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John Tamny & Adam Michel: How Should We Think About America’s Debt?
00:29:38
On this episode of Future of Freedom, host Scot Bertram is joined by two guests with different viewpoints about the country’s debt and annual deficit. First on the show is John Tamny, President of Parkview Institute, Editor at RealClearMarkets, and author of The Deficit Delusion. Later, we hear from Adam Michel, director of tax policy studies at the Cato Institute and author of the recent essay, “The Deficit Trap.” You can find John on X @JohnTamny and Adam at @AdamNMichel.
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Foreign.
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Welcome to Future of Freedom. I'm your host, Scott Bertram. Future of Freedom is a production of Franklin News Foundation. To support this show, go to franklinnews.org donate we bring you interviews today from different sides of the debate over our current debt and deficit. In a little bit, we'll be joined by Adam Michel, director of Tax Policy Studies at the Cato Institute. Cato.org first we talk with John Tamney. He is president of Parkview Institute, editor at Real Clear Markets, and also author of the recent book the Deficit Delusion. You can find him on X on Tamney. John, thanks so much for joining us.
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A
Hey, Scott, thanks so much for having me on.
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B
Talking today about the deficit and the national debt. And it does relate, of course, to the recent book that you wrote, the Deficit Delusion. John, many economists, policymakers and others on the left and on the right treat the debt as a crisis. Your book says it might not be. What are they missing? Why are they wrong?
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A
Well, why they're wrong is the 38 trillion in debt. If that were a crisis, we wouldn't have 38 trillion in debt because no one ever, ever, ever lends out money blithely or with the intent to lose it. And we know this because the power of compounding is so powerful, it leads to such gains that it's very expensive to lose money. And so I'm merely making the case that to focus on the debt is to miss the point. The real problem is that government takes in way too much tax revenue now. It's going to take an exponentially more in the future. And the debt is an effect of that. It's the taxation that should bother us, not how much we' borrow. And that's just a logical impact of how much we tax.
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B
Come back to the taxation in a bit. But as you argue, high debt is a reflection of trust and economic success and not necessarily evidence of danger for the country. Can you explain that a little more and how debt is what you call a trust signal?
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A
Well, yes, and I want to stress here, in no way am I saying that I think government spending is good. I think it's a huge burden on every American. And in no way am I saying borrowing is good. I think that too, is a burden on every American. But ask yourself the question, why does Haiti have so little debt? Why Does Russia have 300 billion total in debt? Is that because Vladimir Putin is secretly a classical economic thinker? No. Russia's got very little debt because the world doesn't trust its economic present or its future. The fact that the US has 38 trillion in debt is a very strong signal from the world that the world sees our future as incredibly bright, as much better than it is today. And we're already the richest country on Earth. We're going to become exponentially richer. And so the world expects that. Hence they lend to us with ease.
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B
The debt exists and there are interest rates on that debt. And there have been some who have been warning and now that interest rates have risen in the past few years, that interest on servicing the debt is going to become a burden on the country. Is that a rightful concern about the debt?
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A
Well, it's true, but why would we be concerned? Aren't we for limited government? Wouldn't we prefer that the vast majority of revenues going into the federal government, instead of being used to centrally plan economic outcomes, instead of being used to control what Americans do, just went to paying off the debt? That sounds to me like the most benign form of government. Paying things off or they just. They pay things off. And so it's certainly true. But I don't see where the crisis is there.
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B
I want to talk more about that idea of the benign government spending because those who are concerned about deficit and debt often point to our entitlement program, Social Security and others as places to save money to reduce spending. You're skeptical that entitlement reform would solve the debt problem. Essentially, I wanna put words in your mouth, but you say they would just find something worse to spend money on. Is that about right?
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A
No, you put it exactly right. The one thing I would add is entitlement reform would paradoxically lead to bigger, more expensive government for the reasons you just alluded. Let's never forget that Medicare, which I think is a really bad program, began as a $3 billion a year program. Now it's nearing 1 trillion. And so the danger of reforming Social Security and Medicare, two programs I don't like, two programs I think that are big mistakes is that let's say we reform them and save trillions of dollars. Suddenly you're handing Congress enormous amounts of money to spend on new programs. And they all start small. That's what Ronald Reagan observed when he was president. Every program has a constituency and because it does, it grows and grows and grows. And so I don't want to give Congress new spending power. I want them to be basically handcuffed by Social Security, Medicare and interest on the debt.
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B
John Tamney with us. His book is the Deficit delusion. Also Editor, RealClear Markets and President of Parkview Institute. The accumulated debt at this moment Again, those who are concerned say, well we're going to have to pay it back at some point. That means we're borrowing today and future generations are going to have to shoulder this burden later on. Is that the case? Will future generations be forced to pay? Can we carry this debt essentially forever into the future?
