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Economics

La dépense publique excessive des États-Unis doit cesser

Feb 23, 2021 George P. Shultz , John F. Cogan, and John B. Taylor

Avant sa mort, le 6 février, George P. Shultz, ancien secrétaire des États-Unis au Trésor et ancien secrétaire d’État, avait coécrit un ultime commentaire, avertissant des dangers posés par la forte augmentation de la dépense publique des États-Unis au cours des dernières années, y compris durant la crise du Covid-19.

STANFORD – Nombreux sont ceux qui à Washington semblent aujourd’hui penser que le gouvernement fédéral des États-Unis peut dépenser l’argent sans compter tout en échappant au préjudice économique qu’entraîne une telle dépense. Ils se trompent. Une dépense fédérale excessive fait courir à l’économie et à la sécurité nationale des risques graves. L’irresponsabilité budgétaire de l’Amérique doit cesser.

La crise du Covid-19 a fourni l’encouragement le plus récent à la dépense publique, au point même d’incliner la mentalité américaine au socialisme – une doctrine qui a toujours nui au bien-être des populations. Mais certains affirment qu’on ne saurait s’inquiéter d’une dépense excessive. Après tout, font-ils valoir, rien n’indique que les taux d’intérêt, descendus à un niveau historiquement bas, remonteront. L’économie tournait parfaitement bien avant que la pandémie ne frappe, et elle se relancera sans aucun doute lorsque la maladie aura été vaincue. Sent-on d’ailleurs dans l’air le moindre parfum d’inflation ?

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George P. Shultz

Writing for PS since 2020
2 Commentaries

George P. Shultz was US Secretary of State (1982-89), Secretary of the Treasury (1972-74), Secretary of Labor (1969-70), and a fellow at the Hoover Institution.

John F. Cogan

1 Commentary

John F. Cogan is a senior fellow at the Hoover Institution and a faculty member in the Public Policy Program at Stanford University.

John B. Taylor

Writing for PS since 2020
14 Commentaries

John B. Taylor, a former under-secretary of the US Treasury (2001-05), is Professor of Economics at Stanford University and a senior fellow at the Hoover Institution. He is the author of Global Financial Warriors and co-author (with George P. Shultz) of Choose Economic Freedom.

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0 Comments on this paragraph, 16 Comments on this article

