Game “Chicken with a stack of rudders”
Imagine a stage set for our amusement. A cool pink dawn breaks and Joe Biden sits in his shiny blue 1968 GTO and revs the engine. A mile away, facing him on the straight desert road, is Kevin McCarthy in his dusty red 1967 Mustang muscle car, smoking his last cigarette.
Chicken game. Drivers accelerate towards each other along a single lane. If both stop at the last moment, there will be a draw, but it was very exciting. If both go straight, there will be a fiery – and quite avoidable – accident in which everyone will die. To win, the rider must drive straight while his opponent must swerve at the last second.
Cars are powerful; it will only take a few seconds. But as the president accelerates, he sees something unsettling: McCarthy has thrown the steering wheel out of the car! Dan, now Can not deviate By eliminating the possibility of compromise, he won the game.
But JB is not weak. He throws his steering wheel to the window. His supporters, lined up along the road, are cheering and jumping around.
And then McCarthy does an amazing thing: throws another steering wheel to the window. Turns out he has a whole stack of them on the seat next to him.
Of course, Biden is an experienced politician. He also has a stack of loose, non-functional rudders. Soon they both throw them out the window in handfuls, making sure that everyone can see that they are serious: “I don’t turn. You know better!”
Nonsense debt ceiling
Over the past month or so, I have met many people who know exactly what to do with the debt ceiling. Everyone agrees that the solution is obvious. Where they disagree is the nature of this decision. Here’s the problem: voters, I mean almost all voters, want three things.
A. Increase government spending on the things they want.
B. Lower taxes so they have more money.
C. Reduce deficit.
For the most part, for Democrats, the order of preference is: A > B > C. For Republicans, the order is greater than B > A > C. The last important politician who wanted something different was William J. Clinton, who apparently preferred C > A > B.
Idea “debt ceiling” introduced in 1917, was to force politicians who wanted to increase spending or cut taxes to consider how these two impulses stacked up. Of course, this looks a bit silly, because the level of spending is determined by legislation and signed by the President, and the various tax rates are determined by legislation and signed by the President. If spending is what Congress and the President want, and taxes are what Congress and the President want, then the annual deficit should be what they want. And debt is simply the accumulation of deficits over time.
All of this worked well enough as long as fiscal conservatism was a separate norm that most politicians cared about. But, as I said almost four years ago, there was a decrease in the deficit accounting standard. Then my fears in retrospect seem pitiful; then the debt-to-GDP ratio was only 105 percent. In the summer of 2020, we blew 30 percent, the ground leveled out above 120 percent. Just for comparison, Greece’s public debt level – considered high enough to cause a major crisis in 2007-2008 – was around 120 percent.
The problem we face is clear: voters want more spending, lower taxes and deficits. This is true; they really want these things. However, there is nothing irrational in this. I want to lose weight, eat a whole cake, sit on the couch and watch Netflix. I really want all these things.
Thomas Sowell said that the first rule of economics is scarcity; the first rule of politics is to ignore the first rule of economics. So politicians from both state-backed parties refuse to cut spending, maneuver to lower taxes for their most powerful supporters, and then complain loudly about the deficit.
People often complain about the “irrationality” of politics, but there is nothing irrational about the process that has created our crushing debt burden. Voters really want smaller deficitsprovided that does not involve spending cuts or tax increases.
There are two problems that no one talks about. In fact, politicians don’t want to talk about two real issues, which is why we’re all watching Biden and McCarthy play chicken instead of solving problems. Two problems: DAFT and interest.
“The deficit is future taxes” (DAFT.) If the government cuts taxes without cutting spending, the deficit will widen. There have been times in US history when it could have been the other way around, but now rates are low enough (in fact, almost half of all Americans pay zero federal income tax) so tax cuts increase the deficit. But the increase in the deficit must be financed in the future, either through higher taxes or more borrowing. If we use future taxes to pay for the current deficit plus interest, then tax cut today even in reality tax increases for future generations. In fact, it turns out that The US is set to implement the largest intergenerational transfer of wealth in human history..
Interest: If we don’t cut costs, then costs will be cut for us when debt servicing becomes such a big budget item that it crowds out spending that the left loves so much. In fact, by 2026 interest payments on debt can be 10 percent of total federal spending. By comparison, total defense spending is 12 percent of the budget. When you add the fact that Medicare and Social Security make up 30 percent of the budget.and payments to the poor for health and guaranteed income are 30 percent, there is no budget left.
So, I summarize:
1. Strategy of the Right cutting taxes, because no one really wants to cut spending, actually causes huge tax increaseso the tax cuts are fake.
2. Left use strategy deficit to finance expenditure has created such large budgetary obligations that it actually causes cost reductionso the increase in spending is fake.
This means we can’t cut taxes and we can’t increase spending, really.
Of course, people in Washington understand everything I have said. That’s why our political parties are playing this dramatic chicken game: they pretending to care about debt. But they agreed in advance that both would turn off at the last moment, because they both have a lot of steering wheel. And one way or another, the public will be grateful that the political system has avoided the fiery crash that the politicians deliberately created in the first place.