Experts too easily forget that “government spending” is a benign way of describing central planning of precious resources.
Which means it fails repeatedly. Rich as the U.S. presently is, we’re a fraction as rich as we could be if the federal government weren’t such a size allocator of wealth not its own.
It recalls a recent post by Kite & Key Media, a very good and very effective right-of-center producer of economics videos. They weren’t so great last week.
In a video about federal spending cleverly titled “The High Cost of the Past…,” they made a case that “We are, after all, a fabulously wealthy nation. So, whatever your priorities — better schools, a bigger military, improved health care, tougher border enforcement — you’d think that Congress would be able to find enough money in the till to get us top-of-the-line stuff.”
It’s no doubt true what they say about the U.S. being fabulously rich, but the truth seemingly blinds them to the soaring tax revenue problem associated with all the wealth. As evidenced by $38 trillion worth of debt in concert with very low market yields on that debt, the expectation in the deepest markets in the world (U.S. Treasuries) is that future tax revenue for the federal government is set to soar.
That’s too bad because government spending is by its very description very harmful. Rather than make this case, Kite & Key’s editors lament that programs created by Congress in the past limit the ability of the political class of the present to allegedly improve our lot by focusing on “top-of-the-line stuff” with tax dollars collected in the present.
In their words, “In the 2024 fiscal year, the federal government spent $6.8 trillion.iii The amount that Congress actually got to decide how to spend? About $1.8 trillion — or only a little over 25 percent.” Why the disparity? Kite & Key’s editors correctly point out that the other $4.1 trillion, “more than double as much — went to what’s called “mandatory spending”: money that Congress is essentially obligated to spend. Those are things like Medicare, Medicaid, and Social Security.” This is where Kite & Key further goes off track.
Explicit in their lament about the costs of Medicare, Medicaid and Social Security is that “the past” is limiting government spending in the present by over $4 trillion. Ok, but isn’t that a good thing? And that’s not a defense of indefensible programs like Medicare, Medicaid and Social Security.
Instead, it’s just a comment that central planning of resources by governments is invariably harmful. Which is a further comment that bad as Medicare, Medicaid and Social Security are, precisely because they’re dopey insurance plans from the past, they’re known and priced.
In which case, imagine the myriad ways Congress could do us harm if had $6.8 trillion to spend instead of the $1.8 trillion that the Kite & Key editors oddly lament as not enough. They could probably be convinced that they’ve approached federal consumption the wrong way.
With the costs of Medicare, Medicaid and Social Security top of mind, they write unhappily that “the federal government is basically an insurance company that happens to have a military.” Sure, but without defending trillions in government revenue and subsequent waste for even a second, programs created by Congress in the past are by their very description a barrier to Congress dreaming up all new, and invariably harmful central plans. This is something to celebrate.
Originally published on Real Clear Markets.
