Why the United States Lost Its AAA Credit Rating

For the second time in its history, the United States saw its AAA rating on long-term debt downgraded by a credit rating firm.

Fitch Ratings said the downgrade of the U.S., which is now rated AA+, “reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”

In the wake of the downgrade, the first since S&P downgraded the U.S. in 2011 amid a similar debt-ceiling showdown, Democratic politicians and White House officials immediately attacked both Republicans and Fitch.

“The downgrade by Fitch shows that House Republicans’ reckless brinksmanship and flirting with default has negative consequences for the country,” said Senate Majority Leader Chuck Schumer (D-NY).

Meanwhile, Treasury Secretary Janet Yellen slammed Fitch, calling the decision “flawed” and “entirely unwarranted.” She was echoed by press secretary Karine Jean-Pierre.

“It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,” Jean-Pierre said. (CNN inexplicably blamed the downgrade on Jan. 6, even though Fitch in its report made no mention of the event, which happened 2 1/2 years ago.)

Perhaps such a reaction should not surprise us. Pointing fingers and blaming others is what politicians do best. Yet pointing fingers will not change a troubling reality: The federal government is facing a fiscal reckoning.

Most people probably don’t even know that in June, the national debt hit $32 trillion. If you find this strange because it feels like only yesterday that the national debt was $20 trillion, you can be forgiven. It practically was.

It was in 2017 that the national debt hit $20 trillion. You read that correctly: The U.S. government racked up an astonishing $12 trillion in six years. Sadly this spending frenzy will have serious consequences for the future of our children and grandchildren.

The federal government is now shelling out an unprecedented amount of money to pay interest on its debt — $476 billion in 2022, an increase of 35% from the previous year.

The nonpartisan Peter G. Peterson Foundation says Americans are likely to spend $9 trillion in interest on the debt over the next decade, making it perhaps the single largest federal expenditure in the coming years and crowding out other programs.

Lawmakers in Washington seem oblivious to the threat. Despite record revenues, federal spending continues to outpace tax receipts at a growing rate. In May 2022, the Congressional Budget Office estimated the federal government would rack up $15.7 trillion in new debt over the next decade; this year, the CBO adjusted the figure to $19 trillion, largely because of legislative changes.

This isn’t to say the debt-ceiling drama did not play a role in Fitch’s downgrade; it clearly did. What partisans are neglecting to tell you is that the standoff stemmed from the other causes Fitch alluded to in its downgrade — ”the expected fiscal deterioration” of the federal government and the “growing general government debt burden.”

These are serious threats, and instead of pointing fingers at Fitch and Republicans, the White House and Schumer should be addressing them. Instead, Democrats are calling for student debt “cancellation,” Medicare for All, and a fatter Pentagon.

There’s a troubling disconnect with reality here. It’s not unlike those who insist the historic inflation that began in 2021 stemmed from “corporate greed,” not trillions of dollars the Federal Reserve printed to flood the economy with money.

The Biden administration is of course not solely to blame for this debt. But it’s time for leaders to get honest about this fiscal recklessness, which history shows is more difficult to correct than it might seem because of the perverse incentives and corruption it spawns.

America’s Founding Fathers warned about such dangers. James Madison called public debt “a public curse, and in a Republican Government a greater curse than any other." Benjamin Franklin called it a threat to liberty.

To keep independence, "we must not let our rulers load us with perpetual debt," warned Thomas Jefferson.

People, especially leaders in Washington, have failed to heed these warnings. Sadly, it will be the generations of tomorrow who will pay if we fail to learn from our mistakes.

This article originally appeared in The Washington Examiner.

Jon Miltimore

Jonathan Miltimore is the Editor at Large of FEE.org at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

Congress’s 4,155-Page Omnibus Bill Is a Symbol of American Decadence

On December 20th a handful of Republican senators shuffled before an audience of reporters prepared to issue fiery polemics on the year-end omnibus bill which sat, heavy and ponderous in all its eight-ream absurdity on a wheeled cart before the five-senator assemblage.

“DANGER: $1.7 trillion of hazardous debt” read one of the mock-hazard signs decking the cart. Kentucky Senator Rand Paul declared the bill an “abomination,” while Utah Senator Mike Lee skewered the unseemly pressures to freeze it into law by proclaiming the process “legislative barbarism.”

 

Every year it happens with textbook repetition: Washington politicians procrastinate in releasing a colossal expense prospectus for the following year which unfailingly runs thousands of pages, requests billions of dollars, and is granted mere hours of scrutiny before being thrust to a congressional vote. The process is riddled with partisan intimidations and shrewd slandering. Democratic politicians trot out folksy pleas about supporting struggling Americans, to which, naturally, passing the bill is postured to achieve. Most Republicans cave to its smothering inevitability; a minority bitterly protest. 

The omnibus bill earns its name from its practice of absorbing a collection of smaller bills into one vote. You might be tempted to call this government efficiency, but think again. In reality, it’s the gateway of legislative sloppiness and profligacy. And you might be tempted to believe Washington’s Christmas tradition is paternal benevolence for the common man but this too is a smokescreen. If our political overlords actually cared for our future in the manner of responsible stewards they would not bankrupt the nation. They would not smuggle dozens of silly congressional pet projects into our legislative initiatives. They would not make a mockery of the political process by demanding decisions on bills scarcely proffered hours of review. They would not egregiously spend money we did not have. They would not thoughtlessly shovel funds to any hungry bureaucratic mouth in the country. They would not insult American taxpayers by destroying our currency, snowballing our debt, and wrapping it all in a veneer of charity and Progress. Grim and apocalyptic though this indictment may be, it is nevertheless the bitter truth. 

