💵 Fiscalism and futurism
Forward thinking about budget debts and deficits can be as important as imagining AGI and fusion reactors
Quote of the Issue
“Your life is filled with miracles of science and technology because Western civilization has repeatedly beaten back the forces of barbarism, totalitarianism and ignorance. For most of history, most of humanity lived as slaves in poverty. Capitalism and hydrocarbons ended that.” - Andrew Côté
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The Essay
💵 Fiscalism and futurism
Thinking about the future can’t just be musings and speculations about AGI, space colonies, and fusion reactors. To that point: One of the scholarly catalysts for this newsletter and for my new book The Conservative Futurist: How to Create the Sci-Fi World We Were Promised, is a paper by Yale University economist Ray Fair, “U.S.Infrastructure: 1929-2019,” in which he makes an important point about America’s future orientation (or lack of it). After noting that “infrastructure as a percent of GDP began a steady decline around 1970, and the government budget deficit became positive and large at roughly the same time,” he concludes that “the overall results suggest that the United States became less future oriented beginning around 1970. This change has persisted.” Fixing your roof while the sun is shining and curbing spending before the bill collector calls require some foresight and the ability to place the current you in the shoes of future you.
So thinking about America’s national debt is certainly within the scope of this newsletter. Which brings us to recent events. Now I’m not going to pretend to be an expert in foreign policy and international relations. So no five-point plans here for peace in the Middle East after the Hamas massacre in Israel over the weekend, how Ukraine can repel Russia’s invasion, or preventing a Chinese attack on Taiwan.
That said, I don’t think it’s a tremendous leap to suggest we live in an era of heightened geopolitical risk, and American defense spending might well reflect that reality going forward. Let me highlight this paragraph from a new report by the political analysts at Piper Sandler:
Republicans attacked the administration over the weekend and the more hawkish Republicans in the presidential race argued this is another cost of American retreat in the world, an attack aimed at Biden and the more isolationist Republicans in the race. There will be efforts in Congress to demonstrate bipartisan support for Israel, which could include deliveries of munitions. The world appears increasingly dangerous, which puts upward pressure on the defense budget and is also a blow to Biden politically. … We will let readers to decide for themselves the degree to which it is Biden’s fault, but there is no doubt Republicans will argue the world has become far less safe – from our own border, to Europe, to the Middle East – since Biden took office.
It’s certainly conceivable that instead of US defense spending gently drifting lower over the next decade, as the Congressional Budget Office currently forecasts, to 2.8 percent of GDP in 2033 from 3.1 percent GDP this year (versus the 50-year average of 4.3 percent of GDP, defense spending stabilizes or even escalates.
So perhaps we shouldn’t assume that historically low defense spending will assuredly play some future role in getting America’s fiscal house in order. In 2033, by the way, the CBO projects a federal budget deficit of nearly $3 trillion and a federal debt of nearly 115 percent of GDP and rising versus 98 percent today.
The potential downside to high and rising debt? The CBO outlines a rich menu of significant economic and financial consequences. Higher debt could “slow economic growth, drive up interest payments to foreign holders of U.S. debt, elevate the risk of a fiscal crisis, increase the likelihood of other adverse effects that could occur more gradually, and make the nation’s fiscal position more vulnerable to an increase in interest rates. In addition, it could cause lawmakers to feel more constrained in their policy choices.”
So what now? Three basic options:
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