RW Johnson: America’s Muskification of the State – Desperate remedy for a desperate problem

Key topics.US debt crisis driven by bipartisan irresponsibility and corporate oligarchy.Non-discretionary spending dominates the budget, limiting cost-cutting options.Musk and Ramaswamy's promises can't address systemic fiscal challenges..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By RW Johnson___STEADY_PAYWALL___.Donald Trump's appointment of Elon Musk and Vivek Ramaswamy to head a notional "Department of Government Efficiency" has been cheered by many naive and ignorant people not only in America but even here in South Africa. They are, of course, impressed by Musk's sweeping promises to do away with whole layers of government bureaucracy and to make huge savings for taxpayers. .All that this means is that those cheering on Musk and Ramaswamy haven't really been paying attention. Of course it's true that there are instances of toilet seats for the US Army costing $1,000, of discretionary federal grants to study the sex lives of insects or lizards, of unwise pay rises for politicians, and for all manner of pork barrel projects purely indulged to help this or that ageing Congressman or Senator get re-elected. Even if you got rid of all the above, you wouldn't make much impact on the Federal budget's $1.6 trillion deficit in 2023. .The reason is that 86% of that year's budget is effectively non-discretionary. Start with the fact that interest on the national debt was $659 billion. If you don't pay that, the US defaults, crashing the dollar, the markets and much else besides. .The US national debt is now over $36 trillion. And it is increasing at the rate of another $1 trillion every 118 days. $36 trillion is a larger sum than the combined GDP of the UK, China, Germany and Japan. That is, the US national debt is now 123% of its GDP and it is growing at great speed. Even for a large, rich country, no one thinks it healthy to owe more than 100% of GDP. .Donald Trump, the incoming President, has tried to do away with the debt ceiling enforced by Congress and, to put it mildly, he seems to have a very relaxed attitude to accumulating further debt. But Congress slapped him down and as things stand the debt ceiling will be reached by mid-January 2025, so action will need to be taken by then if the government is not to default..So, at the barest minimum you have to keep paying the interest on the debt. But most of the other big budget items are equally non-discretionary..Next comes Income Security grants to the disabled, to the poorest of the poor, widows and orphans, plus Veterans' Benefits. These are all mandated by law and it is politically unthinkable to cut or abolish them. They come to another $950 billion. .Read more: 🔒 FT's man of the year – Donald Trump.Then there is Medicaid and Medicare, together covering (at least in part) the medical expenses of a huge number of Americans. Much of this is to provide utterly basic services to poor people who are effectively without resources – e.g. rudimentary nursing home care for the old who have exhausted all their financial resources. You couldn't abolish this stuff without effectively killing a lot of people. The total cost is $1.46 trillion. .Then there is what Americans call Social Security but which the rest of the world calls State old age pensions: $1.3 trillion..Then there is Defence, currently costing $805 billion. You could cut this but with several major wars going on, China hugely increasing its defence expenditure and Russia now trying to extend its sphere of influence far into Europe, that would look unwise to most. Indeed, Trump says he wants greatly to increase defence spending. .So, effectively, these are all untouchable programmes and they come to $5.2 trillion. That leaves only $917 billion for absolutely everything else that the US government spends. You might say, of well, then let's cut a few hundred billion there – but that too would be far more difficult than it might appear. .Take, for example, Ellsworth Air Force Base in South Dakota. Initially built during World War II the base then performed various Cold War roles until by 2004 it faced probable closure. But the base employs thousands of people and spends a fair amount of money into the local economy. In the 2004 Senate race the young John Thune made the base's closure a major campaign issue and managed to defeat the Democrat Senate Minority Leader, Tom Daschle, the first time such a party leader had been defeated by a challenger in over 50 years. .This was a huge shock to the entire national political elite. Thune has been consistently re-elected with 70% majorities and is today the Republican Majority Leader in the Senate. No one has suggested closing Ellsworth again so the base continues to thrive. But everywhere in the US one can find local examples of such favourite projects or installations, financed