Iceberg in Sight

While I have been – and remain – broadly supportive of most of President Trump’s official acts thus far, there is at least one respect in which it looks to me as if history may come to see his presidency as a disaster. (Ok, maybe two, but I’ll leave a discussion of Trump’s mercantilist instincts for another day). The likely consequences of Trump’s continuing down the road I will describe herein are so dire that all his other achievements and failures will be seen as irrelevancies, and the acrimonious debates about them as unhelpful sideshows.

In past years, I repeatedly took President Obama to task for having had a devil-may-care attitude about the growth in federal spending on his watch. Not only did the national debt nearly double to $20 trillion (or about $60,000 per person) while he was president, he did all he could to lock in future over-spending by putting in place Obamacare’s pre-existing conditions mandate, which inevitably requires staggering amounts of government funding.

Entitlement spending – which excludes debt service costs – has grown from next to nothing in the 1940s to about 50% of the federal budget today ( Based on current law and, more important, the absence of any political will to address the problem, it will continue to rise very rapidly in the coming years for the simple reason that as our population continues to age, Social Security, Medicare and Obamacare costs will increase in a wildly disproportionate manner.

Further, as interest rates rise to historically normal levels – or well beyond that, reflecting the increasing risks of a government default or runaway inflation (if the government opts to devalue its obligations by printing money), the cost of our national debt, which has been suppressed over the last eight years by the Federal Reserve’s Quantitative Easing program will inevitably balloon, too.

Make no mistake: we are headed for trouble. Our budgets and debts are on autopilot to increase ever more quickly until, just a few years hence, we will face an economic and social crackup unlike any that we Americans have ever seen at home. Our deficits can be expected to rise very quickly into territory that is flatly unsustainable ( Think: Greece, or the Weimar Republic.

Those dire circumstances were all in place before President Trump took office, but what matters now is that he has done nothing to change the nation’s trajectory on spending,

Indeed, many will argue that he’s made it worse via the recently enacted tax cut and the currently budgeted increases in defense spending. FWIW, I am not critical of those particular policy changes, though: the tax cut will make only a small marginal difference in net tax receipts after the offset of the revenue that will result from the economic growth fostered thereby, and the defense spending growth is needed to repair the damage done to the military during the Obama-era “sequestration”. I readily agree, though, that while we were arguing about these changes we have not been talking about the much bigger issue of our fiscal solvency.

Trump’s fundamental error, in my view, is that not only does he steadfastly refuse to contemplate changes in longstanding (but ever-more-expensive) entitlements, he has endorsed the pre-existing conditions mandate embedded in Obamacare. These stances may be good politics (indeed, for the time being, I’m quite sure that they are, since everybody likes a freebie and few are paying attention to our debts) but they are the economic equivalent of steaming full speed ahead into an iceberg that is already in plain sight.


What can happen if we do not change course? Runaway inflation, for starters, as the government prints money that the credit markets won’t extend. Riots in the streets as benefits are cut – or are devalued sharply by inflation. Civil war and/or martial law.

Think I’m crazy? Many of history’s greatest nations and empires have been brought low by similar foolishness. We are not immune from the laws of economics or the facts of demographics.

Nobody believed Cassandra, either.


We cannot solve our spending problem by raising taxes. We already have one of the world’s most progressive tax codes, and raising taxes generally will only strangle the economic growth we will need to have any hope of paying our bills. At best, raising taxes would kick the debt service can – yet again – down the road for a couple of years, and during those years the economy would suffer.

We have to fix our spending problem by broadly restricting our entitlement programs, limiting future beneficiaries to the truly needy, and by building in sorely-lacking incentives to responsible behaviors by all program recipients. These changes need to be made gradually (in light of actions current beneficiaries have taken in reliance on the existing programs) and based on a broad consensus that they are needed – rather than haphazardly in a crisis.


The nation’s sharply divided political climate is a much bigger problem than it might seem in no small part because it effectively prevents either party from proposing the fundamental changes in policy that will be needed if we are to avoid fiscal – and ultimately social – disaster. It’s awfully difficult to have a sober, reflective debate about how to get back to a fiscally responsible path if politicians from both sides are spending full-time demonizing each other.

President Trump needs to lead the way toward both a more reasoned discourse and a focus on the fundamental fiscal challenges we face, or he will be seen as – and be – a failure.


M.H. Johnston

One comment to Iceberg in Sight

  • wch  says:

    Asset forfeiture of those who have harmed the USA. Deficit gone.

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