Congress Isn't Drunk, and It Hasn't Yet Begun To Drink

Congress is acting rationally, and in sober fashion. As the wealth pie grows so does federal tax revenue, along with the ability of Treasury to borrow in growing amounts for a Congress that is still nursing its first drink.

Debt doesn’t just happen. Instead, debt rises as market expectations about the capacity for the borrower to pay monies borrowed back grows.

The national debt isn’t an effect of Congress overspending, nor will it be fixed by reform of how Congress spends. Both notions ignore a tax situation that showers Congress with enormous amounts of tax revenue now and the expectation of exponentially more tax revenue in the future.

This is worth keeping in mind as self-serious pundits claim that the $40 trillion national debt is evidence of drunk national politicians spending in ways that render on-leave sailors teetotalers by comparison. The imagery is more than just trite, it’s intensely simplistic. Bars instruct. Whether it’s due to care for customer or an abundance of caution related to liability, those drinking to excess are cut off.

Economists, pundits and politicians themselves tell us that spending by Congress is “out of control,” that it took all of the U.S.’s existence right up to 1981 to run up $1 trillion in debt, but only 46 years subsequently for the $40 trillion number to be reached. Add in the attendant drunken sailor imagery. The commentary and imagery are nonsense.

Think about it. Consider what bars and restaurants yet again do: they cut off those drinking to excess. Forget why they do it, while just recognizing that they do it.

Applied to government, the incentive to rein in its “excessive spenders” is exponentially greater. And that’s because the costs of being wrong with loans and investments are so great. See the power of compound returns to understand the previous truth, while also contemplating the returns enjoyed by those with title to money over the last 46 years.

Precisely because the potential for outsize gains on investment has been so great, the notion that lenders with actual skin in the game would continue to fund the spending of a Congress full of the abjectly wasted is just too silly for words. Worse, it ignores the real crisis.

The real crisis, one alluded to in this opinion piece’s title, is that Congress is not drunk. It’s the opposite of drunk, which means no cut off is coming nor is any bar tab coming due. And it’s not simply because Congress is just getting started: see the yields on Treasurys. At 5%+ as you read this, they’re the same as they were in 2007 when the national debt was a mere $6 trillion.

It signals a crisis rooted in the horrifying fact that Congress can run up $40 trillion in debt without the proverbial bartender anywhere close to cutting it off. The unseen progress lost in the past, present and future thanks to Congress having control of so much precious wealth staggers the mind, but for the fact that the minds of economists, pundits, and politicians are monolithically unperturbed by this.

Focused on a round number that markets scream is the effect of a much bigger problem, they continue to traffic in non sequiturs related to more tax revenue, less spending, and spending reform to fix a crisis of too much tax revenue now, and exponentially more tax revenue in the future. There’s the grievous wound, one no one is discussing lest they miss the chance to demagogue drunken congressmen who haven’t yet begun to drink.

Originally published on Real Clear Markets.