People often inquire about solutions to issues such as declining living standards, soaring costs across various sectors from housing to education, the decline of traditional manufacturing in the United States, the depletion of savings funds for investment, and the increasing government power that damages individual privacy and freedom of speech. The most direct answer to all of these challenges is budget cuts and achieving actual budget balance.
Cutting the budget will force the federal government to make difficult choices, with various agencies being restricted, cut, or eliminated. If the budget is cut by 1% to 2% of the Gross Domestic Product (GDP), it will impact all sectors, and government employees nationwide working in these agencies will mount strong protests, leading to unprecedented litigation.
However, at least this will initiate the process of problem-solving. The Federal Reserve will break free from the relentless pressure of debt monetization, the flow of debt will begin to slow down, thereby cutting off the funding supply from foreign central banks which are building massive industrial bases to compete with the U.S. With a stable money supply, inflation will alleviate, prices might adjust downward, increasing purchasing power instead of decreasing it.
Private investment will increase as government debt will no longer crowd out funds that would typically flow into valuable production projects. Interest rates will eventually decrease, matching levels of savings. With the increase in disposable income, savings in the U.S. could also grow.
Budget cuts will also reduce the political polarization caused by how the massive federal budget is allocated, as severe austerity policies will impact all government services, encouraging Americans to tackle issues themselves, reclaiming the traditional spirit of independence and self-reliance.
Perhaps the public can rekindle the concept of freedom, and the magnitude of cuts may grow, with the need for clarity that when I talk about cutting, it means actual reductions in existing expenditures when ordinary people use the term.
For decades, Washington has been striving to redefine this term, making it mean a decrease in the rate of growth, a situation no household can operate under. Imagine planning next year’s budget, assuming a 5% budget increase but then cutting it down to 3%. Try explaining to your accountant that this is a cut, and they will look at you as if you’re crazy. However, in Washington’s culture, this kind of statement is entirely normal.
Unfortunately, actual sustained budget cuts have not occurred since World War II. The assumption of government’s perpetual expansion seems deeply ingrained in our fiscal policy, without considering the limitations on government set forth in the U.S. Constitution.
Hence, the Federal Reserve has been busy buying debt as much as possible, resulting in inflation, with the rest kept as safe assets deposited in banking systems worldwide, leading the global economy to build upon a sandcastle of debt, now teetering on the edge of disaster—this situation is unsustainable.
The inflation of the past four years should serve as a wake-up call that, contrary to current claims, this issue has not vanished. Many Americans are only now realizing its destructive nature, more severe than ever. Inflation has not returned to appropriate levels, and even under the best estimates, inflation remains 50% higher than the target. News every day claims the issue is resolved, but we all know the reality is different.
If recent years’ experiences have not opened our eyes, it’s uncertain what will. Yet, even to this day, the primary explanations about inflation we hear derive from corporate greed and price gouging, an extremely absurd explanation which anyone involved in business activities knows is untrue. Let’s candidly acknowledge the facts:
Inflation is a direct result of Washington’s government not living within its means, made possible by the Federal Reserve magically creating money out of thin air.
Therefore, in my ideal world, we have a generation of politicians concerned about the public interest, acting swiftly to take the right measures to cut those ludicrous expenses, whether reducing them for a year, a decade, or thirty years, as long as they start acting and prepare the public, time is not crucial. We need genuine consensus on this, at least someone, somewhere starting to discuss this issue so we no longer live in the lie that debt can perpetually rise without consequences.
Yet, all discussions about budget cuts encounter significant obstacles, which can be explained by the so-called “public choice” economic theory. The fundamental issue is that every government expenditure has a group of voters benefiting significantly who are intensely focused on getting something for nothing. Simultaneously, the marginal cost of each expenditure is distributed in different ways across society, thereby not eliciting vigorous opposition.
This formula is often expressed as “concentrated benefits and dispersed costs,” making budget cuts extremely challenging. Pressure groups benefiting from current expenditures possess influential lobbying power, being in a favorable position to seek help from politicians they funded for reelection during campaigns, a direct quid pro quo. Why else do you think wealthy corporations and lobbying groups donate to politicians? It’s not out of public spirit but expecting certain economic returns.
In other words, voting to support budget cuts benefits no politician, only costs: losing donations, angry pressure groups, and a noisy media, why would they do it?
An effort driven by both parties and all ideologies to cut the budget will be the only way to break the deadlock, and more importantly, it requires real leadership, which can come from any party or major candidate, the key lies in explaining the situation to the public and providing the support politicians need.
We haven’t heard discussions about this topic for decades, so even mentioning the necessity of cutting expenses will shock the media. They will swiftly latch onto the so-called victims of budget cuts, weaving countless stories of hardship and sorrow. The conclusion drawn is: beneficiaries are concentrated, while expenditures are dispersed, resisting this mechanism will be extremely difficult, a challenge for a generation.
Consider the benefits of ending public policies so reliant on debt, the current policies can’t envision a scenario without debt. Making such a change would halt inflation, even lower prices, making housing and food more affordable. This would release investment capital, cease the plunder of the industrial base, and truly kickstart the rebuilding process. Existing small manufacturers can develop and grow, gradually returning Americans to a state of practical work and less talk.
There are many ideas to rescue America from its gradual decline, a fate that everyone fears, though this trend can be reversed, it requires courage, focus, and perseverance. Balancing the budget with existing or even lower sources of income is the best, most sustainable way forward.
Author Bio:
Jeffrey A. Tucker is the founder and president of the Brownstone Institute based in Austin, Texas. He has published thousands of articles in academia and mainstream media and authored 10 books in five languages, with his latest work being “Liberty or Lockdown” (2020). He also serves as the editor of “The Best of Mises” magazine. He regularly contributes economic columns to the Epoch Times and speaks on economic, technological, social philosophy, and cultural topics.