The Debt Dilemma

The U.S. debt is more than $23 trillion, by far the largest in the world. During the fiscal year that ended on Sept. 30, 2019, Uncle Sam laid out nearly $4.4 trillion, while taking in just $3.5 trillion in revenue, which adds up to a $984 billion deficit, 26 percent higher than the year before and equal to 4.6 percent of the country’s gross domestic product. In the first two months of the current fiscal year (October and November) the feds ran a $343 billion deficit.

If not corrected, the fallout from exploding debt will be felt for generations.

Most of the federal budget goes toward entitlement programs such as Social Security, Medicare, and Medicaid, which account for about 47 percent of all spending. Those costs are expected to increase because of the aging population and the resulting rise in health care spending.

Unlike discretionary spending, which Congress must appropriate each year, entitlement spending occurs automatically unless Congress alters the underlying legislation. In the past fiscal year, only 31 percent of federal spending went toward discretionary programs, with defense spending taking up roughly half of that.

Going forward, the nation is looking at trillion-dollar deficits. According to the Congressional Budget Office, federal budget deficits are projected to average $1.2 trillion annually for the next decade thanks to recent tax cuts and spending increases, along with continued growth in entitlements programs.

Federal Reserve Chair Jerome Powell recently testified that the country’s current fiscal situation is unsustainable, noting that high and rising debt threatens to slow economic growth and increase federal interest payments, leaving the country vulnerable when the next recession occurs and putting an undue burden on future generations. The national debt is growing faster than the economy, and its rapid growth threatens the nation’s economic health.

So far, none of the leading presidential candidates, including the incumbent, have interrogated the debt issue. Stoned on their own virtues, invincible in the belief they are right, the candidates make incandescent, seductive promises, promises, and more promises to the laity who are looking for a free lunch and shortcuts to economic growth. These promises, such as Medicare for All, are to be financed by cooking up a raiding party on the 1 percent, on corporate America and on an Amazon forest of magical money trees postponing the day you have to square the ledger.

The reason the debt issue and its attendant risks are studiously avoided is obvious enough: politics trumps (if we can use that word) economics. There is no incentive to put principle before career ambitions. Better to live in the eternal present and just spend, spend, spend. The public is okay with that. The fault, with apologies to Shakespeare, is in ourselves.

There are a number of risks attendant to the rising debt. For example, if interest rates rise, servicing the federal debt will consume resources that could be spent on infrastructure, education, and research. As Chairman Powell noted, increased federal interest payments could leave the country less prepared for the next recession and put undue burdens on future generations.

Correcting the debt trajectory will require politically difficult decisions. Basic economics suggest three options for balancing the books: cut benefits, raise taxes, or do both. There are no easy answers. Whether you seek to increase taxes or cut spending, you are likely to face headwinds. Benefits once given are hard to cut, much less freeze.

The path of least resistance is just to print money. Simply monetize the debt, make asset prices rise and ignore the consequences of currency depreciation. Sound familiar?

One thing is certain; the country needs to get debt under control before the fiscal house of cards collapses and we find ourselves in another financial crisis. It would be wise to recall what Herbert Stein, an economist and member of the Council of Economic Advisors under Presidents Nixon, Ford, and Reagan wrote: “If something cannot go on forever, it will stop”.

A Day That Should Live In Infamy

Editor’s note: This was first published in The Patriot Ledger Dec. 5, 2014.

Early in 1941, the government of resource-poor Japan realized that it needed to seize control of the petroleum and other raw material sources in the Dutch East Indies, French Indochina and the Malay Peninsula. Doing that would require neutralizing the threat posed by the U.S. Navy’s Pacific Fleet based at Pearl Harbor in Hawaii.

The government assigned this task to the Imperial Navy, whose combined fleet was headed by Admiral Isoroku Yamamoto. The Imperial Navy had two strategic alternatives for neutralizing the U.S. Pacific Fleet. One was to cripple the fleet itself through a direct attack on its warships, or cripple Pearl Harbor’s ability to function as the fleet’s forward base in the Pacific.

Crippling the U.S. fleet would require disabling the eight battleships that made up the fleet’s traditional battle line. It was quite a tall order.

The most effective way to cripple Pearl Harbor’s ability to function as a naval base would be to destroy its fuel storage and ship repair facilities. Without them, the Pacific Fleet would have to return to the U.S., where it could no longer deter Japanese military expansion in the region during the year or so it would take to rebuild Pearl Harbor.

It soon became apparent that the basics of either strategy could be carried out through a surprise air raid launched from the Imperial Navy’s six first-line aircraft carriers. Admiral Yamamoto had a reputation as an expert poker player, gained during his years of study at Harvard and as an Imperial Navy naval attaché in Washington. He decided to attack the U.S. warships that were moored each weekend in Pearl Harbor. But in this case the expert poker player picked the wrong target.

The Imperial Navy’s model for everything it did was the British Royal Navy. Standard histories of the Royal Navy emphasized its victories in spectacular naval battles.

Lost in the shuffle was any serious consideration of trying to cripple Pearl Harbor’s ability to function as a forward naval base. So it was that, in one of history’s finest displays of tactical management, six of the world’s best aircraft carriers furtively approached the Hawaiian Islands from the north just before dawn that fateful Sunday, Dec. 7, 1941, launched their planes into the rising sun, caught the U.S. Pacific Fleet with its pants down and wrought havoc in spectacular fashion. On paper at least, this rivaled the British Royal Navy’s triumph at Trafalgar.

But so what?

The American battleships at Pearl Harbor were slow-moving antiques from the World War I era. As we know, the U.S. Navy already had two brand new battleships in its Atlantic Fleet that could run rings around them. And eight new ones the navy was building were even better.

More importantly, the Pacific Fleet’s three aircraft carriers weren’t at Pearl Harbor. American shipyards were already building 10 modern carriers whose planes would later devastate Imperial Navy forces in the air/sea battles of the Philippine Sea and Leyte Gulf.

Most importantly, as the sun set on Dec. 7 and the U.S. Navy gathered the bodies of its 2,117 sailors and Marines killed that day, all-important fuel storage and ship repair facilities remained untouched by Japanese bombs, allowing Pearl Harbor to continue as a forward base for American naval power in the Pacific.

So in reality, Dec. 7 marked the sunset of Japan’s extravagant ambitions to dominate Asia. Admiral Yamamoto and the Imperial Navy’s other tradition-bound leaders chose the wrong targets at Pearl Harbor.

The dictates of tradition are usually the worst guides to follow when it comes doing anything really important. After all, if they survived long enough to be venerated, they’re probably obsolete.