“…if you can keep it”

Once of the greatest smoke & mirrors acts of 21st century politics was the creation of the National Commission on Fiscal Responsibility and Reform, commonly known as the Simpson-Bowles Commission.  President Barack Obama created the commission in 2010 with the purported goal of tackling the growing federal deficit and long-term national debt and to propose policies to reduce the federal deficit.

But the inherent problem wasn’t a lack of effort, Simpson-Bowles was up against the Affordable Care Act, aka, Obamacare whose goals were at cross purposes with Simpson-Bowles.  The committee made numerous recommendations including broadening the tax base, simplifying the tax code, eliminating targeted tax deductions, reducing the federal workforce, capping discretionary spending, and reducing Medicare and Medicaid costs.  But they failed to reach the 14-vote supermajority required to formally send the plan to Congress.

Unsurprisingly the liberals on the committee opposed cuts to Social Security and Medicare while the conservatives opposed tax increases, but the far bigger issue was that President Obama sought a significant expansion of Medicaid, a festering issue that 15-years later DOGE tried to address.

Simpson- Bowles and now DOGE boil down to the fundamental reality that plagues every economic system that’s ever existed, i.e., “what everyone wants is more than what is,” evincing another reality of economics, only in the Garden of Eden was everything free and in unlimited supply.

Leadership in Washington isn’t blind, they know full-well that 70% of federal spending is “mandatory” (e.g., Social Security, Medicare, Medicaid, interest on debt) and will continue on autopilot unless laws are changed.  And that discretionary spending including education, defense, and infrastructure is becoming a shrinking portion of the budget.

Meanwhile, Social Security and Medicare are politically untouchable even when voters say they support “cutting spending,”  besides, it’s human nature that no one wants to cut a program they benefit from.  Nonetheless, due to our aging population the cost of Medicare and Medicaid continue to increase, while interest groups, who elected officials rely on for campaign support, work very hard to protect funding that benefits them.

Reining in government spending is nigh on impossible because it means saying “no” to the people who cast votes.   No to benefits, no to tax breaks, no to subsidies, which in turn causes election pressures, ideological conflicts, and a budget dominated by programs people have come to expect, with “come to expect,” being the operative phrase.  And every politician understands that cutting, reducing, or eliminating popular programs will lead to certain electoral defeat.

For all the reasons cited, Simpson-Bowles was doomed from the start.  However, I did have high hopes for DOGE, but silly me, I thought once the electorate could see with their own eyes, the waste in government from programs promoting diversity, equity, and inclusion in Serbian workplaces to creating transgender comic books in Peru, they might get the message.

I am not an economist and not smart enough to speculate about the future, but as the debt grows and interest payments consume a larger share of the federal budget simple math tells us it will crowd out spending on infrastructure, education, and other necessary expenditures.  In fact, our nation is already projected to spend more on interest than on defense.

Meanwhile, a genuine concern should be that if investors fear the U.S. may inflate away its debt or default, as other nations have done, interest rates will climb, raising borrowing costs and compounding the problem leaving government with little choice but to increase taxes and reduce entitlements.

The U.S. dollar’s status as the world’s reserve currency depends on faith in America’s fiscal discipline and an unsustainable debt will weaken that status and reduce U.S. global influence.  And when governments try to “solve” the problem by printing money (monetizing the debt), it always leads to inflation (we only saw the tip of the iceberg during the Biden administration) and in severe cases, hyperinflation.

Like the RMS Titanic, the United States is currently on a collision course with a fiscal iceberg – the difference is that everyone, including congress knows the iceberg is lurking.  Elon Musk has proposed changing course, but just as Obama’s Medicaid expansion sank the last effort to rein in spending, Medicaid is again proving to be a significant barrier.

Quote of the day:  A woman approached Benjamin Franklin as he was leaving the Constitutional Convention in 1787 and asked, “Well, Doctor, what have we got—a republic or a monarchy?”  Franklin responded, “A republic Madame, if you can keep it,” a clear warning that nothing is forever, and maintaining a republic would require constant vigilance and fiscal responsibility.