David Stockman's Contra Corner
February 7, 2024
When it comes to illuminating the nation's towering public debt, here are two bookend pictures that are as good as any. In June 1970, when we took leave of protesting the Vietnam War and dodging the draft at Harvard Divinity School in order to pursue the cause of peace and freedom as a Congressional staffer (sic!), the public debt of the United States was $370 billion.
As it happened, our first assignment as a newly minted legislative assistant to Congressman John B. Anderson was to work on the War Powers Act, which was designed to throttle trigger-happy presidents and prevent more Vietnams. Alas, what we got instead was the endless Forever Wars and 53 years later a public debt that stood at $34.0 trillion.
Even in the Washington's world of giant quantities of OPM (other peoples' money), a 92-fold rise in anything during a single adult lifetime amounts to a collar-grabber. And, yes, we can take the inflation out of the figure and also put it in context by comparing it to GDP, and the rise of public debt remains no less daunting.
In today's dollars of purchasing power (2023 $) the public debt in 1970 was $2.3 trillion. So in real terms it grew by 15X over a half century span when the real GDP rose by only 4X. Measured as a burden on national income, therefore, the public debt soared from 35% of GDP and falling in 1970 to 122% of GDP in 2023 and heading steeply skyward.
Our purpose here is to contend that the big picture causes of this unsustainable public debt eruption are War, Welfare and Wampum-and the addiction of the Washington Uniparty to all three. That is, massive, unnecessary spending for national security, a Wel fare State entitlements machine that is unchecked by Congress' power of the purse and a rogue central bank which has enabled both of these spending tidal waves via rampant monetization of the public debt.
These causes are bad enough in their own right. But what is worse is the conventional wisdom holding that all this government spending, borrowing and printing had a silver lining. Allegedly, it enabled Washington to counteract recessions and stimulate higher economic and jobs growth during that 53-year span than would have otherwise occurred under market capitalism left to its own devices.
Well, no, it did nothing of the kind. Here are five core metrics of economic performance during the 16 years before 1970, when spending, deficits and money-printing were reasonably contained, and the like 16 years ending in Q4 2023, when most surely they were not.
In short, about $31 trillion of real dollar public debt later the contrast stands as between night and day. During the most recent 16-year period the annualized gain in real economic growth, real hourly compensation, real net domestic investment, industrial production and real median family income fell by 54%, 72%, 68%, 99% and 79%, respectively, compared to outcomes during 1954-1970.
Per Annum Change During 1954-1970 Versus 2007-2023
- Real economic growth: 3.9% versus 1.8%.
- Average real hourly compensation: 2.5% versus 0.7%.
- Real net domestic investment: 5.0% versus 1.6%.
- Industrial production: 4.0% versus o.4%.
- Real median family income: 3.3% versus 0.7%.
Nor is the above the totality of the evidence against the modern-day folly of deficit finance. As it happened, during Calvin Coolidge's six budgets there was a fiscal surplus every year, even as taxes were cut multiple times. These continuous surpluses averaged more than 1.0% of GDP and in today's money (2023 $) cumulated to nearly $90 billion.
Alas, did these antediluvian fiscal policies leave the American economy parched for growth, jobs and prosperity?
They did not. Real GDP rose by 3.9% per annum during 1923-1928, inflation posted at - 0.1% and real GDP per capita increased by 2.4% per year. There is no six-year period since then that generated a confluence of economic gains even remotely this robust.
So, nuff said. All the spending and borrowing since 1970 has encumbered future generations with an insuperable debt albatross, even as it has left present day Americans with hardly a fraction of the economic improvement rates enjoyed by their parents and grandparents a half century ago.
Needless to say, the fantastic ballooning of the Warfare State and Welfare State during the interim leaves little to the imagination. The numbers are a grand indictment of fiscal misgovernance at biblical scale.
In this context, we measure the Warfare State as the sum of the defense spending proper per the (050) budget function for national defense-plus international security aid and operations (150) for the softer dimensions of the Empire and Veterans Affairs (700). The latter captures the deferred costs of medical care and income support for the 11 million veterans who have been the collateral damage of Washington's Forever Wars.
As it happened, that comprehensive measure of the Warfare State budget amounted to $95 billion in 1970, but has since spiraled upwards to $1.2 trillion as of FY 2023. The latter included defense outlays of $815 billion plus $80 billion for international operations and $305 billion for Veterans benefits.
Again, we can squeeze the inflation out of that nearly 13X gain and it still amounts to no mean level of expansion. Expressed in 2023$, the 1970 national security budget was $580 billion or just 42% of current levels.
But here's the thing. The 1970 national security budget occurred at the peak of the Cold War and when the Soviet Empire still had a powerful, if lumbering, industrial economy and 50,000 tanks on the central front. It also came at a time when Mao's China was an insular economic barracks deeply hostile to the west. But the Cold War ended 33-years ago and post-Mao China went gung-ho for Red Capitalism during the 1990s, meaning that the threat to America's homeland security today is not a fraction of what it appeared to be in 1970.
To wit, the Russian rump of the Soviet Union has a GDP of $2 trillion compared to the $27 trillion GDP of the USA and $46 trillion for all 31 NATO countries. And Russia has a military budget of barely 6% of NATO's $1.25 trillion of combined defense expenditures and but one aircraft carrier. Furthermore, the latter is a 20th century relic that has been in drydock repair since 2017 and is outfitted with neither an armada of escort ships and warplanes or even a crew. The Russian military, therefore, has no way to land on the shores of New Jersey or even enter the Brandenburg Gate in Berlin, for that matter.