Desensitization 

As Americans, we have become numb to the money-gobbling maneuvers of the bureaucratic machine. We hardly flinch at billion-dollar price tags, not because we do not cognitively register such a number as large but because we feel detached from its significance. We do not feel connected to its consequences. We don’t even feel particularly sure about what the spending figures should be, so bewildered by the dizzying complexity of contemporary American politics are we. We put our fingers to the glass and watch but we cannot seem to stretch our fingers out and really touch the harrowing reality of a $1.7 trillion bill or a $31 trillion in national debt. Such numbers fail to disquiet our consciences. Why? 

Here are a few potential reasons.

1. Nobody talks about fiscal conservatism anymore. Republicans love to rhapsodize about this fixture of their intellectual tradition but few are those who actually extend this principle from token rhetoric to the necessary scolding and refashioning efforts of current regimes. No matter whether they claim democratic or republican status, administrations do a sordid job of expenditure restraint. This equivalence between the parties is sobering indeed, indicating that the majority of republicans do not know how to defend small-government and balanced budgets with any authentic confidence. You might hear “fiscal conservatism” sprinkled throughout the campaign trail for its old-fashioned appeal and knack for attracting votes, but it is no longer practiced by those in Washington. Longtime champion of fiscal restraint Sen. Rand Paul has made entreaties for years that are drowned out by the opportunism and apathy swarming the Capitol.
2. Nobody is sure why fiscal conservatism even matters: Government money has been lamentably scrubbed of morality. It bears no qualms about tempering its quantity or maintaining its quality due to an ethical contract with the people. Money has no scruples attached to it anymore. The modern conscience conceives of it as a hollow instrument; a neutral tool to get from A to B. But what is money really made of? Where does it get its value? In what ways can it be a wonderful thing and in what ways can it equally be a dangerous thing? Few care to mull these questions.
3. Nobody quite feels the consequences of reckless spending yet: Because we raise debt ceilings with impunity and have thrown that old burden of balancing budgets out the window, we stay disconnected from the ramifications of fiscal hedonism. It is hard enough for politicians to make difficult choices that affect life beyond their term limits, because where's the motivation in that? And so, money becomes this distant, untouchable relic that no one wants to poke at.

And so, not only have we lost a certain emotional reaction to government spending (i.e. an instinctual discernment of when it hits a threshold of moral questionability) but we have also lost an intellectual grasp of it (i.e. an understanding of why extravagance cannot persist in perpetuity.) All of this adds up to a mass desensitization that leaves us dangerously acclimated to an environment that pretends money is a plaything and not actually the beating heart a civilization. 

Here are some of the ways in which this unlucky acclimatization has occurred: 

1. Money added is rarely scaled back: In government, addition is the path of least resistance. Subtraction has poor incentives, can be politically painful, and sounds mean and parsimonious to us Americans who see government as our rightful pursestrings and sympathetic caretaker.
2. Added bureaucracy is rarely reviewed or pruned: More money inevitably feeds more bureaucratic cubicles. Bureaucracy is a curious animal: one that has a considerable appetite for more money and workers and administrative projects, but one that also has a deadening effect and leaves decay in its wake. In this way, bureaucracy has always bizarrely appeared to me as a life/death personification. If one thing is for sure, it will seek to justify its existence and once breathed form by taxpayer dollars, will lunge for more funds to legitimize its continuance. 

3. Law becomes more complex and disorienting: As sentences rain from keyboards and paper churns from the printer and more thousand-page legal monstrosities are produced, we end up building on a (new-ish) toxic American tradition of unintelligible, byzantine law. The less lucid and graspable the law is to the public, the less accountable government becomes—and the more fuzzy the political vision of the masses grows. After all, do we even know what laws were passed in the year-end omnibus bill? More worryingly still, do our politicians even know? Is this state of affairs normal? Would we call it a natural progression? I would warn against this particular temptation: the temptation to believe that increasing complexity is a sign of sophisticated progress, of governmental fine-tuning. It is not. It tangles with its serpentine requests and chokes with its punishing demands. And it throws a veneer of precision and compassion (owing to its seeming charity) over it all. As a general rule of thumb, when edicts becomes more profuse and complex and fail to remain concise and coherent to the public, they are unequivocally not serving the masses. (They are probably serving the elites.)

Post-Empire Flavor

What does one see when they gaze upon a 4,155-page bill? A symbol of American decadence. A pile of legal jargon so exhaustive its efforts look undeniably frantic. This utter excess inspires notions of blind mania. What are we doing and why? Is there any principle behind governmental motion? Are there any scraps of real thought or prudence? Or is the impetus merely zombie-like bureaucratic appetite? No matter how comprehensive and caring we would like our present government to appear, the rot cannot be fully concealed. An eight-ream bill is no sign of legislative nobility. It is an insult to the common people. It makes for a ridiculous picture of thoughtless excess. It just looks stupid at first glance. This intuitive, gut-level reaction is important. It’s the embarrassing truth of our attempts at managerial sophistry laid bare. It’s worth mentioning that empire decline is marked by an apathetic watering-down of principle, by money deterioration, and by administrative overextension. Check, check, check. 

Size Matters

The larger government grows, the more money it absorbs; sure. But the less functional it becomes too. It ossifies, and its vibrant principles start to decay under the dead weight.

