Spending Priorities and the Budget

Americans tend to be fair people. But right now there is populist anger that has not stopped. It started before the 2016 elections and remains a critical factor in 2020. Many Americans are on the edge. This is an economic predicament where people do not have $500 dollars if there is an emergency. Many are working two and three jobs because the rent is very high, and good-paying union jobs are almost non-existent. While Wall Street continues to go up, the mainstream has to cope with homelessness, poor medical care, bad schools, crumbling infrastructure, and other issues.

If you have been on social media long enough, you have heard the complaints, why do we give foreign aid when we have (insert group here) starving in the streets? This comes from a deep frustration with our spending priorities, and a lack of understanding of the same budgetary process that has created this crisis. Foreign aid becomes an easy target, never mind this is like the pennies in your couch. Yes, you could find up to a few bucks, but they will not pay the rent. This is precisely the situation we find ourselves under. Americans across the spectrum demand we stop foreign aid, Israel is a favorite target, never mind it is hardly the only country receiving American largesse. Yet, all foreign aid combined adds up to the spare change we lost on the national sofa.

We need a change in our taxing and spending priorities. But in order to do that, we also need to understand what is going on?

First out of the gate is the deficit, which no surprise here, is topping a trillion dollars. None who followed the discussion during the tax cut debate are surprised in the bit. The Government Accountability Office warned policymakers that this was coming. Why? The tax cuts were going to lead to that result. Trickle-down economics fails to produce a surplus every time. Yet, we keep trying this because Republicans believe in this as if it were the gospel.

All things remaining the same, the budget deficit is expected to hit 149 percent of GDP by 2049. This is a larger deficit than what was present at the end of World War Two, which was 114 percent of the GDP. So slowly consider that. We have not been in a global conflict, however, we are spending money as if we were.

This brings us to the first priority, which is never questioned. Our military budget is out of proportion to the threat. We spend more money in the military than all eight next nations combined. We are concentrating still on kinetic action, meaning military engagement. Our enemies are spending a lot of money on hybrid warfare because it is very effective and orders of magnitude less expensive. And we are stubborn and not authorizing the kind of cybersecurity we need to protect ourselves, or educating our population in cyber-hygiene. But this is also coming from the fact that our leadership is old, and out of touch with new technologies.

However, when it comes to war, there is never a question, can we afford this? Why? The United States has been at war since 1945 in one form or another. Also, since 1945 the decision to go to war functionally has moved from Congress (where it belongs) to the president. So we have moved from one major and minor conflict to the next. Since 911 we have spent $6.4 trillion dollars in the Middle East and Afghanistan. A very small percentage of this has been foreign aid, like the pennies on the couch. Moreover, technically they are separate parts of the budget.

We witnessed this dynamic after the president ordered the strike on Soleimani. People argued whether it was legal, or not. None debated whether this man was a good man. But at no point did we have a discussion, can we afford another war in the Middle East? This is the usual story with issues of war and peace because we are willing to throw away trillions, even in wars of choice such as the Iraq war.

Our investment in war has not made us safer. There, I said it. Especially since our opponents know they cannot take on us in a straight-up fight in the field. So they have gone asymmetrical, and have won many a battle. See the 2016 Russian interference, which will be joined by others in 2020. See China with the artificial islands that are letting them control the Sea of Japan.

There are powerful forces that keep this going. They are part of what Dwight Eisenhower called the military-industrial complex. Mind you, when he gave that speech we were in the midst of a Cold War, that if it went hot might have involved a few nukes. That war came to a screeching end in 1991 when the Berlin Wall collapsed. One reason for this was the Russian war in Afghanistan, which the Soviets fought and did not win. They spent so much blood and treasure that their economy and political system also collapsed.

For those too young to know, or who have forgotten, by December of 1991 the Hammer and Sickle flag came down and the Soviet Union started a process of dissolution. A world power was no more in the course of three months. They were rendered this way because they ran out of money while trying to fight wars, and maintain a large military force.

If this sounds familiar, you could make the argument that we are going bankrupt, due to our present choices. The military is necessary, but when our spending is out of whack with other needs, society stops working.

The Effects of this

Look around. How much of our infrastructure is near failure? It is not just potholes in your local city or the water systems. It is roads and bridges, which are dilapidated. It is airports that are in trouble. When President Donald Trump said this during the 2016 campaign he had a point, however, he had no idea how to fix this. Why he promised, we are still waiting, for an infrastructure bill. That would necessarily redirect some funds from the military and we cannot afford the guns, without the butter.

There is another reason why this bill is not practical, even if it is needed. As a nation, we have no money to spend on roads, bridges, hospitals, police stations, fire stations, and other infrastructure. We also have no money to build schools or research centers. Why? We have decided that we’d rather spend money on national defense, to the suffering of all other priorities. In reality, we are spending more than we have on that as well, which is part of the problem.

This is why we have demands to cut Medicare and Social Security. And these are not limited to Republicans. Conservative Democrats believe these services should be greatly curtailed, if not eliminated. It’s part and parcel of the Third Way best exemplified by Bill Clinton’s penchant for getting the government out of people’s lives. That wing of the party became ascendant in the 1980s, and they are followers of Neoliberal policies, which seek to privatize as much of the government as they can.

This expands to other services. Yes, we need universal healthcare, and roads and bridges. Adaptation to climate change will make current needs pale in comparison. We know it will be expensive, whether it is transforming the energy system, or rebuilding infrastructure.

