The US federal government posted the largest budget deficit since 2012 in fiscal 2018.
Uncle Sam ended 2018 $779 billion in the red, adding to the ballooning national debt. The Bipartisan Policy Center called the Treasury report a “wakeup call,” noting that trillion dollar deficits during an economic expansion are a serious issue.
But not everybody is concerned. Peter Schiff appeared on RT this week to debate a socialist about the deficit.
Peter opened the segment saying that despite Republicans supposedly being the party of fiscal responsibility, the huge deficit doesn’t really surprise him. In fact, he figured this would happen.
“This is something I predicted right after Trump was elected – that we would have huge deficits – because there would be no opposition with the Republicans in Congress. Not that the Democrats would be any better; they would probably be worse.”
Peter reiterated something he said in a recent podcast — the deficit is even bigger than we’re told because the government uses all kinds of accounting gimmicks to keep spending “off book,” pushing the official number lower. Peter noted that the national debt grew by $1.2 trillion in fiscal 2018.
“So, the government is actually borrowing 60% more than what it’s pretending to borrow. So, the actual increase in the debt is much larger than what everybody is talking about. So, the problem is much bigger, and unfortunately, it’s going to get worse, especially with rising interest rates that make servicing that debt that much more expensive.”
Walter Smolarek, an organizer with the Answer Coalition, said whether or not deficit spending really is a problem depends on what the money is spent on. In fact, he said it could have the effect of stimulating the economy. On the other hand, he said all tax cuts do is put money in the pockets of people who are “so unbelievably wealthy that they can’t possibly spend all that money,” along with “big corporations.”
It won’t shock you that Peter took issue with Smolarek’s analysis.
“First off, tax cuts are not transfers of wealth. Wealth is transferred by taxation. So when you cut taxes, you’re transferring less wealth. You’re not putting money in the pockets of the rich. You’re just taking less money out of the pockets of the rich. But the problem isn’t the tax cuts. The problem is government spending went up. It should have gone down. If you’re going to make a decision to transfer less wealth, to steal less money from Peter to pay Paul, then you’ve got to cut your spending on Paul. But unfortunately, we didn’t do that. The Republicans tried to have their cake and eat it too. They tried to transfer less wealth away from the people who earned it, but continue to give more money to people who didn’t earn it. That is the problem. It is the government spending that we need to be opposed to. And government spending doesn’t create economic wealth. It just transfers wealth. But in the process, it destroys it. You destroy the incentives to create wealth and grow the economy. What we really need to be doing is shrinking the size of the federal government. We need dramatic cuts in government spending. But unfortunately, that is not what the Republicans are delivering. They are delivering more spending on welfare and on warfare, and so we have bigger deficits. And this is ultimately going to cause a massive problem.”
Smolarek countered that money doesn’t just appear in rich people’s pockets. He said wealth comes from people going to work every day, not some businessman. Peter said that’s where wages come from.
“The wealth comes from the entrepreneur. It comes from savings and investment. The people who are collecting the paychecks are not creating the wealth. They are benefitting from the wealth other people are creating. That’s the beauty of capitalism. What your other guest is describing is socialist nonsense — the idea that it’s the labor that creates the wealth. The labor benefits from the wealth that other people are creating, and government regulation and taxation inhibit the ability of the entrepreneur to create wealth.”
Peter went on to say you don’t build an economy from the workers up. That’s just a bunch of nonsense.
“Anybody can show up and collect a paycheck. That is the easy part. What not everybody can do is write the paychecks, to create a business from nothing, to organize the factors of production, to organize land, labor and capital in such a way that you can satisfy the demands of the economy. The easiest thing you can do is show up and collect a paycheck. And it’s very easy to pretend the workers are responsible for all the wealth in the United States. They are not. They are just the principal beneficiaries of the free market economy that allowed the entrepreneur, the businessman, the employer to create all the wealth that workers and consumers benefit from.”
Smolarek said there is a role for government to “redistribute” wealth for the benefit of everyday people. But as Peter pointed out, government is horribly inefficient when it comes to satisfying the needs of individuals.
“Who’s efficient is a private business that’s trying to generate a profit and is subject to competition. So, if you want things, you’re going to get more things that you want from private businesses that have a vested interest in keeping costs down and quality up, rather than getting it from government bureaucrats whose only goal is to grow bureaucracy. You know, governments aren’t good at raising living standards or increasing production. So, the more wealth that we divert to government through taxation, the poorer we’re all going to be. So, if you want more stuff, if you want a higher standard of living, then you need to keep government to its absolute smallest size. What government should do is simply protect individual liberty – rights and property. It’s not there to redistribute the pie. It’s there to allow capitalism to make the pie as big as possible so everybody has more to eat.”