Once a certain threshold in size is reached (and who’s to say exactly where that is) organization lapses into oppression. Vibrancy lapses into atrophy. And decent functionality lapses into chaotic disarray. The lesson?

Overreach and you snuff out life. Congress’ proud 4,155-page creation is a post-empire emblem if there ever was one. Do not be fooled by the legislation’s size: it represents a floundering American system, not a vibrant one.

Lauren Reiff

Lauren is a writer of economics, psychology, and lots in between. To read more of her work, follow her on Medium.

This article was originally published on FEE.org. Read the original article.

Congress’s 4,155-Page Omnibus Bill Is a Symbol of American Decadence

The Unseen Cost of Government Largesse

The US government recently hit its $31.5 trillion debt limit after years of careening baseline spending on entitlements combined with emergency COVID-19 spending in the last few years to produce record-busting deficits. The new Republican majority in the House of Representatives, elected largely on economic concerns like inflation and runaway spending, now faces an obstinate Senate and White House. A showdown appears likely as does the ritual brow-beating of all those who object to simply raising the debt limit “without conditions,” as President Biden demands.

To those who will inevitably cry, “Don’t use the debt ceiling as a negotiating tool!” over the coming weeks and months, it should be pointed out that it is the only tool that has been even remotely effective at taming Congress’s appetite for spending. In the same way that an intervention is only possible when a drug addict is in crisis, debt limit negotiations are the only context in which Uncle Sam has accepted even modest constraints on government spending in recent decades.

Conservatives and libertarians rightly decry the rapidly-expanding national debt as an embarrassment, a threat to the nation, a root cause of inflation (as the Federal Reserve must expand its balance sheet to purchase the Treasuries that finance these huge deficits, as happened most clearly in the pandemic’s peak), and a promise of higher future taxes. While all these are accurate observations, one effect of massive government spending and deficits is often overlooked in the standard conservative critique: the forgone private investment of capital and therefore forgone economic growth, often termed the “crowding out effect.”

The basic idea is that there exists a total sum of money, or financial capital, that individual and institutional investors are willing to loan out or invest. Most economists call this the “loanable funds market.” The supply of loans, as with any supply curve, slopes upward and to the right. In other words, as the interest rate (the price of a loan) rises, more people will be eager to supply loans. In contrast, the demand for loanable funds slopes, like a normal demand curve, downward and to the right. That is, as the interest rate goes down, more people are interested in borrowing money. Just think of any normal supply-demand graph, but with the good in question being a loan rather than a physical good or a service, and the vertical axis labeled “interest rate” rather than “price,” as in other markets.

The demand for loanable funds is a function of how much capital investment businesses need (which is itself a function of how profitable those capital investments are), what quantity of money consumers need for purchases like homes and new vehicles, and how much money the government needs to borrow. In a game where the total supply of loanable funds per year is set, say at $5 trillion, every $1 trillion the government runs up in deficits is $1 trillion less available for private investment in the innovations that improve quality of life, bring us new medicines, and create new jobs.

Increased government deficits shift the demand for loanable funds to the right. As any student of elementary economics knows, this increases the price, or in this case, the nominal interest rate. Many private sector projects that make sense at 4 percent interest are no longer acted upon if the government runs such a large deficit that the interest rate must increase to 7 percent for investors to shell out the cash necessary to finance that deficit. Increasing the supply of loanable funds through monetary expansion, as happened in the COVID pandemic with breathtaking speed, can temporarily hide this effect. However, this spurs inflation that reduces real returns and hampers economic growth (the stock market’s dismal returns since runaway inflation started in late 2021 is one example of this result).

In contrast to the Keynesian “money multiplier” theory, which insists that government spending stimulates the economy by circulating money via transfer payments that otherwise would have remained in savings and uncirculated, savings in nearly all developed countries are not locked away gathering moths and rust, but invested. Of every dollar put in the bank, more than 90 percent is invested in loans for commercial enterprises, in home loans, and in bonds, and this doesn’t account for the fact that a larger and larger share of surplus savings in the United States are not in the traditional banking system, but in brokerage accounts, 401(k)s, and elsewhere.

Government spending does not multiply the economic power of money, it diminishes it. If the opposite were true, Cuba, North Korea, and Venezuela would be among the wealthiest nations on the planet, since nearly all economic activity is facilitated through government spending in those nations. That they are not, but that nations with relatively free markets such as the United States, Singapore, the United Kingdom, and Japan punch above their weight economically suggests that private investment in the innovations and technologies of tomorrow everywhere and always beats government transfer payments in facilitating economic growth.

Every dollar the government must borrow is a dollar not available for private businesses or individuals to borrow, and that reduces future economic growth and job creation. With America’s debt now hovering near 125 percent of GDP (before netting for debt held by government entities) and deficits topping $1 trillion yearly as far as the eye can see, we can no longer ignore this drag on the American economy.

Nathan J. Richendollar

Nathan Richendollar is a summa cum laude economics and politics graduate of Washington and Lee University in Lexington, VA. He lives in Southwest Missouri and works in the financial sector. 

This article was originally published on FEE.org. Read the original article.

The Unseen Cost of Government Largesse

How the Government is Causing a Credit Card Debt Crisis

Inflation still isn’t letting up, and it’s a top concern for Americans right now. But we just learned of yet another way surging prices are hurting families—leading them into huge amounts of credit card debt.

