Without a World War, We Have an Unaffordable War-Sized Government

It’s good fun to mock politicians’ inability to keep their pants on and to wage culture war against those awful people on the other side of the political divide, but at some point we’re going to have to pay some attention to a growing problem in our midst. While we rubberneck at freak-show headlines, the deeply flawed officials who provide so much distraction have expanded the size and power of the government they control to an extent not seen since the days of global warfare, with no plan for restraining or even sustaining the behemoth they’ve created.

“The U.S. effort in World War II was off the charts,” Calvin Woodward of the AP reported last month. “Battles spread over three continents and four years, 16 million served in uniform and the government shoved levers of the economy full force into defeating Nazi Germany and imperial Japan. All of that was cheaper for American taxpayers than this pandemic.”

Trillions of dollars are being spent, we are told, to alleviate economic pain caused by the pandemic, off-set government-mandated lockdowns, and develop vaccines. But, while politicians talk a fair game about helping us, first the Trump and then the Biden administrations have taken advantage of opportunities to push their agendas and buy favor with spending bills sold as emergency measures.

Of the $1.9 trillion “relief” bill signed by President Joe Biden last month, “[o]nly about 1 percent of the entire package goes toward COVID vaccines, and 5 percent is truly focused on public health needs surrounding the pandemic,” commented Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “Meanwhile, nearly half of the package will be spent on poorly targeted rebate checks and state and local government aid, including to households and governments that have experienced little or no financial loss during this crisis.”

The $2 trillion “infrastructure” plan unveiled last week by the White House actually places (probably unnecessary) repairs to roads, bridges, and water systems as secondary concerns, after a plan to “reimagine and rebuild a new economy” along green-ish lines favored by the president and his allies. A big part of that scheme is a very un-infrastructure-ish emphasis on subsidizing electric vehicles. The bill also pushes old-school labor unions.

“The focus on jobs, and particularly unionized American jobs, means that Biden’s $2 trillion spending plan will buy a lot less infrastructure than it otherwise could,” observed Reason‘s Christian Britschgi.

Federal spending last year, before the current administration’s massive spending bills, consumed 31 percent of GDP—a level not seen since the 1940s. The last time the U.S. government was this big it fielded armies against Nazi Germany, fascist Italy, and imperial Japan.

“How can the U.S. possibly afford this?” the AP’s Woodward asked. “At least for now, debt is cheap.”

We should be glad that debt is relatively cheap, because the U.S. government has put taxpayers on the hook for a lot of it. Before the pandemic, federal debt was expected to hit 98 percent of GDP in 2030. Debt at that level “would dampen economic output” and servicing it would inevitably “reduce the income of U.S. households,” the Congressional Budget Office predicted.

Then the pandemic hit, and the federal government went on a spending spree that beat the debt prediction by 10 years and set the country on track for much worse. In July of last year, the International Monetary Fund cautioned that U.S. federal debt would rise to 160 percent of GDP by 2030 “even without further rounds of fiscal stimulus.” But, of course, we’ve seen much more spending since then. 

Why assume debt-fueled spending without revenues to match? Even allowing for the administration’s proposed “largest federal tax increase since 1942” in the words of The New York Times, it’s unlikely that new revenues will cover costs; under the tender ministrations of both mutually loathing major political parties, the federal government hasn’t balanced a budget in 20 years. 

New spending and taxes will sting, whatever the alleged benefits. “[T]he level of GDP by 2030 is between 3 percent and 10 percent lower than it would be without the increase in expenditures and revenues,” the CBO forecast in March based on assumptions of a permanent increase in government spending of 5 percent to 10 percent of GDP.

Interestingly, the massive debt and hobbled economy predicted for America of 2030 looks much like Italy of 2021. Carlo Bastasin of the Brookings Institution thinks that’s no coincidence—he sees the U.S. following Italy down a path of political turmoil and economic decline.

“Overseas observers of American politics are certainly disconcerted by the degree of domestic political animosity in the U.S., and by the self-inflicted delegitimization of its democratic institutions in the last two decades,” he cautioned in December 2020. “Memories of what happened in the early 1990s, when Italy’s state and institutions suffered a severe loss of credibility and the political fight turned fierce and acrimonious, still haunt,” he added. “Since then, the Italian economy has never recovered, in part because investors need a stable political framework to take risks, particularly around intangible investments.”

Like Italy, the United States is currently ranked by the The Economist‘s Democracy Index as a “flawed democracy” rather than a full example of that political system. “The consequence of the long-running culture wars in the US and the heightened political polarisation of recent years is that social cohesion has collapsed and consensus has evaporated on fundamental issues,” notes the Index, whose authors see little prospect for improvement “[a]s Americans increasingly occupy two distinct and conflicting realities.”

In such an environment, the temptation to use political power to reward friends and punish enemies is irresistible, since the opposition is despised and agreement is virtually impossible. That leads us to a spiral of spending and unproductive and unsustainable growth in a government that intrudes ever-further into our lives, crowds out private effort, and acts as an anchor on the economy.

And since we’ve lost control of our political institutions to feuding factions that are intent on bending power and money to their own purposes, we distract ourselves with culture war trivia and gossip about politicians’ sex lives. Meanwhile, the government grows bigger, more expensive, and more dangerous.