In response to Rep. Kevin McCarthy’s recent ouster from his perch as House Speaker, Pangaea Policy founder Terry Haines described it as a market negative. In his words, “MARKETS SEE WASHINGTON INCOMPETENT TO GOVERN.” The bet here is that Haines could be convinced otherwise.
To anyone looking at the U.S. political system from the outside, Washington appears overly “competent.” Dangerously so. Think about it. Despite the alleged divide in Washington, Republicans and Democrats easily figure out a way to spend $6 trillion+ annually, and as tax revenues sadly increase over time, they’ll easily find a way to spend quite a bit more.
It’s a reminder that the most overrated word in politics is “bipartisan.” The last thing we want is for the warring factions to get along. In the words of my RealClear colleague Rob Smith, “I want my representatives to get into heated debates over every nickel of spending. I want them to cane each other, pull hair and gouge, not to mention a few slurs and “yo mama” insults.” Whatever keeps them from governing is a good thing. Lest readers forget, a little or a lot of anarchy defines our daily lives. Dare I say it, anarchy is what markets are. The government that governs least governs best. All that.
Which is why it read as a shame that Rep. Matt Gaetz’s ouster of McCarthy had “first in history” attached to it. Why not first in 2023? They work for us, not us for them. And members of Congress are doing better by us when they’re too distracted to do much of anything. It’s not a popular view, but Gaetz et al won by pushing out McCarthy. But did they win the argument? No.
Which is a problem. And the problem grows worse when it’s realized that Gaetz et al don’t understand their argument. They think all their ranting about debt and deficits and an “unsustainable” future is effective. It’s not. No one believes it. With good reason. The “unsustainable” debt argument is as old Treasury debt is. For as long as Treasury has sold debt to investors, the myriad scolds in our midst have warned of the “reckoning” ahead.
The problem is that the warnings have always been nonsense. Without defending government spending for a second, the surest sign the federal government doesn’t have a debt or deficit problem is all the debt. Yes, it’s that basic. If Treasury had a debt problem, it wouldn’t have lenders around the world lined up to lend to it. When Gaetz and fellow scolds rant about debt and deficits, they’re unwittingly saying markets are incredibly stupid. Except that they’re not.
All of which calls for the McCarthy vanquishers to get a clue. And in getting a clue, they must realize that the problem with government can’t be found in how the funds are extracted, rather the problem can be found solely in the funds extracted. To focus on money taxed away or borrowed is to make a distinction without a different. The extraction is the tax, period.
Which is a way of pointing out that the real problem is the money spent. This is politicians like McCarthy substituting themselves for the marketplace in the allocation of precious resources. In our case, this annual substitution can be measured in many trillions. Trillions worth of central planning. Oh, the freedom, progress and opportunity lost thanks to all the spending. If Gaetz and friends figure this out, they’ll eventually win the argument too.
Republished from RealClearMarkets