The Fiscal Crisis Is Finally Being Recognized

A troubling  statistic has made the rounds through social media. It should be a warning to anyone, but in particular those who understand the dangers of fiscal irresponsibility: the US government must now spend more of their budget on interest payments than defense. Our own inability to stop consuming has turned interest into one of the greatest binding constraints on our nation’s finances. With a deficit that grows each year, an interest payment that takes on a life of its own is particularly dangerous. Even without a massive interest payment our deficit would almost inevitably grow given the desire of the people and the state to increase spending across every domain, every year. Unless they’re in a unique hyper-growth situation, a business running a deficit is a dangerous sign. Knowing that our government is far from a hyperscaler should make these recurring deficits worrying. An infrastructure or power company running continual deficits is much more of a problem than Tesla running deficits, and our government falls into the first category. The public seems to be recognizing the threat of the national debt in a way that they have not before. This is not saying much due to the systematic ignorance towards the fiscal crisis that seems so common. The incentives are all aligned towards the creation of more debt, and the only thing that can solve the problem is better institutions or a people that are dramatically aware of debt. It is difficult to predict which of these is more likely, but any level of awareness is better than the lack of it common in the last few decades.

Defense is one of the most agreed-upon categories of government spending. It is something that few would argue that private entities should fund, and also something that protects the very ability of a nation to exist. Although the same negative incentives apply to defense as to any other government spending category, there are ways to mitigate the incentive towards overspending. Even in government directed markets, freedom can allow for more innovation and creativity. Concentration driven by rent-seeking and a high level of specificity in procurement regulations has made it difficult for new entrants to break in, while keeping costs elevated above what they would be in a less regulated market. The defense budget is far larger than it needs to be. If we had a more efficient free market procurement system that allowed real competition, prices would naturally drop. However, defense takes up a massive portion of US GDP and now even our interest payment is larger than that. As the US continues to spend to maintain our current level of consumption and ever-increasing expenses, we are put in a more financially and geopolitically dangerous situation each year.…