The Cruelty of Government Consumption Is Felt By Us All, Now

On February 14, 2011, Uber sold 20% of itself to Benchmark Capital for $11 million. Uber is presently worth $136 billion, yet it handed over 20 percent of itself for $11 million? Why didn’t its executives borrow the money?

In the question readers can hopefully find the answer. There was no interest rate high enough to compensate lenders for a $100,000 loan to Uber in 2011, let alone $11 million. Since its future was the definition of uncertain, its only source of cash was equity the eventual cost of which can now be measured in billions.

Uber presently has $14 billion worth of debt. Now that markets trust its future, it no longer must sell its upside.

Uber’s debt trajectory rates thought as a way of considering economist Peter Jacobsen’s correct critique of President Trump’s obnoxious promise to American voters: $5,000 to each adult U.S. citizen if the Republicans hold on to the House and Senate. There's no disagreement with Jacobsen there.

The disagrement is with Jacobsen’s principal lament that Trump is offering handouts that will be paid for by future generations. No, that’s incorrect. It’s unwittingly rooted in a Keynesian view that government spending has a near-term upside that others will suffer long-term. No, that's definitely incorrect.

The horrors of government consumption are felt right away through more dysfunction born of government consumption, less progress, less freedom, and greatly reduced wages.

Jacobsen makes the odd case that we live high on government consumption now while, in the words of economists James Buchanan and Richard Wagner, future generations pay for our good times since they “face fiscal burdens that owe their origins exclusively to the profligacy of their forebears.” As is written here frequently, the narrative wouldn't pass muster with Vietnam vets, War on Poverty “beneficiaries,” veterans of Afghanistan, Iran, and Iraq, not to mention those left unemployed by the 2020 lockdowns thanks to government spending in the here and now.

Government spending is the central planning of precious resources. That’s a big problem now.

Jacobsen worries about the debt left to future generations, but debt doesn’t just happen. Said another way, Congress’s borrowing is an effect of an excess of tax revenue now that lenders believe will continue.

This in mind, consider the unseen now. Think Uber. Think how expensive capital is for would-be innovators. Consider this through the prism of Washington’s profligacy right now. How many Ubers, Nvidia’s and Apple’s aren’t taking flight now because government is consuming so much capital now?

Jacobsen could perhaps be convinced that a focus on taxation vs. borrowing is mistaken. The sin is in the extraction, not in how it’s extracted. And it’s all rooted in excessive taxation of the rich right now.

They’re the source of an overwhelming majority of federal tax revenues, but also an overwhelming majority of intrepid investment. Which is the point about borrowing.

Without investor confidence in the fleecing of the U.S.’s richest now, not to mention their ongoing fleecing, there would be very little borrowing. Government debt is a reflection of extraordinary confidence in present and future incomings born of this excessive taxation of the rich.

We have a too much tax revenue problem that we’re paying for right now through an excess of economy-sapping spending. The future debt, as this column has long argued, is the indefensible but tragically easy part relative to the horrors of goverment spending right now, not to mention the progress not happening now due to an excess of tax revenue extracted from the very individuals most capable of inventing a much better, healthier, and more prosperous future with their unspent wealth.

Originally published on Real Clear Markets.