j. von Hettlingen Mar 2, 2021

John F. Cogan, John B. Taylor and the late George P. Shultz question the wisdom of government borrowing amid a ravaging health crisis. Before his death on February 6, Shultz, a former US Secretary of the Treasury and Secretary of State, co-authored a final commentary warning of the dangers posed by the vast increase in pulbic spending in recent years, including during the Cvoid-19 pandemic. He may now be turning in his grave at the thought of Biden’s stimulus plan.
The ongoing crisis “has provided the latest impetus for government spending.” Now the authors fear that the current rescue package would steer “the American mindset toward socialism - a doctrine that has always harmed people’s well-being.” They say the worry about excess spending is not overblown, dismissing arguments that interest rates are at record-low and show no sign of rising, and that the economy was booming until Covid-19 hit, “and will no doubt rebound strongly when it ends.”
Although there is no “whiff of inflation in the air,” it is dormant. Economists, including the authors - think that “profligate government spending invariably has damaging consequences.” They believe that the trillions of dollars, euros and pounds from pandemic-inspired government stimulus packages must, with almost mathematical inevitability, will lead to rising inflation, which is disastrous, because it wipes out the real value of one’s savings and pensions etc.
The authors say it is wrong to “think that the US federal government can spend a limitless amount of money without any harmful economic consequences…..Excessive federal spending is creating grave economic and national-security risks.” The government’s ability to borrow in times of national crisis has been a priceless national asset, but the well is in danger of running dry. High federal debt “will eventually crowd out private investment, thereby slowing economic growth and job creation.”
Financial markets will become more instable - “prone to turmoil, increasing the chance of an economic meltdown. Their “current relative calm and low consumer-price inflation are no cause for comfort. Previous periods of sharp increases in inflation, rapidly rising interest rates, and financial crises have followed periods of excessive debt like a sudden wind, without warning.” Mounting government debt will burden generations to come. So this “fiscal recklessness must stop.”
As fiscal conservatives, the authors doubt “higher tax rates” will help. Even before the pandemic hit, every federal tax rate would have had to be increased by one-third in order to finance the current level of federal spending without adding to the national debt.” Higher taxes - like rising federal debt - are harmful to economic growth and employment. Cutting defence budget to reduce deficit is “a grave strategic mistake, weakening US national security and emboldening the country’s foreign adversaries – particularly now that China is flexing its muscles in Asia and investing heavily in its military.”
The authors rail against the government’s “careless spending,” and “policymakers’ mistaken belief that deficits and debt don’t matter.” They say this had led to “the sad culmination of a long downward slide in fiscal responsibility” throughout history. They also resent how Franklin D. Roosevelt’s New Deal “broke this norm, and deficit spending has since become a way of life in Washington, with the federal government outspending its available revenues in 63 of the 75 years since the end of World War II.”
But they offer no advice as how to resolve the current crisis without a stimulus package rooted in Keynesian ecconomics. Would learning from history help? They say, “from 1789 to the 1930s, the federal government adhered to a balanced-budget norm, incurring fiscal deficits during wartime and economic recessions, and running modest surpluses during good times to pay down this debt. This prudent management of the federal finances was instrumental in establishing America’s strong position in world financial markets.”
The authors blame FDR’s New Deal for the expansion of entitlement programmes, as well as their inefficiency and their cost. Neither tax revenues nor revenues generated by the national economy have been able to keep pace with their rising growth, bringing the national debt to a record peacetime level.” They hope that the American people will wake up and look at the unsustainable debt levels, realising that “they and the US economy will be better off with a different approach. At that point, America’s democratic system will say the expenditure growth must stop.”
The problem is that governments all over the world - from China to the US - ignore the costs of debt-fueled growth, because they deem social stability more important than debt accumulation. In order to put their countries’ economy back on track, they see no way out of this Covid-19 induced recession other than growth fueled by record-high public debt. No politicians want to face mass protests und deal with political turmoil.
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Fred Carstensen Mar 1, 2021

This hand-wringing seems detached from the realities of America's long-term decline. Let me repeat that: it is detached from the realities of America's long-term decline. Apparently these three think if we just clean up public sector spending everything will be fine. No. In 1993, America led the world in college graduation in that age cohort; it is now at least 19th, but probably lower. More striking, where America once led the world in public sector investment in research, on one measure it is now behind Slovenia. Do you even know where Slovenia is? On publicly-funded university based research, America now ranks 28th (yes, 28th), behind Slovenia. America once led the world with its remarkable infrastructure--and it is now arguable the worst of any advanced economy, extracting a $600+ BILLION annual tax. Only our grossly inefficient health care system (which ranks in the 30s for quality) costs our economy more--about 8% vs. 3%. China's economy on PPP has been larger than America's now for a few years. The CBO long-term projections for American growth are dismal. Do these authors speak to any of this? Are they even aware of how America has declined, failing to adjust (as Alden laids out in his book) to the realities of the global economy since 1970 (yes, our decline began in the 1970s when we decided that we didn't really want to compete).

Complaining about excessive government spending without considering for what purposes it is spent and the long-term decline of America because of a broad failure of government to spend on the very things that once made America great (human capital and infrastructure) is simply disconnected from the realities of 2021.
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_ pyradius Feb 28, 2021

According to Henry George re:Civil War, “The United States might have come through the war without a penny of public debt if the government had taken wealth from its possessors as ruthlessly as it took men. Whether the wealthy classes would have submitted to this is quite another question.”
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Joe Ryan Feb 28, 2021

If the authors had suggested any particular cuts in USG outlays, we would have a clearer picture of what they are really saying. But then no one would agree with them.
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Paul Daley Feb 24, 2021

Shultz is always good. As you can see below, most arguments against prudent financial management take the old 1920s and 1930s form of "supply creates its own demand" or "demand creates its own supply" or "every liability is someone else's asset;" etc. But assets and liabilities can have very different characteristics, as in 2007 and 2008, when investors suddenly woke up to the fact that the real value of the mortgages underlying mortgage backed securities didn't line up with the prices paid for those securities. A blood bath followed, in both financial markets and the real economy, which governments and central banks patched over by issuing their own questionable debt in amounts relative to national income that have rarely been tried before. But that orgy of debt issuance left questions behind. How long will anyone voluntarily hold that debt? Will anyone buy more if another crisis emerges? And, perhaps most importantly, why have we put ourselves in a position where we even have to ask these questions? That is the point that Shultz has raised.
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Michael Public Feb 23, 2021

You speak about debt without any clear understanding of the double sided nature of it.

