The COVID-19 pandemic can be used to illustrate two problems that are both more destructive than the virus.
The problems relate to how Americans view the role of government in their lives and to the belief that government money can always fix problems.
Let’s look at the money issue first.
The immediate reaction of our government to the virus threat was to spend massive amounts of money. The latest news is that politicians plan to “boost” the economy with nearly two trillion dollars in spending and loans. “The package is coming in at about 10% of GDP. It’s very large,” says Larry Kudlow. For a plan of this size to sound like a good idea, you need to ignore some important economic facts.
Our country has unbelievable levels of debt, and our debt is rising rapidly. The numbers are staggering. The debt clock shows U.S. debt at $23 trillion (nearly 110% of the GDP) and unfunded liabilities of $77 trillion. That’s a conservative estimate. Boston University economist Laurence Kotlikoff, an expert on the national debt, says, “The true size of our fiscal problem is $222 trillion…20 times bigger than the official debt.” He says, “The government has gone out of its way to run up a Ponzi scheme and keep evidence of that off the books by using language to make it appear that we have a small debt.”
We are on the Titanic, headed for the debt iceberg. In brief moments of clear vision, we see the iceberg and know we must change course to avoid disaster. But a self-imposed fog allows us to pretend things are fine. Do not look away. Look directly at this problem. It’s real. Things that are unsustainable cannot be sustained. Reality always bats last.
There is also an important moral dimension to new spending programs. The government has spent all of its income and much more, so we should think of new spending programs as simply more debt being piled onto our children and grandchildren. The required first sentence of any new spending bill should be, “Our current consumption is more important to us than any burden we will place on future generations, therefore let’s place this much more debt on them.”
It is immoral to ignore the burden of the deficit on future generations. We are digging a hole for them that they will never get out of. Government debt is a government claim on future incomes. It is an unpaid tax bill.
You can make the case that big deficit spending is warranted to protect current and future citizens in a time of war. Some level of spending is warranted in the fight against this virus. But look at the big picture of government expansion over the last several decades as the administrative state grew and the deficit exploded. Does it make you a caring person if you propose “free health care” for everyone, including illegal aliens? No, it makes you a dangerous fool.
In the socialist dream world, there will never be a day of reckoning for government debt. Stephanie Kelton, an economic adviser to Bernie Sanders, said, “If you control your own currency and you have bills that are coming due, it means you can always afford to pay the bills on time. You can never go broke; you can never be forced into bankruptcy.”
Governments that have tried this approach have ended up with money that looks like this 50-trillion-dollar bill from Zimbabwe. It’s real paper money. But this $50 trillion wouldn’t buy much. In Venezuela, the inflation rate is around 53 million percent. That means everything costs more every day. And with socialist destruction of the economy, there are far fewer things to buy. This kind of money does help with the toilet paper shortage, though.
Governments can create money, but creating money does not create wealth. Wealth comes from productivity. Putting ink on small pieces of paper does not make wealth. You can visualize this fact quite easily. Imagine that our government officials keep businesses closed “to protect us from the virus,” but they send everyone large checks every month. Our benevolent leaders made sure we had lots of money, so we are all taken care of, right?
Without productive people, the true engine of wealth, Atlas would shrug, and the world would fall into its natural state, which is poverty. Anything that destroys productivity also destroys prosperity. That is why socialism has never worked and never will. The socialist utopian delusion is that people like Bernie and Alexandria Ocasio-Cortez can manage taxing and spending in such a way that everything people really need will be free. Alarming numbers of young people have this delusion.
Unless you are new to this planet, or are blind to reality, you understand that government bureaucracies are an inefficient and expensive way to provide anything.
Politicians themselves don’t have the ability to “provide” material things. They can only transfer money or borrow money. Said another way, they can take the productive accomplishments of one group and give them to another group, or they can borrow from our children to pay for current consumption. That’s it. They buy votes in one of these two ways.
Let’s now discuss how Americans view the role of government in their lives and see how it relates to the current crisis.
When our nation was young, citizens accepted both the pleasures and the perils of liberty. They enjoyed the right to direct their own lives and accepted the resulting responsibilities. The government was small and far away. The explicit goal of the Founders was to keep it small because the sphere of liberty shrinks as the size of government grows. Self-reliance was considered an important virtue. Children may expect others to take care of them, but adults do not.
People in need were helped by their neighbors. Charity has always been a big part of the American spirit. The goal of charity was to restore people to self-reliance. The lesson in Aesop’s fable “The Grasshopper and the Ants” was an integral part of American values. The story shows the wisdom of preparing to take care of yourself in hard times.
In 200 years, Americans have moved a long, long way from self-reliance toward government dependence. President Franklin Roosevelt did more to move the citizens in the direction of government dependency than any other president. Yet look at what he said in 1935, when everyone could see that Roosevelt’s big spending programs were not ending the Great Depression. In his State of the Union speech, he said:
The burden on the Federal Government has grown with great rapidity[.] … The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon [government] relief induces a spiritual disintegration fundamentally destructive to the national fiber. To dole our relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of a sound policy. It is in violation of the traditions of America[.] … The Federal Government must and shall quit this business of relief.
Has the “national fiber” been “fundamentally destroyed”? Has self-reliance been replaced by acceptance of dependence? Ask Americans these questions: whose responsibility is it to take care of people when they are old? Whose responsibility is it to take care of children if the father doesn’t care about doing it? Who should be responsible for educating children? Who should pay the bills when someone loses his job? I think a very small number of people would say family members or charities should take responsibility. These duties have been taken over by massive, inefficient government bureaucracies.
Early Americans expected the government to leave them alone. Many present-day Americans expect the government to take care of them.
The assumption that the government will take care of your needs is “a narcotic, a subtle destroyer of the human spirit.” If you have the childlike attitude that someone (government) should take care of you, it changes how you prepare for future problems. This attitude is why 25% of Americans do not even have a savings account, and 40% say they would have trouble paying an unexpected expense of $400.
Americans are not prepared for trouble, and trouble is here.
Americans are Aesop’s grasshopper in winter. This will greatly magnify the economic crisis caused by the current shutdown of productive activity. If economic activity is smothered for too long, many businesses will not survive. “Helicopter money” dropped by the government will not fix this problem.
President Trump understands that America’s productive engine needs to be switched on as soon as possible. That will help, but the debt explosion and the increasing dependence on government are much more dangerous to our Republic than the Wuhan virus.