“More Americans are racking up credit card debt as inflation pushes up the cost of food, utilities and other staples,” CBS News reports. “60% of credit card holders have been carrying balances on their cards for at least a year, up 10% from 2021.” 

“59% of Americans who earn less than $50,000 a year carry a credit card balance from month to month,” the reporting notes. “The percentage drops slightly to 49% for those who earn between $50,000 and $80,000 and dips again to 46% for people making $80,000 to $100,000 a year.” 

This is a serious problem for many families. 

"It's even harder to get out of debt when it's spending on necessities that got you into that position in the first place," Creditcards.com analyst Ted Rossman told CBS. "These expenses aren't easily avoided."

Americans now owe $887 billion in credit card debt, according to the Federal Reserve Bank of New York. That’s up 13% from 2021! 

Credit card debt is nothing to sneeze at. Because of the way it’s structured, it can quickly become exorbitantly expensive and ultimately cost much more than the original purchases. 

“Credit card debt accumulates when you don’t pay off your credit card in full by the end of each billing cycle,” NationalDebtRelief.com explains. “When the balance is carried over to the next billing period, interest accrues in the form of the annual percentage rate (APR). APR is the percent of interest charged on purchases, cash advances, and balance transfers, and it compounds. This means that interest grows on top of interest and the longer you take to pay off a debt, the more you’ll owe.”

The website offers one illustrative example that shows how quickly credit card debt can spiral out of control. If you borrow $10,000 on a card with a 25% rate and only make the minimum payments, you will ultimately have to pay back more than $30,000—and it’ll take almost 30 years!

Thanks to inflation eroding their paychecks and sending their expenses skyrocketing, many American families are finding themselves facing this potential scenario. And it’s important to remember that this isn’t some abstract economic phenomenon. The federal government caused inflation through its reckless fiscal and monetary policies during the pandemic. 

It printed trillions of new dollars out of thin air and ran up multi-trillion-dollar deficits on wasteful “stimulus” spending. The inevitable result of this flood of dollars chasing the same number of goods (or even a smaller number) was always going to be higher prices. And that’s exactly what has happened.

But, as the credit card debt problem shows, the second-order consequences of the government’s bull-in-a-china-shop interventions are playing out far beyond just price hikes. It will take many years of study for us to fully understand all the different ways these reckless policies are hurting American families, but one thing is clear: the bill that ultimately comes due is going to be a big one. 

WATCH: 🤦‍♂️ Nina Turner's most absurd communist tweets (Brad Reacts)

Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

How the Government is Causing a Credit Card Debt Crisis

How the US Government Created the Student Loan Crisis

President Joe Biden unveiled a sweeping plan on Wednesday to let delinquent student loan borrowers transfer tens of thousands of dollars in debt to taxpayers. If he were a biblically minded leader, Biden would have used his nationally televised press conference to repent of his role in creating the student loan crisis in the first place.

Biden’s student loan bailout lets individuals write off $20,000 in unpaid student loans if they received Pell Grants or $10,000 if they did not. The plan is open to households that make up to $250,000 a year or individuals who make $125,000. It would also reduce the number of people who have to make student loan payments at all, as well as the amount and time they must pay before US taxpayers pick up the tab for their full loan.

While much of the commentary has focused on students who refused to make their loan payments, few have discussed how successive presidential administrations set those students up for failure. The federal government largely nationalized the student loan industry in 2010 via a piece of legislation related to Obamacare, the “Health Care and Education Reconciliation Act of 2010.” The US government now holds 92 percent of all student loans — and the nation’s total student debt has more than doubled, from $811 billion in April 2010 to $1.748 trillion in April 2022.

Part of the reason the figures have surged — and students start life so indebted — is due to progressive policies that made it impossible for most people to ever pay off their student loans. In their haste to have the US taxpayer underwrite the maximum amount of college tuition, they transformed most student loans from a fixed-rate loan — like a mortgage or car loan — to a plan based on the student’s post-graduation income. Gradually, the borrower’s share of his college loans shrank, while the taxpayer’s increased.

The first income-based repayment plan — the William D. Ford Federal Direct Loan Program, established in July 1994 under the Clinton administration — required students to pay up to 20 percent of their discretionary income for 25 years; any remaining balance would be paid by taxpayers. The George W. Bush administration passed the College Cost Reduction and Access Act of 2007, which let graduates pay 15 percent of their income above 150 percent of the federal poverty line. The Obama-Biden administration reduced that to 10 percent and wrote off unpaid undergraduate loans after 20 years under a series of new loan policies between 2012 and 2014.

These policies made student loan debt effectively permanent and unpayable.

The Congressional Budget Office (CBO) spelled out the process in a thorough, February 2020 report. CBO researchers followed college graduates who began paying off student loans in 2012. “By the end of 2017, over 75% of those borrowers owed more than they had originally borrowed. By contrast, the median balance among borrowers in fixed-payment plans decreased steadily,” they noted. “Loans are often repaid more slowly under income-driven plans because the required payments are too small to cover the accruing interest. As a result, borrowers in such plans typically see their balance grow over time rather than being paid down.”

The federal government took over nearly all student loans, forced students to make years of payments only to fall further behind, then handed the enlarged debt to the US taxpayer. The ill-advised policies began as far back as 1978 with the Middle Income Student Assistant Act, which let all college students accrue student loan debt. A series of bills expanded this web of indebtedness to an ever-larger percentage of Americans — and Joe Biden supported every single legislative misstep. He also made it all-but impossible to discharge student loans in bankruptcy, ensuring that graduates’ hopelessly accumulating loan payments went on endlessly — and that college administrators continued to collect.

