Hope Is Not An Economic Strategy

Last fiscal year, our federal government took in $5 trillion dollars but spent $7 trillion. It spent 40% more than it had available to spend, and it did so without being at war or in economic recession. Our leaders – be they Republicans, Democrats, Independents, Conservatives, Liberals, or Moderates – collectively violated their fiduciary responsibility to the American taxpayer.

Any business owner or executive knows that there is waste in his or her organization. But he or she also knows that it is a small percentage of the company’s total expenses. Chasing that waste to reduce or eliminate it is a valuable exercise, time and resources permitting. But it rarely moves the needle. An extra body or two on the payroll may be unnecessary but it’s the salaries of the 100 people that are needed that comprise payroll expense. The two percent scrap factor in the manufacturing process can be improved but it’s the necessary 98% that makes up cost of goods sold. The personal letter run through the postage meter may be theft, but the thousands of legitimate things mailed make up true postage expense. And this is what DOGE represents to me. It is a worthwhile exercise if done thoughtfully and constitutionally, but it is still chasing pennies on the periphery. Today I want to talk about the dollars, not the pennies.

The federal government’s budget is composed of two distinct categories – discretionary spending and non-discretionary spending. Non-discretionary, the stuff we have to pay, is by far the largest. It accounts for over $5 trillion. It includes our Social Security and Medicare/Medicaid obligations, each accounting for around $1.5 trillion. It includes the interest on our debt of just over $1 trillion. Of the discretionary spending – the things the President can suggest and Congress can choose to appropriate – half, or almost $900 billion, currently goes to defense. So, if one assumes no consensus can be achieved on materially changing the scope of entitlement programs, that leaves just $950 billion, or 14% of the budget, for the two parties to argue over.

The real problem isn’t the waste on the margins. It isn’t even that $950 billion in discretionary spending. It’s the larger issue that we spend $7 trillion a year on things Congress has appropriated, yet raise only $5 trillion in revenue. How did we get here? Well, at a high level (and to oversimplify because sometimes by so doing it reveals the answer) it is because the two parties have different priorities and spend lavishly on those priorities. One party believes that government’s role should be more expansive, while the other believes in the supreme virtue of cutting taxes. And make no mistake, while we still have debt to service, tax cuts are government spending.

In a vacuum and in theory, both the Democrat and Republican policies on the economy and government spending can work. The Democrat view of government providing more for its citizens, with the requisite increases in taxes, can work. After all, the Scandinavian countries, with their average tax rates exceeding 50%, consistently rank in the top happiest countries in which to live. Conversely, the Republican notion of lower taxes with citizens doing more for themselves (and hopefully being benevolent to those among us in need) can also work. I know as a Conservative which of these models I prefer. What cannot work, though, is relatively low tax rates and high government spending. But this is exactly what we currently have in the United States and is why we have $37 trillion in debt, having amassed much of that in times of peace and economic expansion. With this much debt, how can any federal politician that honors his fiduciary responsibility think that lowering taxes before we again have surpluses is a good idea? Honoring the fiduciary responsibility would be to generate surpluses to start paying down our debt. Thinking we can get back to surpluses by just looking at either reducing spending or increasing revenue is wishful thinking. And hope is not an economic strategy. Just like replacing tax revenue with tariff revenue isn’t a net pickup. It's just shifting the burden.

The problem with American politics is that we govern in increments of two and four years, never having enough time for the benefits of any one political philosophy to bear fruit. The perhaps clunky analogy I use is from my years as a CFO of food manufacturing companies. We lived and died by how well or poorly we purchased ingredients, items like chocolate and almonds. From those years, I know that it takes five years for a cocoa tree once planted to bear fruit and five to twelve years for an almond tree to do the same. Now suppose a land owner decided to plant a cocoa tree but dug it up in year four to plant an almond tree because he found out he could get more for almonds than for cocoa. And to further strain this analogy, suppose that this same land owner changed his mind again four years after that, digging up that almond tree because cocoa prices were again on the rise. He would never own a tree that bore fruit and would never turn a profit. That would make no sense, right? But this is precisely what American voters do by routinely swapping the party in the majority and it is precisely why politicians trying to enact their policies 100% to the exclusion of their opposition’s ideas will never bear fruit for the American people. The land owner in my analogy has no choice; that space can hold but one tree. It’s all or nothing, one way or the other. But in public policy, we do have a choice. We can compromise so that the arc of public policy moves forward predictably. The alternative is a pendulum swinging ever more wildly from side to side when the party in the majority changes, as it always will.

My Republican friends argue that you can achieve more tax revenue on lower tax rates because lower taxes spur the economy. I believe this is theoretically true, but we and our policies have to be in power long enough for those benefits to be achieved. We know from history that we won’t stay in power long enough. We have had 47 American presidents and party control has changed 28 times. One economic downturn, even if having nothing whatsoever to do with the actions of the president, and the American people will return the other party to office. And the policy pendulum will swing hard back the other way. So total idealism to our party’s policies is not a luxury we have; we’ll incur the deficits of lower taxes now without the benefits later on.

Conversely, Democrats argue that the government should provide more for its citizens and those seeking citizenship. Depending on how progressive the Democrat, we could even be talking about universal basic income or healthcare. The progressives could push through things like that by party-line vote when they are in charge. But again, someday conservatives would regain control. And their first order of business will be tax cuts and trying to repeal any additional entitlements given. What we are doing creates an unsustainable economic arc that leads to more debt and less national strength.

Any party enacting a “big, beautiful bill” by party-line vote – whether it is Republicans on taxes and immigration or Democrats on healthcare – is doing a disservice to our country because they are forgetting that the other side will be in the majority again someday. And that other side will chip away at that big, beautiful law, leaving the American people with more legislation and more debt. And do we really need more of either?

How about instead, we do a big, beautiful bill that unites the most progressive and most conservative in opposition but garners the votes of the other 70% of both chambers. Wouldn’t that be fun, especially if that same 70% had the guts to overturn any veto to give us all a much-needed civics lesson in how this is all supposed to work!

And lastly, it would do us all well to remember that we are still the largest economy in the world and the greatest nation on the planet, even if our leaders have taken to telling us otherwise. And we aren’t the biggest and the best because of them, but rather because of us. And we’ve done it not by getting farther away from the lofty moral ideals of our founding, but by trying to perfect them.