Likewise, China's Red Ponzi teeters on $50 trillion of debt and two of its three deployed aircraft carriers are rust-bucket hand-me-downs from the old Soviet Union, while its allegedly Big Navy consists largely of scores of coastal patrol vessels that likely would not make it to the shores of California in one piece. In terms of lethal firepower, in fact, the US Navy has 4.6 million tons of displacement, averaging 15,000 tons per ship. By contrast, China's Navy has but 2.0 million tons of displacement, averaging only 5,000 tons per boat. That is to say, the Chinese Navy is totally visible, assessable and trackable, and is not remotely of the size and lethality that would make an invasion of America remotely plausible.
Besides, the Red Ponzi utterly depends on $3.5 trillion of annual exports to the US and the West. In the event of war, this export lifeline would soon find its way to Davy Jones' Locker, along with China's entire jerry-built economy.
And, of course, America's triad strategic deterrent includes 3,800 nuclear warheads. At any moment in time these are scrambled and dispersed-
- along the ocean bottoms among 16 Ohio class subs each bearing 80 independently targetable warheads.
- aloft in the global airspace on a fleet of 66 B-2 and B-52 heavy bombers
- buried deep in hardened underground silos bearing more than 1,000 ICBM warheads.
This awesome retaliatory force cannot possibly be detected or 100% neutralized by a would-be nuclear blackmailer.
As it happens, the triad deterrent costs about $65 billion per year according to a recent CBO analysis, and full protection of the US shorelines and airspace behind the great ocean moats could bring a total Fortress America model of homeland defense to $400 billion per annum, at most. The other $500 billion in today's 050 function represents the ill-gotten budgetary conquests of the military-industrial-intelligence complex, and all the think tanks, NGOs and beltway bandits who make a living getting paid by DOD, State, AID, NED etc. to manufacturing phony threats and scary stories about sinister foreigners.
As to the Welfare State, its girth has burgeoned even more. Total government transfer payments, which include the state and local portion of Federal programs, stood at $71 billion in 1970 and amount to just under $4.0 trillion today.
Yes, that gain of 56X included a whole lot of inflation, but when you strain the latter out of the figures, real dollar transfer payments still rose by 10-fold-from just over $400 billion in 1970 to today's $4.0 trillion. So doing, the claim on GDP for these massive transfers from producers to consumers of government largesse rose from 6.7% of GDP to 14.2% today.
Under a balanced budget regime, neither the Warfare State nor the Welfare State would have ballooned in this manner because no Congress would have survived the serial tax-raising episodes that would have been required to fund it. Nor would they have survived the high interest rates and severe crowding out of private household and business borrowing that would have resulted from deficit-financing these massive spending increases the honest way in the bond pits out of current private savings.
Needless to say, the Constitution endows Congress with the power of the purse on fiscal matters, but upwards of $5 trillion per year goes to entitlements and other mandatories and debt service payments. And these outlays are automatic under current law with nary a word of Congressional debate, review or legislative action required.
Worse still, Washington has degenerated into a Uniparty conspiracy of convenience to keep this fiscal doomsday machine ticking toward disaster. What by rights should be the conservative fiscal party (GOP) in the context of America's process of governance has been hijacked lock, stock and barrel by the neocon War Party, which has been more than willing to take a powder on sweeping entitlement reform in order to keep the fiscal gravy flowing to the Pentagon.
In fact, the leaders of the ostensibly conservative party as so busy trotting the globe searching for monsters to destroy and overseeing bases, invasions, occupations, interventions and incessant meddling around the four corners of the planet that they have no time, energy or political capital for their true mission in American democracy. To wit, to function as the ferocious and ever-vigilant Watchdog of the people's money. So with the old-time fiscal religion of balanced budgets abandoned, the GOP has morphed into the Washington War Party and fund-raising machine for beltway RINOs.
At the same time, pro-Welfare State Dems happily supply the votes for obscenely bloated national security budgets and periodic increases in the public debt limit in order to keep the Welfare State accounts and the various domestic pork barrels safe from the fiscal axe.
This defacto Uniparty conspiracy to bankrupt the nation has lasted for decades now because the Fed enabled the public debt to soar without the inconvenience of a commensurate rise in interest payments. Between the year 2000 and Q4 2020, for instance, the public debt rose by 380% while interest expense only increased by 45%. The yawning difference, of course, is explained by massive and persistent interest rate repression by the Fed.
But now that the 40-year high inflation has forced the Fed to abandon its reckless ZIRP policies, the fiscal chickens are rapidly coming home to roost. Federal debt service has gone from $300 billion annually a few years back to nearly $1 trillion now and is heading to upwards of $3 trillion per year by early in the next decade under current policy.
In short, the problem is not a public debt that is currently $34 trillion, but one that under the Uniparty's policy of War, Welfare and Wampum is guaranteed to be $50 trillion by the early 2030s and $100 trillion by mid-century.
For those keeping score, that's 270X the 1970 level, but don't call it a third bookend. It would actually be tantamount to The End.
Reprinted with permission from David Stockman's Contra Corner.