If someone wanted to destroy a generation’s hope in their ability to get ahead, he couldn’t have devised a better system.

As the French wag said, that policy is “worse than a crime; it’s a mistake.” The majority of student loans are now income-based according to the CBO, and the loans the government would issue between 2020 and 2029 will cost taxpayers an estimated $82.9 billion. All this ignores the fact that Uncle Sam has proved a poor accountant. A Government Accountability Office (GAO) report released in July found the Department of Education predicted that student loans would generate $114 billion for the federal government; they instead lost $197 billion — a $311 billion error, mostly due to incorrect analysis.

Only the federal government could lose money on an industry that has grown at four times the rate of inflation. As Milton Friedman once observed, “If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand.”

And, of course, those calculations didn’t consider the possibility that Biden would transfer a hefty part of that amount to productive US taxpayers, who cannot default from compulsory taxation.

Biden and former President Barack Obama should repent for fastening this debt burden to the younger generation, then increasing the unfathomable national debt for all Americans. President Biden’s announcement on Wednesday afternoon should have seen him bow before the audience, whisper a “mea culpa,” and offer the write-offs as an act of restitution and reparation for the bad policies he supported for more than four decades. To fit proper biblical restitution, the payment would have to be made to the 75 percent of students who took out government-created, income-based student loans since the Obama administration — especially those who made their payments. He would also have to have the legal and constitutional authority to redistribute other people’s money, which he does not. But if he did, that arrangement would at least be fair.

But in the Bible, repentance (μετάνοια) means to change one’s mind and behavior. Biden’s new student loan bailout did not represent heartfelt repentance but hard-hearted defiance. Instead of turning the ship of state back toward safety, Biden cried, “Damn the torpedoes, full speed ahead!” Rather than abandon the income-based student loan bondage he and Barack Obama designed, he further reduced the minimum payments to 5 percent of new graduates’ discretionary income, raised discretionary income to 225 percent of the poverty level, and let students transfer their unpaid loans to taxpayers after 10 years. That will consign even more graduates to a life of hopeless interest-service payments and force taxpayers to eat an even larger percentage of defaulted, inflated debt.

That only makes sense if the progressives intend to collapse the system, as many believed they designed Obamacare to force the US healthcare system into a death spiral, and replace it with a government-run socialist alternative. Obama admitted he favored socialized medicine in 2008. “If I were designing a system from scratch, I would probably go ahead with a single-payer system,” Obama told a campaign rally. But for the moment, he would tinker with the existing system until Americans “decide that there are other ways for us to provide care more effectively.”

Is it possible this is the next step toward government-funded college? Whatever it is, it is not the road back to economic sanity.

Biden and Obama should repent. And if they will not humble themselves, voters should humble those who support their immoral policies at the ballot box.

A similar version of this story appeared in The Washington Stand.

Ben Johnson

Rev. Ben Johnson is a senior editor at the Acton Institute. His work focuses on the principles necessary to create a free and virtuous society in the transatlantic sphere (the U.S., Canada, and Europe). 

This article was originally published on FEE.org. Read the original article.

How the US Government Created the Student Loan Crisis

Interview: Rand Paul Explains What’s Really Causing America’s Inflation Woes

Consumer price inflation just hit the highest level in 30 years. Prices rose 6.2 percent from October 2020 to October 2021, according to new government data, prompting a new reckoning with “temporary” inflation that’s proving not so short-lived after all. I interviewed Senator Rand Paul, a libertarian-leaning Republican from Kentucky, to get his perspective on what’s driving our mounting inflation woes. 

“I think inflation is pretty easy to explain and people need to know what causes inflation,” the senator said. “[The federal government] gets debt, then the Federal Reserve prints up new money to pay for the debt, that new money enters circulation, and that expansion of the money supply [leads to] inflation.”

Paul argued that this kind of inflation, rooted in government policies, is a “bait-and-switch” form of taxation. 

“Big government politicians offer you things they say are ‘free’: free childcare, free healthcare, free college, free cell phones, free this, free that—but it's not really free,” he said. “Either someone else is going to pay for it through higher taxes, or they're going to pay for it through borrowing and ultimately inflation. And it really is a bait and switch because often the same people that are being offered free stuff are also the ones who suffer most through the regressive tax that is inflation.”

“We have to explain to people the second order of thinking that goes to understanding that it's not free,” he concluded.

But what, specifically, is driving the current inflation surge?

“Really the inflation we have this year is probably a responsibility of both parties,” Paul said, referencing the trillions in deficit-financed spending Congress has passed since the COVID-19 pandemic began. “You know, both parties other than myself and a few others were for all the spending of last year. So we borrowed $3-4 trillion last year, and we're set to borrow at least that much or more this year.” 

“I think you may see inflation of 10% or 12% next year,” the senator cautioned. “Now they're all saying the opposite. The Federal Reserve is saying it's transitory, but I think the 6% that we've got now is based on last year's borrowing. And I think there's going to be significantly more borrowing this year. We've already spent an extra $2 trillion on a COVID bailout bill, which really didn't have much to do with COVID, but it was more just a bailout bill, [and now] another trillion on infrastructure.”

But it’s not just Congress, the senator explained, as the Federal Reserve itself shares a large portion of the blame. 

“There's joint blame: Congress is initially to blame for spending money it doesn’t have and then the Federal Reserve says, oh, it's just our job to paper over this,” Paul said. “It's our job to buy up that debt and as they do, they create the increased money supply. So really both Congress and the Fed are to blame and they go hand in hand.”

