Margaret Thatcher was the British version of Ronald Reagan, a leader who resuscitated a nation by rolling back the size and scope of government.
She also is famous for one of the most accurate observations ever made about fiscal policy.
Her warning proved prophetic when the Soviet Bloc collapsed.
Her wise words also could be applied to what happened about a decade ago in Greece. And what’s about to happen in Italy.
But let’s not forget that the United States isn’t immune to the problem of excessive government. The Wall Street Journal has a sobering editorial on the pro-spending sentiment that dominates the nation’s capital.
…in Washington the politicians are debating how to spend another few trillion dollars in the name of virus relief. …Mrs. Pelosi’s House bill promises another $3 trillion for her various constituencies
on top of the $2.7 trillion or so Congress has already spent on the pandemic. The goal is income redistribution… This political strategy may work since Republicans, as usual, are divided and defensive. …Mr. Trump…seems torn about what to support and is thinking only as far as November. This is a recipe for another deal on Democratic terms… Sooner or later the pandemic will end. The question is what kind of economy will be left. A second Cares Act would leave a legacy of vastly larger government that would mean slower growth and take years to overcome.
Yes, the spending binge will mean slower growth.
But I’m even more worried about what will happen in the future. Here are three things to keep in mind.
Largely because of Bush, Obama, and Trump, the federal budget has tripled since 1980 (Reagan and Clinton were comparatively frugal). Keep in mind that the increase in the accompanying chart shows the growth in spending after adjusting for inflation.
The burden of federal spending is projected to skyrocket in future years because of the combination of demographic changes and poorly designed entitlement programs. In other words, our fiscal outlook is grim even if politicians don’t approve an additional penny of new spending.
However, politicians are spending more money. A lot more. As shown in the accompanying chart, this has caused a huge spike in per-capita outlays. And the crowd in Washington wants to make the red portion much bigger.
Given all this bad news, does Thatcher’s warning about running out “of other people’s money” apply to the United States?
As bad as the numbers are, my two cents is that the U.S. won’t suffer a fiscal crisis anytime soon. As I noted at the end of this interview, Washington can probably continue with business-as-usual fiscal policy for several more decades (Adam Smith observed that it usually takes a lot of bad policy over a long period of time to cause economic ruin).
But that doesn’t mean it’s a good idea to travel down that path.
Here’s an analogy. Smoking three packs of cigarettes a day presumably won’t kill someone within the first 10 years, but it’s definitely not a recipe for long-run health and vitality. Sooner or later, there will be consequences.
A mature and sensible people (like the Swiss) take steps to avoid the fiscal version of those bad consequences.
For what it’s worth, similar reforms have been proposed for the United States. Unfortunately, too many American politicians and consumed by self-interest and don’t think past the next election.
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Image credit: U.S. News & World Report collection at the Library of Congress | Public Domain.
