With the election just over 2 weeks away we are approaching peak hysteria. Each candidate claims that if the other candidate gets elected the world will come to an immediate grinding halt etc. etc. Plus both sides have their legal teams fired up and ready for combat in the event the other side wins, irrespective of the actual merits.
Of course partisans on either side of the divide do not concern themselves with the merits of the case or with actual facts; simple assertions will do just fine, thank you very much. And the talking heads of the commentariat, who read each others columns, are perfectly content to repeat the conventional wisdom as if they possess unique insight into the game.
They don’t.
Let’s take a trip down memory lane. Remember back in 2016 when it Hillary Clinton had it in the bag? Or in 2022 when the Republicans would be the beneficiaries of a Big Red Wave that somehow mysteriously failed to materialize? Or that the Trump candidacy was bound to antagonize Hispanic voters?
The ready-made excuse among the commentariat was that “the polls” were “wrong”. This despite the fact that low quality and infrequent state polls were put in the same category as frequent and high quality national polls, which, by the way, were essentially correct about the aggregate vote, but they didn’t measure the distribution of votes across states.
This time, in a vacuous campaign most notable for its degree of personal animosity, we are once again being consumed by the horse race aspects of the campaign. This comes at the expense of missing what in retrospect will become obvious.
First, the nation is fairly evenly divided. Which means that the winner will not have secured a mandate, though the winner will undoubtedly declare one. Second, there are two major (and related) questions that America faces. Those questions have been largely ignored by both candidates.
The questions are: (1a) what should America’s role in the world be? (1b) is the United States willing to pay the price of being the global hegemon that continues to enforce the post WWII Pax Americana? Or (1c) is it ready to cede the space to another power or powers?
(2) A statement: U.S. public finance is a mess. Accumulated debt is about $35 trillion. We pay almost as much for interest on the debt as we spend on the military. Question: Is the United States willing to get its public finances in order and begin to reduce its dependence on debt finance?
Questions A and B are related because together they imply a massive shift in resources from the domestic sphere to foreign affairs. That is if the United States wishes to maintain its global hegemony. Even if not, we are rapidly approaching the point where key strategic decisions will have to be made. The reason why is that piling up debt at a rate of 2 trillion per year as is projected (using rosy assumptions!) is simply not sustainable.
In addition, military spending is inadequate to maintain, much less increase our capacity to enforce a 21st century Pax Americana. Further, simply maintaining the current course implies a drastic reduction in living standards across America.
To see why consider that the vast majority of domestic spending does not contribute to economic output. Instead it represents transfer payments. Also consider that, despite the illusion to the contrary, debt finance is not free. The debt has to be paid back. The money that the federal government borrows is money that could have been used by the private sector. Which means that all that borrowing slows growth. And anybody who thinks that the government’s use of funds is more efficient than the private sector’s is, to put it mildly, dreaming.
Meanwhile according to the latest Economic Report of the President outlays on national defense dropped from 16.35% to 13.37% of the federal budget from 2001 through 2023. At the same time outlays for spending on Health, Medicare, Income Security and Social Security combined rose from 58.6% to 63% of outlays. A lot of that is borrowed money.
Since borrowing simply represents deferred taxes, we have outstanding deferred taxes of about $35 trillion—and rising by about $2 trillion per year as far as the eye can see. Not only is this unsustainable, both candidates are promising to either cut taxes or spend more on plans that make zero economic sense. For instance, Donald Trump says he won’t tax tips; Kamala Harris promises a $25,000 give away to first time home buyers. Neither proposal, essentially vote buying exercises, makes any economic sense.
Donald Trump promises to increase the deduction for SALT taxes—thereby negating one of the sensible things he did in his first term. Kamala Harris means to eliminate “price gouging” through price controls, a proposal that any freshman economics student would (or should) laugh at.
And to boot, notwithstanding the passions of the ignorati, the well being of the US economy and American living standards depend on global free trade, global Liberalism and freedom of the seas. But we have nations that are working hard at eliminating those prerequisites.
The major players that stand in opposition are China, Russia, Iran and North Korea. The only nation capable of standing up to them and enforcing a rules based global order is the United States operating in conjunction with its allies. That will require both soft and hard power. Which in turn will cost money.
The usual dodge so beloved by politicians—which is to say that the other guy will have to pay—is no longer tenable. There will have to be a substantial reordering of the entitlement state and a significant increase in military spending for the foreseeable future. All of which implies that: entitlements have to be reformed, spending growth in general will have to be reduced with the proviso that military spending will have to rise. Further, the US will have to readjust its strategy from conflict avoidance to one that encompasses both active and credible deterrence. In addition the US along with its allies, will have to advocate for the classically liberal values of Western Civilization instead of apologizing for them.
That will require real and sustained American leadership. And neither presidential candidate gives the slightest indication of having what it takes.
JFB