“If we ran a balanced budget, we wouldn't necessarily need a Federal Reserve,” he continued. “Basically we have a Federal Reserve to pay for all that debt.”

Paul warned that if inflation continues unchecked, we could see a “loss of confidence” in US currency and “people fleeing the dollar.” The senator stressed that with the advent of cryptocurrency, people have more alternatives—taking away protection the dollar may have enjoyed in the past.  

I asked Senator Paul about President Biden’s argument that in order to combat inflation, the federal government actually needs to spend trillions more on his “Build Back Better” climate change and welfare agenda. 

“President Biden has no idea what causes inflation,” he responded. “I mean, someone should ask him that question. How does [the government] spending more money reduce inflation? How does borrowing more money reduce inflation? That's some mental gymnastics. It's hard for me to comprehend.”

I offered the president’s counterargument, bolstered by liberal-leaning economists, that his bill would hugely increase productivity and thus lower inflation pressures over time.

“I think productivity comes from ingenuity and market efficiencies, but I don't think in any way, productivity is increased by government spending,” Paul countered. “In fact, you could probably argue the opposite.” 

“If you had a million dollars and you wanted to let your representatives decide how to spend it, or a bunch of venture capitalists who look at profit and loss and look at markets and make estimates, neither are perfect,” he continued. “It's all our guesses about the future. But my thinking is that when it comes to the government, it's politicized. Whereas the investors will only look at profit and loss because their job is narrowly focused towards trying to invest in things that make money.”

“The marketplace is always wiser and smarter than the government,” Paul concluded. “[Remember] what Milton Friedman used to say... that nobody spends somebody else's money as wisely as their own. And that truism will always mean that the government lacks efficiency and lacks really the drive to make the best decisions for investing. So I would say productivity and the productivity of capital… always has to be less with the government.”

So, the senator warned that if President Biden’s multi-trillion-dollar spending agenda was passed by Congress, it would only worsen, not help, our inflation problems. But Paul noted that this may not happen, because even some moderate Democrats like Senator Joe Manchin are acknowledging the reality of inflation and putting the president’s ambitions on pause. 

Only time will tell. But if the federal government fails to rein in its reckless fiscal and monetary policies, we may well see inflation get even more out of control. And nobody will be able to say they weren’t warned.

WATCH: Rand Paul: What’s REALLY Behind Disastrous Inflation? (Interview)

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Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

Interview: Rand Paul Explains What’s Really Causing America’s Inflation Woes

Ivy League Analysis Destroys Biden’s Entire Argument for Multi-Trillion-Dollar ‘Build Back Better’ Spending Plans

President Biden continues to fight to pass some version of his multi-trillion-dollar “Build Back Better” spending agenda through Congress. In its various iterations, the plan includes trillions spent on everything from electric vehicle tax credits and green energy subsidies to taxpayer-funded childcare-for-all to housing subsidies and more. The Biden administration claims that the latest version would involve $1.85 trillion in new spending. 

The president has made lofty promises about what we’d get in exchange for such a historic investment. (After all, that price tag is more than the inflation-adjusted cost of FDR’s New Deal!)  

“[This is] a framework that will create millions of jobs, grow the economy, invest in our nation and our people, turn the climate crisis into an opportunity, and put us on a path not only to compete, but to win the economic competition for the 21st century against China and every other major country in the world,” Biden said in a recent speech. “It’s fiscally responsible. It’s fully paid for.”

“For much too long, the working people of this nation and the middle class of this country have been dealt out of the American deal, and it’s time to deal them back in,” he continued. “If we make these investments, there will be no stopping the American people or America. We will own the future.” 

Simply put, Biden argues that his plan to spend trillions will create jobs, grow the economy, and increase wages—all without adding to the $28.9 trillion (and counting) national debt. Yet a new Ivy League economic analysis undercuts every single one of these claims. 

Analysts at the Wharton School of Business reviewed President Biden’s latest $1.85 trillion framework proposal and ran the numbers to project its likely economic impacts, under two distinct scenarios. One is the rather unrealistic scenario where it actually only costs $1.85 trillion. Yet because the proposal is structured with many budget gimmicks and short-term spending authorizations that would likely be reauthorized if implemented, its real cost could be as much as $4.25 trillion. Wharton also modeled the likely impact of this scenario. 

In the first case, where the president’s plans cost only what he claims, the analysis still finds his promises falling short on nearly all counts. The tax increases included would not, in fact, pay for the entire proposal, and it would lead to a 2 percent increase in government debt over the long run. (That might sound small, but it’s hundreds of billions of taxpayer dollars!) And, while Wharton projects that wages would increase slightly, it finds that the overall economy would shrink, not grow, while business investment and hours worked would decline. 

Erm… how’s that revitalizing America? And those dismal results are under Biden’s rosy assumptions. Under the more realistic scenario where spending provisions are accurately accounted for and the real cost is north of $4 trillion, the investment’s return is even more spectacularly awful.  

Government debt would increase by 25 percent over 30 years—that’s trillions and trillions in new spending that is not, in fact, paid for. The economy would shrink—not grow—nearly 3 percent over this timeline compared to the baseline, while wages would decline 1.5 percent and hours worked would fall 1.3 percent. 

It’s easy to see why government spending could have these meager results. Proponents of big government spending, like Joe Biden, focus solely on the purported benefits of their plans.

