of citizens who just want sensible governmental policy should not be taken for granted.  It can dissipate very quickly in a crisis.   The Democrats should proceed with great caution.

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