Is capitalism the “devil’s dung” or is it the only moral choice?
There are those who look at income disparity in countries that practice some level of a free market oriented economy and decry that some have more wealth and make more money than others.
Others look at the same economy and see income diversity and the capitalist system that creates it as the great equalizer, allowing those who work hard and create value to get a bigger piece of an expanding pie.
These are the two basic views of the world that exist, and whether one decries or extols capitalism is largely a function of whether someone believes in equal outcomes for all, or instead, equal opportunities with diverse outcomes determined by the marketplace.
Candidates, like former Socialist Party Mayor of Burlington, Vermont and current Democratic Party candidate for President Bernie Sanders, pretend that expanding government spending by $18 trillion over the next decade is the moral position and those who wish to cut government spending are greedy and immoral.
Sanders, as a currently sitting United States Senator, should know better. As a member of the Senate Budget Committee, Sanders should be aware that this exact kind of spending spree would have catastrophic consequences for those who are the least of these. So one can only conclude that he is either blissfully incompetent remaining unaware of our nation’s coming fiscal catastrophe, or he is like the musicians on the deck of the Titanic determined to keep playing the big government game until the nation hits the icy water.
Here are our nation’s fiscal facts.
In 2020, the White House Office of Management & Budget projects that America will be spending more than $750 billion in interest payments on the national debt alone. This is projected to be around 17 percent of every tax dollar collected and that percentage rises going forward. The country’s national debt would have increased to more than $21 trillion in 2020 with the half a trillion dollar annual deficits that are anticipated between now and 2020 increasing ominously toward trillion dollar ones in the 2020s.
While tax revenues are optimistically projected to increase by around 30 percent during the late-2010s, spending on so-called mandatory programs like Social Security, Medicare and interest payments on the debt are expected to increase by a like amount, eating up all of the additional tax money collected.
All the while, the principal owed on America’s credit card bill known as the national debt keeps growing by about 5 percent a year, while the overall economy is projected to grow nominally by 4 percent at best annually. The gap ever widening from the current astronomical debt to Gross Domestic Product (GDP) level of 101.4 percent
And herein lies the problem for those who claim continuing or expanding the social welfare spending in the U.S. is moral. There comes a point where the willingness of banks and other nations to purchase U.S. debt will be anchored to the interest rate return on the investment.
A rising interest rate due to an increased threat of default means higher fixed borrowing costs, recession, higher unemployment — creating a vicious cycle where interest on the debt consumes a larger and larger piece of the budget pie to the exclusion of other spending with no end in sight.
Policy makers in this situation will need to choose between some hard choices. Faced with fixed costs for the first time, they might attempt to manipulate interest rates via the Federal Reserve. Or failing that, they could default on the debt payments owed or make draconian changes to the entitlement systems that impact the very people who the Bernie Sanders’ of the world claim to want to help.
Of course, they could also raise taxes and effectively slow the economy for a short-term fix, but at the expense of the kind of economic growth needed to make certain that everyone who wants a job can participate in the American dream, ultimately sabotaging the very fix they imposed.
The truth is that our elected officials have to face the reality that failure to make tough choices now only makes them harder and more painful for those who are truly in need tomorrow when the printing press can no longer be used. For those who believe that government should provide a social safety net for the poorest of the poor, the only moral choice is to reform entitlement and social welfare discretionary spending as soon as possible to preserve that safety net from being ripped asunder by future debt service payment demands as Greece is experiencing now. Witness there the ruin of high interest rates, high unemployment, and deflation.
Today, the United States stands as the largest debtor nation in history, with the eleventh worse debt to GDP ratio in the world. The past fifty years have seen the size, scope and cost of government escalate well beyond the rate of growth of our economy with the last six years adding six trillion of debt to the balance sheet.
Failure to take steps now to balance the budget, grow the economy rapidly, and begin the process of paying down the national debt will have catastrophic consequences both domestically and around the world.
Robust growth fueled by capitalism is the only way to continue to meet our obligations as a nation. If we do not grow, and grow fast, debt deflation is a real possibility, with incomes falling even while debt owed increases. It will crush the safety net — and everything else.
The moral imperative is to act, before acting becomes a political impossibility and the cost of servicing our debt destroys our nation’s ability to pay it.
The great news is that a fundamental, and much proven aspect of capitalism is that free market economies are not static. They expand and contract with the innovation set free by the profit motive leading to a constant bias toward creating wealth and growth. It is the very nature of the free flow of goods and services to create wealth, and if our government can get spending under control, the debt to GDP ratio will drop and the slouch toward fiscal suicide will be reversed.
For those who decry capitalism, the ugly reality is that socialism and big government is doomed to collapse under its own weight taking those it purported to want to help into the abyss with it. Somehow this sounds much more like the devil’s dung than the freedom of choice and the ability to pay for helping those who can’t help themselves that capitalist economic systems provide.
The author is president of Americans for Limited Government.