by Federal money, which it would be politically all but impossible to cut or abolish. .This is not an accident. Defence spending enthusiasts realised a long time ago that the key to retaining public support for high US defence expenditures was to locate defence plants and bases strategically round the country and that this gave potentially every state a vested interest in maintaining (or increasing) defence expenditure. This example has been copied by NASA and by several other large programmes. NASA is, by the way, a good example of a large Federal agency which is badly run and pretty much out of control. But it's hard to see how Musk can get to work on the NASA budget without his being quite realistically accused of a major conflict of interest, for SpaceX is now the biggest provider of rockets to the agency..This is not to say that no savings-through-economies can be made. Of course they can. Quite a few bureaucratic jobs could go and there could be some productive right-sizing. Trump talks of wholly abolishing the Department of Education, thus leaving education entirely to the states and to the many private schools and universities. But the lobbies against that, even within the Republican party, will be strong indeed..The larger point remains. As things stand the US is heading for an ever-rising national debt increasing at a scary rate. If things continue as now for very much longer there will be an almighty crash. Before that happens, however, the yield on US Treasuries will get higher and higher and Trump (or a successor) will find that he has lost control of his administration to the bond vigilantes. All expectations are that Trump's measures will further increase the national debt so that the only way to bring things back under control will be a period of very high inflation which cuts the real value of the debt. It goes without saying that the administration which presides over such a hyper-inflation will be committing political suicide..How did the US get into this mess ? Because the US economy is so strong and the dollar is the world's reserve currency, in effect the US could get away with budget deficits and trade deficits which would have sunk other countries. Even now there is a huge wall of money pouring into US markets from the rest of the world, attracted by its plentiful bonds, its wondrous hi-tech industries, its increasing productivity and the strength of its currency. So both Democrat and Republican politicians found they could get away with deficits and "debt doesn't matter". A dangerous lesson to learn, since there is a limit to anything..The basic problem is that the US spends like the rich country it is but it has the tax receipts appropriate to a much smaller country. And as the US becomes richer and richer and more unequal, the power of the great agglomerations of wealth grows and grows. The result is that the US is increasingly an oligarchy of the very rich. There are now 801 billionaires in the US with a combined wealth of $6.22 trillion. And there are 22 million millionaires – one American in 15. .This oligarchy has enormous power. The Trump administration is full of billionaires, with the world's richest man, Elon Musk (worth $300 billion) playing a leading role. (Ramaswamy, by the way, is worth exactly $1 billion.) With rare exceptions these oligarchs want lower taxes – and they get them. Trump's huge tax cut in his first administration handed large tax cuts to billionaires like himself and gave almost nothing to the bottom half of the population. And now Trump is poised to make that cut permanent. Everyone knows how popular a tax cut is, and no one has forgotten how George Bush Sr. lost the presidency because he raised taxes after promising not to. But the only responsible way out of this mess is indeed to increase taxes and ignore the bleating of the billionaires and millionaires..So the approaching US debt crisis is the result of bipartisan political irresponsibility in the service of this corporate oligarchy. It is bizarre that a country like America, which is so fabulously rich and productive, should have a debt crisis – but this is what you get when unparalleled wealth is allowed to exercise unparalleled power. Sooner or later this will all crash, just as it did before in 1929. In the mean time do not be decoyed by the siren song of Musk and Ramaswamy, claiming they will solve the problem by making large savings in government expenditure. They won't. But it is in the nature of these oligarchs to look for any solution at all which avoids increasing taxes. .Read also:.🔒 FT: "First Buddy" Elon is Trump's wild card in China dealings🔒 FT: Where Trump could surprise on the upside. Brilliant.🔒 RW Johnson: The drama of Donald Trump vs the US Senate

RW Johnson: America’s Muskification of the State – Desperate remedy for a desperate problem

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