Can a Free Republic be a Superpower: Part 4 Toxic Debt

Toxic Debt threatens not only the ability to be a superpower, but our entire way of life.

When I was in Bosnia right after the 911 attacks, many of our soldiers said this could never happen in the US. I always cautioned them that when the economic engine sputters, we could well see Bosnia unfold in the US. We got a taste of that in the riots of 2022, and many are concerned about turmoil over the 2024 election.

We all have a vested interest in maintaining the economic engine, both for our prosperity and for domestic tranquility, two of the big five items in the Preamble to the Constitution. However, rising debt and interest payments could threaten and kill this engine, much like sugar poured into a gas tank can muck up an engine. What appears sweet could be toxic in some circumstances.

Being a superpower does not come cheap. Being a superpower with Great Society (+ more social engineering and increased bureaucracy) programs is even more expensive. The Pew Research Center shows how expensive it is. Right now, according to them, interest payments are nearly 7% of federal spending and,

“That’s more than $100 billion more than the government expects to spend on veterans’ benefits and services and more than it will spend on elementary and secondary education, disaster relief, agriculture, science and space programs, foreign aid, and natural resources and environmental protection combined.”

The accompanying chart shows how much interest payments are growing. Each time Congress raises the debt ceiling, the interest payments grow. To say the least, this is irresponsible. It is not sustainable.

The Pew Research Center, discussing the sources of tax revenue, states:

After refundable credits were figured in, taxpayers with AGIs below $30,000 (including those with no AGI or with negative AGI) collectively got back more than $78.6 billion from the IRS in 2020.

The splintering of society discussed in Part 2b of this series is present in our tax revenues. The splintering will grow larger with the massive influx of illegal aliens. The amount of people taking money from the government will grow and the gap between rich and poor will grow as low skilled, low-income people inundate the US. Unchecked, the deficits and interest will grow. And Congress just keeps raising the debt ceiling…

But tax revenue is only part of the problem. Spending, at least as it is growing now, will outstrip revenues even if we eliminate the $78.6B. As Ben Franklin wrote, “When the people find they can vote themselves money, that will herald the end of our republic. Sell not liberty to purchase power.” But the spending problem is not limited to social programs. Spending on defense, intelligence, and security is also huge.

But the budget eating bacteria of interest payments may crowd out other spending. Soon, we may need to cut social welfare and defense, intelligence, and security. This sets up two problems:

• The reduction in social spending could well stir up domestic turmoil and undermine civic order. People who depend upon government largesse cannot care for themselves.
• The US cannot engage effectively in a complex world. This will produce a vacuum that lets other states and non-state actors destabilize extensive areas of the globe and increase threats to the US homeland.

So, does that mean the US pursuit of superpower status is unsustainable? It clearly does unless politicians and bureaucrats take decisive action to cut the spending immediately. Left unchecked, interest payments could crowd out other federal spending, and eventually the credit rating agencies will lower the federal credit ratings. That will drive interest rates up and make borrowing difficult. What happens when the federal government defaults on interest payments?

Citizens may need to force politicians to cut spending by voting out incumbents and forcing a Convention of States to take Constitutional action.

Research questions:

• What is the optimal level of debt? In the 1980s, we found over leverage (debt is considered leverage) was a serious problem. Companies went bankrupt and some investment bankers went to jail over junk bonds.
• What services should the government provide? Did the expansion of government with the Great Society and subsequent social programs help or hurt prosperity and domestic tranquility?
• How can the government contain the Military-Industrial Complex and effectively engage globally to promote stability and peace? What can we cut and what do we need to keep?
• How can we best structure the government? How do we manage the bureaucracy and keep it from being an unelected and unaccountable fourth branch of government? What is the optimal balance between federal and state government?
• Will constitutional amendments to require a balanced budget and term limits effectively control spending?

Back-up

Report of the Commission on the National Defense Strategy states:

Continuing with the current strategy, bureaucratic approach, and level of resources will weaken the United States’ relative position against the gathering, and partnering, threats it faces. In its report, the Commission on the National Defense Strategy recommends a sharp break with the way the U.S. Department of Defense (DoD) does business and embraces an “all elements of national power” approach to national security. It recommends spending smarter and spending more across the national security agencies of government.

DoD needs a comprehensive restructuring. We also need the equivalent of Goldwater-Nichols for the interagency process. We waste billions of dollars on programs that have no effect on vital interests and may even lower readiness and capabilities.