Our leaders on the left and right have been living in a fantasy world of unlimited spending, bailouts, and money-printing for far too long. The global economy now suffers from the consequences of expert opinion. An elite composed of interventionists, Keynesians, and Modern Monetary Theorists has been whispering into the ears of the powerful since 1913.
Unless the U.S. Treasury and Federal Reserve can engineer some miracle recovery, we must confront harsh reality. Most of the country will have to navigate the coming hard times with little help from Congress or the Central Bank. After all, the interventionist machine has finally sputtered and stalled.
Financial wizards can no longer afford to play parlor tricks, and paper over pathologies. Federal debt now stands at about 130 percent of GDP, a measure that excludes unfunded liabilities. Matters abroad are worse. Leverage in the world economy is about $300 trillion, while the world’s economic output was only $100 trillion last year. Defaults could become contagious.
Once we enter the hard times, there will be one reasonable option: austerity. So-called “free-market fundamentalists” will be vindicated because they never threw out the fundamentals. But few will care. Assuming Republicans sweep the legislature in 2022 and take the presidency in 2024, economic calamity will put Republicans into a bind.
The bind looks like this. Voters, even those who have moved right, still think the role of government is to help people. But decades of government ‘assistance’ have gotten us into this sorry state, as more than 60 percent of federal outlays are for healthcare and welfare transfers. “Free-market fundamentalists” have always argued that the only way for a people to get wealthy is to create wealth in a system of private property, free prices, profit-or-loss, and sound money. There is no other way. But again, most voters don’t get this.
Most think the role of government is to help people, especially in hard times. According to the left-leaning Center for American Progress, a 2021 poll indicates that “American voters want the government to play a strong role in securing basic living standards for all people.” Assuming this poll is sound, voters will expect more help as matters worsen. If Republicans offer more largess, they risk default, or the Fed will have to print money. Printing money causes inflation, and that’s painful, too, as a new generation is learning.
If Republicans cut government spending, exactly what they need to do, voters could turn on them. If Republicans don’t cut much of anything, Americans will stay mired in recession, or worse, and turn on them anyway.
The only way a GOP Congress and Administration can get us out of this mess is to be straight with voters. Instead of lying and spending, politicians must become standard-bearers of values most people have forgotten: working hard, saving, creating value, and looking out for your neighbor. And they will have to do so at the risk of losing power.
If Republicans gain power, they will have to embrace economic fundamentals and purge the current cadre of experts from the highest echelons of power. The interventionists were hopelessly, disastrously wrong. They should scurry back to their ivory towers in shame and pay a higher price for their broken models and false metaphors.
During the Great Recession, arch-Keynesian Paul Krugman wrote that what drew him to economics was the “beauty of pushing a button to solve problems.” Complex systems don’t have buttons. Imagine an ecologist claiming he could build, fix, or run the Amazon Rainforest. We would be justifiably skeptical. The Amazon is one of the most splendid ecosystems on the planet. Its beauty is matched only by its complexity. No one on earth could design, much less control, the array of biological processes that allow the forest’s fractal order to emerge.
It’s time we were honest with ourselves. Even as this article has found itself in august pages, voters will continue to think the role of government is to help. (Don’t get me started on the corporate interests.) Whether millennials continue signing up for debt relief from the Department of Gimme Gimme, or boomers blow through what remains of Social Security, something’s got to give. As conditions worsen, voters will feel even more pain. The incentive to turn to their government for help will strengthen. If the Daddy Party doesn’t help, the Mommy Party will. But Mommy and Daddy are broke.
Under such pressure, the political class will hit the gas even though they’re coasting on fumes. Americans will have to look to themselves and each other for help. It’ll be hard, but maybe Americans will finally figure out what we should have been doing all along.