In 2019 the Washington Post reported this:

”What our study suggests is that climate change is costly for all countries under the business as usual scenario (no matter whether they are hot or cold, rich or poor), and the United States will be one of the countries that will suffer the most (reflecting sharp increases in U.S. average temperatures by 2100),” study co-author Kamiar Mohaddes, an economist at the University of Cambridge, said via email.

For the United States, the study finds that if emissions of greenhouse gases are not significantly cut in keeping with the goals of the Paris accord, the country could see a 10.5 percent cut in real income by 2100. The hardest hit countries will be poorer, tropical nations, but in contrast to previous studies, the new paper finds that no country will be spared and none will see a net benefit economically from global warming.

As all other predictions, this one is likely optimistic. However, even if close to accurate, a loss of ten percent in Gross National Product is significant. And given current spending priorities, we will have even less money to deal with this crisis, and the social services we need.

What to do?

The first thing we need to confront is how out of whack our spending priorities are. But we also need to understand that our taxation system is increasingly regressive. Income inequality is growing, but also making rational spending decisions impossible.

The size of the American economy should be able to support universal healthcare, schools, infrastructure, adaptation to climate change. We also need military capacity, however when we spend as much as we do and we are not safer…questions must be asked.

There are threats out there. However, it is not in the way we have been led to believe. F-35 fighters hold zero deterrence to hackers across the world. We also know that our cyber systems are not as robust as they should. We know this because we get hacked often by different actors around the world, not just Russia. North Korea plays these games often.

Of note, while the present administration believes climate change is a hoax, the Federal Reserve is starting to take it seriously. According to Lawfare:

The Federal Reserve is not a political institution. In the past, it has steered away from issues that have been deemed partisan. However, in recent years, regional banks have reported increasing concern among business owners and consumers about how to insulate themselves against the effects of climate change — from the floods in Texas to the fires in California. But these localized effects are not the only concern: Extreme weather events will disrupt trade routes, pressure to reduce carbon emissions will affect global energy relations, and the international commodity supply chain will be fundamentally shifted as the productive capacities of countries change and governments begin to address subsidies and tariffs supporting dirty industry. Already, Australia’s dollar fell during the first five days of 2020 due to the bush fires, which have caused economic hits on private investment, the farming industry and tourism. Addressing these national and international economic effects is crucial to the Fed’s mission.

Many other central banks, specifically in Europe, have long conducted climate analyses and included climate change in their decision making. In 2017, the Bank for International Settlements and nine central banks launched the Central Banks and Supervisors Network for Greening the Financial System (NGSF) to “better understand and manage the financial risks and opportunity of climate change.” The network now includes most G-20 central banks as well as the World Bank and International Monetary Fund. In April, the network came out with its First Comprehensive Report, which provides six recommendations for how central banks should be planning for climate change. While the U.S. has not joined the network, the new focus on climate impacts helps reengage the Fed in the global economic discussion surrounding climate.

Usually, central banks work in silence. But investment groups like Blackrock are also going there. This will start to put pressure on spending priorities and will likely see a switch on them. We may see this because there is a fear that this could lead to social unrest.

What Blackrock will not do, there are way too many corporate interests, is to take this all the way. We need a change in our tax structure and corporations need to pay their fair share. Corporations use infrastructure, and the schools, and the rest. In other words, at the very least we need to reverse the tax cuts that the Trump administration enacted. We also need to make marginal earnings match the tax rates of regular earners. These stand at fifteen percent taxes on those earnings, while we all pay more in wages. Most Americans work for a living and are employees.

There is another problem with this. It encourages those with money to invest in the stock exchange, not in Main Street. It is a fact that there is a mismatch between Wall Street and Main Street. Real wages have not grown over the last generation, while corporate earnings are though the roof. Corporations are also fiduciary obligated to make that money for investors, so if a workforce is cheaper abroad, they will move. Or if robots are cheaper than either, they will bring those in. The latter is what has mostly occurred in the Rust Belt, with some of the former.

In reality, if we want any of the services other countries enjoy, such as universal healthcare…we will all need to pay higher taxes. However, the trick is how these are structured. They need to be progressive, with those making the most paying the most in taxes. Historically the nation has charged upwards of 90 percent in taxes for top earners. The very wealthy do not pay the highest rates, nor have they done that for the last generation.

We also need to maintain inheritance taxes, to help redistribute wealth and prevent a new form of royalty. The Founders did not like aristocracies. In theory, this goes against our values. Moreover, these people must be willing to pay their fair share since they are where they are because of the nation they live. They have used their social capital to campaign against these things for the last generation, or more. Why? Greed.

We also need to have a deep discussion on how much we prioritize the military. We need defense, that is not the question. Do we need to spend as much as the next eight nations combined? And when hybrid warfare is so effective, we also need to consider how to expand our defenses against that kind of war. We have not while maintaining forces in over eighty countries. Nor has the war in Afghanistan or the Middle East made us more secure. I will argue that Afghanistan will bankrupt us, if not already there, just as it did the Soviet Union.

There are corporate interests who have enriched themselves over the last three generations. They do not want to change this and will beat the fear drums. However, we may have reached the end of that. Why do I say that? People did not rally around the flag over Iran, and this shows the American people are tired of war.

Restructuring our spending priorities will also mean investing in our human capital. We need a well-educated workforce to remain competitive, and we need to make college affordable again. Or plain out free. This is an investment in the future. This will also make a military career less attractive, which is one reason this is opposed. Remember, we have money for the next military project, even when the military does not want it. But we always ask how we are going to pay for things like affordable housing, college, health care, and infrastructure. That is a marker of a declining civilization.

Historian by training. Former day to day reporter. Sometimes a geek who enjoys a good miniatures game.

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