Cogitatio Interruptus
It is remarkable how intelligent, well-informed, economic commentators find it impossible to consummate their thinking about money in the context of U.S. government spending. They cannot go all the way with what is happening. They stop short, over and again, at precisely the most important moment. And this has been going on for so long now it’s no wonder we’re frustrated, irritable, and exasperated beyond reason.
Eight years ago, Robert J. Samuelson wrote an op-ed in the Washington Post, The Cowardice of the political class, lamenting the “cost” of Social Security, Medicare, and Medicaid in America. I focus on this “ancient” op-ed only to emphasize that nothing has changed—and that this continued lack of consummate thinking is a significant component of our current misery and confusion.
In his op-ed, Mr. Samuelson dutifully (like a scolding parent) outlined the dire facts about “how much we’ve mortgaged the country’s future to spending for older Americans.”
Social Security and Medicare, he reports, constituted 42 percent of federal spending in 2017. If Medicaid is added, the total exceeds 50 percent. As the baby-boomer generation continues to retire, he observes, these percentages are projected to dramatically increase. Add in interest payments on the national debt at an additional 13% of national spending, Mr. Samuelson admonishes, and “there isn’t much room” for the government to pay “for anything else.”
At precisely this point, Mr. Samuelson stops thinking—at least about money. Case closed: The federal government spent all its money, and now it doesn’t have any more to spend. There’s nothing more to be considered, except for the hand wringing and scolding. He then withdraws into a soliloquy about how America needs to rewrite its social contract to reflect the fact that our federal government simply doesn’t have enough MONEY to do the things it wishes it could do.
How satisfying (and productive) it might have been if only Mr. Samuelson had continued thinking! First, he could have gone on to consider WHERE all those federal spending dollars are going—what real things are being made to happen, what real achievements are being accomplished, whose bank accounts the spent dollars are going into, and what those people (and businesses), in their turn, are spending those dollars on. He might then go on to consider the consequences of the government NOT spending those dollars, not achieving those accomplishments, and not crediting those bank accounts leading to all the subsequent spending. Then, as a post-cogitatio respite, he could imagine (and even calculate) how much better or worse off we’d be as a collective society if we did as he scolds us to do. Among other things, here is what he might have discovered:
Seeing sovereign spending only in terms of “cost-to-government” limits thinking and understanding to only the left side of a very important equation. Here is the equation:
U.S. government spending = salaries and wages paid to tens of millions of U.S. citizens and businesses to provide real, needed, useful and, in many cases, essential goods and services to hundreds of millions of U.S. citizens.
While Mr. Samuelson is focused exclusively on the left (cost-to-government) side of this equation, it can reasonably be argued that it is the right side of the equal sign that really matters. Social Security, for example, deposits dollars in the bank accounts of retired Americans—who then use the dollars to pay rent, buy groceries, clothes, books, magazines and potting soil, make car payments, subscribe to cellphone and cable services, Netflix movies, and, perhaps, to pay for yoga lessons. Those re-spent dollars, in turn, go into the pockets of landlords, maintenance crews, farmers, food processors, truck-drivers, stock-boys, shoemakers, fabric-cutters and seamstresses, Ford assembly-workers, loan-processors, App stores, film actors and actresses, and yoga teachers.
And what (in addition to providing compensation to all these livelihoods) is accomplished by the federal spending on Social Security? Americans forced out of the workforce by old age or disability can live out their lives with a modicum of comfort and dignity. One would think something like that is a central purpose of an advanced, compassionate human society. The alternative is—what?—a retiring generation that can’t pay rent, buy cars, or take yoga lessons? What is the good of that to anyone?
Next, let’s take Medicare and Medicaid. The wailing and teeth gnashing on the left side of the equation regarding those “costs-to-government” are almost unbearable. But if we continue to the right side of the equation, what do we discover? Those government-spent dollars are paying the wages and salaries of American doctors, nurses, lab technicians, physical therapists, anesthesiologists and radiologists for their services in caring for sick or infirm Americans. The government’s “costs” are the salaries of pharmacists, drug-researchers, medical and surgical equipment fabricators, ambulance drivers and paramedics.
And what (in addition to providing compensation to all those livelihoods) is accomplished by federal spending for Medicare and Medicaid? A lot of Americans who would otherwise be sick, or dying, or dead are, instead, living lives with a modicum of comfort and dignity. Again, you would think that’s another purpose of an advanced, compassionate society. (Perhaps the new social contract Mr. Samuelson had in mind eight years ago was simply an admission that America is, in fact, neither advanced or compassionate?)
Not to beat a dead horse, but let’s quickly consummate our thinking about the dreaded interest payments on the national debt. This aggravating government “cost” on the left side of the equation is, on the other side of the equal sign, a rather wonderful income stream for many American citizens—most of them already quite wealthy and certainly not complaining about the safe “investment opportunity” the government’s “debt” provides them. (The question that might be asked here, if we consummated our thinking, is why should only rich Americans benefit from the free income generated by sovereign interest payments?)
Now, let’s jump eight years to the present. Not only has nothing changed, we’ve now added an entirely new (and novel) form of cogitatio interruptus to our unconsummated relationship with money: Donald Trump has convinced us he knows how to “do” it—he knows how to pay for all the things we don’t think we have enough money to pay for. The secret sauce is tariffs!
According to Trump’s calculus—and he’s brow-beaten nearly every Republican to agree with him—imposing tariffs on imports from other countries magically fills the government’s coffers with tariff dollars that come from… well, somewhere. And there he (and the entire Republican Party) stops thinking. No need to examine the equation further: Tariffs = more dollars for government without increasing taxes on the wealthy.
How satisfying to our personal pocketbooks and bank accounts if Mr. Trump would only continue thinking it through—perhaps by explaining where the U.S. dollars that pay the tariffs come from? The fact is, on the other side of the tariff equation there is only one place those dollars could come from—and that is American consumers. China does not pay tariffs on the solar panels it ships to America—you and I pay the tariffs when we buy the solar panels for our garage roofs and pay an extra 50% MORE than we would have without the tariffs. But—hey—we don’t even want solar panels anyway, right?
That’s Cogitatio Completum! Don’t you feel better now?