Let's do a quick debt 101.

If you borrow $10 from your dad and spend it on candy - you just lost $22 dollars - $10 dollars on candy, $2 on interest and $10 dollars for the dentist.

On the other hand, if you borrow $27 trillion from China and other exporters at near zero interest rates you just made $27 trillion profit because they will never repatriate it, it would just cause their currency to appreciate leaving them unable to export, which is their only source of wealth - the only way they can function is to loan the money back to America.

Everything depends on the dynamics underlying the money - there is no such thing as 'debt = bad' and 'money under mattress = good", maybe in 1843 it worked like that, but certainly not today.
- Steve Gokorsch Feb 28, 2021
  
  Hmm, If I had $27M in profits from selling goods to the US I would use those profits to purchase real assets in America. I'd look for real estate as well as revenue generating commercial properties. I'd buy manufacturing assets, even purchase I/P and patents. I may even finance the building of toll roads providing me with a long term income stream. In time I would OWN the US.
  
  p.s. We just repatriated a lot of profit which was overseas. What kept that money off shore was the high US corporate tax rate. Shareholders will in time demand they get their share of profit (dividends). (OR they will sell their appreciated stock and take the money)
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- Prashant Kotak Feb 24, 2021
  
  $2 interest on a $10 loan in today's zirp climate - and to his own child as well - that is one usurious dad!
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- Daniel Pettit Feb 24, 2021
  
  This is a great comment. I was thinking along the same lines as I was reading this. Gov debt should not be viewed in the same light as personal debt or expenditure as individuals cannot print or control their own money supply.
  
  The ramifications can be managed carefully in due course, the fact is that the pandemic and the economic reality have required stimulus and support in order to protect households and maintain a semblance of economic normality.
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Michael Public Feb 23, 2021

The 9/11 terrorists came from a friendly nation - Saudi Arabia.
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Michael Public Feb 23, 2021

Really? China is factually no threat to 'national security' at all. Maybe you mean to 'US power projection in Asia' - ok sure - but that is a different thing - calling empire building 'national security' is a euphemism on par with Hitler calling Nazi Germany aggressions 'Lebensraum'.
- Steve Gokorsch Feb 28, 2021
  
  No threat? Why build fortified air bases in the South China sea? Why did they begin building aircraft carriers? How about 5 gen air superiority fighters?
  
  Time after time we Americans assume other nations have no ill intent as they build up their armed forces. We are surprised when attacked. We were rational when confronted with the USSR's threat following WW2 and matched their military build up - preventing a hot war, replacing it with a cold war. That war ended without a shot being fired.
  
  We may again need to build up our military to match a much larger and better financed military, the CCP's. I hope we have the financial resources to defend our nation.
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Michael Public Feb 23, 2021

"Likewise, financial markets during the years immediately preceding the 2007-09 Great Recession provided little indication of the calamity that would ensue."

No. The indicators were everywhere. You cannot double value of real estate in just a couple years when since 1870 it's average real value has hardly fluctuated. Nobody likes a short when the bubble is still inflating, see the Michael Burry story.
- Peter Schaeffer Mar 23, 2021
  
  I remember that pre-2008 real estate bubble rather well. Everyone (almost) inside it, took it as the most natural thing in the world. Only a few people outside of the bubble raised any alarms. The same things could be said of the Tech bubble in the late 1990s or the oil bubble in the 1970s.
  
  Bubbles seem very real and 'normal' when you are in one (maybe that's the definition of a bubble). Only after they burst do they seem crazy.
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Michael Public Feb 23, 2021

"socialism – a doctrine that has always harmed people’s well-being"

Always? 10 out of the top 10 countries on the standard of living index are more socialist than America. Maybe you mean Iron Curtain countries? Well, Estonia today has a better standard of living than the US.

https://worldpopulationreview.com/country-rankings/standard-of-living-by-country
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