Yet every dollar spent somewhere must ultimately, directly or indirectly, come from somewhere else in the economy. The resources invested by the government in one area are, by definition, resources that would have been invested somewhere else by the private sector. 

The tax hikes to partially fund the spending discourage work and tax away money that would have otherwise been invested. The debt incurred to partially fund the spending “crowds out” resources available for private sector investment. It’s not just a wash, either. In taking resources that would have been allocated via market signals and instead allocating them based on politics, government redistribution generally leads to net economic losses. 

As Ludwig von Mises famously put it, “The government and its chiefs do not have the powers of the mythical Santa Claus. They cannot spend except by taking out of the pockets of some people for the benefit of others.” 

It’s with the reality of trade-offs in mind that the Wharton analysis is able to reliably predict the negative impacts of Biden’s plans. 

This analysis is nothing short of devastating for the president’s plans. Biden wants to confiscate and spend trillions of our taxpayer dollars and is promising us the world in return for this investment. But Ivy League analysts and basic economic principles alike expose how empty those promises really are.

WATCH: TikTok’s 5 Worst $15 Minimum Wage Arguments (DEBUNKED)

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Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

Ivy League Analysis Destroys Biden’s Entire Argument for Multi-Trillion-Dollar ‘Build Back Better’ Spending Plans

Young Americans Have Good Reasons to Dread Biden’s Plan to Expand the IRS

Millennials and Gen Z have grown up watching politicians saddle them with economic hardships and make a mockery of their right to privacy. Now, the Biden administration wants to double down and rob young Americans of their economic privacy.

Alongside the $3.5 trillion reconciliation bill is a provision that would force banks to report the transaction details of all accounts with over $600 to the IRS. But the thought of government agents breathing down one’s neck is vexing for young people, who already account for a sizable portion of the $1.7 trillion in student loan debt and have an unemployment rate twice that of older Americans. Whether it’s investing in cryptocurrency, buying a firearm, or giving to charity, this measure will only dissuade young Americans from making financial decisions that best serve their interests and values.

Like any monopoly, the government has a vested interest in shutting out competition, including currencies that compete with the ever-devaluing dollar. Biden’s recent announcements of a national cryptocurrency enforcement team and consideration of increased regulations on digital currency are clear signals that this administration is no friend to the crypto market, where more and more young people are putting their money. On top of Uncle Sam taking a big chunk of their crypto profits through capital gains taxes, the threat of the IRS monitoring each time a young person invests in a currency frowned upon by DC will increase buyer hesitancy, creating yet another barrier to getting out of debt and securing financial stability.

Speaking of items frowned upon by DC, it’s not difficult to imagine how increased IRS scrutiny into young people’s bank accounts will deter them from buying firearms. Over the last several years, state and local governments have started violating gun owners’ privacy in unprecedented ways with Emergency Risk Protection Orders (otherwise known as “red flag” laws), which are currently on the books in 19 states and Washington, D.C. The Biden administration supports expanding these laws, even as police have used them to kick down young Americans’ doors and—in the case of Maryland resident Duncan Lemp—kill them in their sleep.

A blow to the young philanthropic spirit would be another piece of collateral damage of the IRS provision. A recent study showed only one-third of young Americans give to charity, due to high costs of living and unfavorable markets. Whereas the IRS can easily weaponize itself against ideological enemies—as seen with the IRS’ admitting to targeting at least 40 conservative groups in the early 2010s—economic barriers combined with the stripping of donor privacy will discourage young people from investing in the change they want to see in the world.

Millennials and Gen Z came of age as the surveillance state came into existence, starting with the passage of the Patriot Act in 2001. Now, the government’s oft-spoken mantra “if you've got nothing to hide, you've got nothing to fear” is coming for young Americans’ bank accounts. But neither the IRS snooping on their Venmo transactions nor demanding 37 percent of your Dogecoin gains will solve the problems that America faces.

This economic tyranny will only continue to build the case for young people that the government is working against their interests, not for them.

Sean Themea

Sean Themea serves as chief of staff for Young Americans for Liberty (YAL). A recovering progressive, Sean has appeared on Fox Business, Newsmax, The First TV, and OAN.

This article was originally published on FEE.org. Read the original article.

Young Americans Have Good Reasons to Dread Biden’s Plan to Expand the IRS

‘Fiscal Insanity’: Senator Joe Manchin Comes Out Against Biden’s $3.5 Trillion Spending Proposal

Congress’s efforts to push through a budget-busting $3.5+ trillion welfare and climate change spending bill are coming to a fever pitch. But with the Senate evenly split between Democrats and Republicans, 50-50, the party-line spending legislation could be doomed—because one prominent Democratic senator just came out swinging against the effort. 

“I can’t support $3.5 trillion more in spending when we have already spent $5.4 trillion since last March,” West Virginia Senator Joe Manchin, a moderate Democrat, said in a statement released Wednesday. “At some point, all of us, regardless of party, must ask the simple question – how much is enough?”

“What I have made clear to the President and Democratic leaders is that spending trillions more on new and expanded government programs, when we can’t even pay for the essential social programs, like Social Security and Medicare, is the definition of fiscal insanity,” Manchin continued. “Suggesting that spending trillions more will not have an impact on inflation ignores the everyday reality that America’s families continue [to] pay an unavoidable inflation tax. Proposing a historic expansion of social programs while ignoring the fact we are not in a recession and that millions of jobs remain open will only feed a dysfunction that could weaken our economic recovery.”

To be clear, Manchin is not exactly a principled free-marketeer or small government fiscal conservative. Indeed, he is actively promoting a $1.2+ trillion spending bill ostensibly dedicated to transportation infrastructure, and is open to the idea of more spending. The senator simply acknowledges the reality of trade-offs. (Unlike many in his party who bizarrely continue to falsely claim their multi-trillion-dollar proposal costs “zero dollars.”) 

Still, Manchin deserves credit for grappling with the reality that the government cannot create resources out of thin air. Whether through the sweeping proposed tax hikes, new federal debt, or money-printing that drives inflation, all the goodies handed out by the federal government must ultimately come from somewhere else. 

Manchin rightly argued that the current approach of spending trillions and ignoring any consequences is reckless and motivated by an extreme political ideology that ignores fiscal reality. 

“Overall, the amount we spend now must be balanced with what we need and can afford – not designed to reengineer the social and economic fabric of this nation or vengefully tax for the sake of wishful spending,” he said. “While I am hopeful that common ground can be found that would result in another historic investment in our nation, I cannot – and will not - support trillions in spending or an all or nothing approach that ignores the brutal fiscal reality our nation faces.”

If only more politicians in Washington were willing to at least grapple with fiscal reality when crafting spending policies and less content to simply pass the buck onto future generations. 

“America is a great nation but great nations throughout history have been weakened by careless spending and bad policies,” Manchin concluded. “Now, more than ever, we must work together to avoid these fatal mistakes so that we may fulfill our greatest responsibility as elected leaders and pass on a better America to the next generation.”

WATCH: Reacting to PAINFULLY Dumb Gun Control TikToks

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Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

‘Fiscal Insanity’: Senator Joe Manchin Comes Out Against Biden’s $3.5 Trillion Spending Proposal

Biden’s $2 Trillion Infrastructure Plan Is Loaded With Corporate Welfare

President Biden has just unveiled a new $2.3 trillion “infrastructure” plan, but a shockingly large portion of this bill is actually unrelated to infrastructure.

The plan includes massive subsidies for corporations as well as state and local governments, and comes right after the administration’s proposed increase in the corporate tax rate, which would raise the rate from 21 percent to 28 percent.

There’s $300 billion for manufacturing, $100 billion for electric utilities, $100 billion for broadband, $174 billion for electric vehicles, and a whole lot more. A significant portion of this spending is directed at subsidizing big corporations.

What the plan overlooks is that corporations are already investing heavily in the industries they aim to subsidize. For example, companies like Tesla and Volkswagen have invested billions into developing electric automobiles and charging infrastructure. Biden’s plan would aim to influence consumer spending decisions through the creation of further incentives for such vehicles. In other words, these companies would see their profits boosted as a result of artificially increased demand. The same goes for Verizon and T-Mobile that have invested in broadband, and Mitsubishi and Siemens that have invested in wind energy.

Subsidizing multi-billion dollar corporations and pumping up their profits is corporate welfare, not an infrastructure plan. The private sector built hundreds of thousands of gas stations across the country, and if there is demand for it, they will do the same with charging stations for EVs. A federal takeover of business investment decisions in this manner will inevitably have repercussions.

The Biden administration has included $100 billion to “decarbonize” the US electric grid, essentially eliminating coal and natural gas, alongside $213 billion for affordable housing and $400 billion to bolster home health-care. Despite President Biden’s push for bipartisanship, partisan political spending runs through his plan.

This plan comes on the heels of Biden's proposed corporate tax hikes.

The current administration is betting that damage caused by jacking up taxes will be outweighed by the massive amount of federal spending in this proposal. As the president of the Tax Foundation, Scott A. Hodge put it, “Based on CBO’s (Congressional Budget Office) assessment of the economic and budgetary effects of federal investment, there is no reason to believe that the economy will be better off with such a trade.”

The CBO estimates that $2 trillion in federal spending will yield about $1.3 trillion in actual investment. Since government investment only results in half the returns of private investment, we would be much better off if the $2 trillion in corporate tax increases that Biden needs to fund this plan were left in the hands of the private sector.

This plan would be a massive circular flow of revenue with increased corporate taxes funding subsidies for large companies, ultimately decreasing investment and long term capital formation. As federal spending increases to unprecedented levels, state and local governments become nothing more than the administrators of a giant national government.

Bureaucracies are notoriously and inherently inefficient, the economist Ludwig von Mises has pointed out.

“It is a widespread illusion that the effi­ciency of government bureaus could be improved by management engineers and their methods of scientific management. . . . What they call deficiencies and faults of the management of administrative agencies are necessary properties. A bureau is not a profit-seeking enterprise; it cannot make use of any economic calculation. . . . It is out of the question to improve its management by reshaping it ac­cording to the pattern of private business."

Expanding bureaucracy will only exacerbate these effects. The expenses and delays involved in collecting trillions of dollars in additional corporate taxes, running them through Washington and eventually using them to finance countless programs only serve as further discouragement against pursuing such a plan.

Overall, a thorough analysis of this proposal reveals that it would ultimately do more harm than good. In addition to the high levels of political spending and unnecessary intervention in business investment decisions, this plan would be a burden on the economy, reducing investment, growth, and prosperity over the long run.

Aadi Golchha

Aadi Golchha is the author of "The Socialist Trap: How the Leftist Utopia Will Destroy America" and an independent political analyst.

This article was originally published on FEE.org. Read the original article.

Biden’s $2 Trillion Infrastructure Plan Is Loaded With Corporate Welfare