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A
Well, future generations will be asked to pay it. That's the least of the crises facing the future generations. And the markets keep telling us that. Remember in 1980 we had total debt of 900 billion and borrowing costs for treasury were 11%. In 2026 we have 38 trillion in borrowing costs are 4%. That's the market's way of saying the debt will easily be paid off. But here's the crisis for future generations. It's not the debt that the markets keep saying telling us will be easy to pay, it's that they're going to inherit a massive government that will continue to need to be fed. That to me is a much bigger crisis than the debt. Let's also leave in the fact. The reason we have so much debt largely has to do with the fact with the over taxation of the rich. As our site has said repeatedly, the rich pay the vast majority of federal, ergo we have all this debt because the rich are so over taxed. The rich by virtue of being rich have one choice. They can either buy more houses or they can invest the money. And so the question we need to ask is what are the problems we're not solving? What are all the Nvidia's and Amazons and Metas and Googles that are not being created because the rich are so overtaxed? What are all the cancer cures not being reached because the rich are so over taxed? To me the real burden for the future generations is that we hand them a much less evolved society precisely because we overtax the rich so much today.
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B
All right. On the subject of tax revenue, John, you argue there's simply too much tax revenue. That the key here is to greatly reduce the inflow of money to the U.S. treasury. So we've already sort of established that, you know, politicians government will try to spend as much as they can if able. So what's the key to reducing the amount of money that's actually flowing to the government?
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A
Well, the only way you can do it, and it will be interesting to see if either political party has the stomach to state the obvious. We've got to say the rich are not only overtaxed in this country and that's immoral. I don't know why Jeff Bezos owes more than I do in taxes, but we have to add to it. Attacks on Jeff Bezos and Elon Musk and Mark Zuckerberg is a tax on everyone. And it is because think of all the economic growth, think of all the companies, think of all the cancer cures, all the transportation advances not happening because the government's got such a substantial share of the wallets of the rich now and in the future. And so if you want to reduce the debt, it's pretty obvious you must reduce the inflow of dollars into the, into the US treasury that enables all the borrowing. Well, the only way to do that, it's not to reduce taxes on poor and middle earners. They already don't pay much as is. You have to reduce it on the rich. That's only way to make it so that people aren't lined up to lend to the U.S. treasury. I just don't know. Democrats, we know we don't want to don't want to do it. And Republicans are too afraid to state the obvious.
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B
You've argued also that a balanced budget, which many deficit and debt concern people discuss, is pointless. So, so why not a balanced budget to try to get things back in line?
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A
Because first of all, let's say we balance the budget this year, that would still mean a $6 trillion government right now. Now let's think about a balanced budget vis a vis the 38 trillion in debt. We don't have 38 trillion in debt because investors think we're going to take in less dollars, fewer dollars in the future. We have all this debt because they know we're going to take in exponentially more. And so a balanced budget in the future signals a much, much, much bigger government than the one we have today. What's limited government? What's conservative? What's libertarian about that? I can't find it. What I find in that is that, is that the spending of the federal government is going to massively grow in the future to the detriment of us all. And so I think the focus should always be on reducing the inflow of dollars to government. Forget about whether it's imbalance or not, just reduce the inflow of dollars. That's how you shrink government.
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B
John, if we talk about reducing the inflow of dollars, which would in turn reduce spending, are you discouraged? Are you upset about the reaction to the attempted efforts by Elon Musk and Doge from the beginning months of President Trump's second term in office?
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A
Well, let me say this. I predicted in the book because the book didn't go into print until. But I predicted ahead of time that Doge wouldn't work. And I knew it wouldn't work because I remember well Ronald Reagan's presidency. He had very powerful desires to shrink the size and scope of government. But what he found was that every program has a Republican and Democrat behind it, and so it's very hard to shrink them. But I also said that Doge wouldn't work simply because, let's say, Musk succeeded in the ways that no one else ever had and saved $2 trillion. Once again, no act of government parsimony ever shrinks the size of government. It just shifts what government spends it on. So if he had saved 2 trillion, it's not as though they were going to burn the money up. It's not as though they were going to give it back to us. It was going to be 2 trillion of fresh powder for Congress to get to work on dreaming up all new ways to massively expand the size and scope of government. And so again, I think spending cuts, I think balanced budgets miss the point. That's symptoms. And talk about why we have the debt. We have the debt because we take in too much tax revenue now and much more perilously. We are expected to take an exponentially more tax revenue in the future.
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B
Jonathan, if the debt is not a crisis, let's say in the future, we actually do reduce the inflow of money to the US Treasury. At that point, should we be afraid of actually increasing the debt, of seeing the debt continue to rise?
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A
Well, we wouldn't be afraid of it because it wouldn't happen. Borrowing is an effect of the market's expectation of future incomings. Think Nvidia. 25 years ago, Nvidia couldn't borrow to save its life. Now it's got 1112 billion in debt. Why? Well, it does because the markets trust its future. Same with Uber. Fifteen years ago, Uber couldn't borrow anything. Now Uber can borrow billions. Why? Because the markets trust its future. And so if we make policy all about actually shrinking the flow of dollars to the US treasury, there's going to be a market response. What does supply siders always say? They people respond to incentives. Well, so reduce the incentive for people to lend to the United States. You don't reduce it, however, by what the supply siders keep saying. And to be clear, I make play in the book. I'm a supply side. But I think their focus on the Laffer curve, and I've said this to Arthur Laffer himself, has been really Tragic. You don't shrink government and borrowing by increasing the flow of dollars to government, which is what the Laffer Curve proponents have said forever. I'll go. So I think the Laffer Curve is real, but you'll never shrink the debt. By that I mean think about what they're saying. Let's send more money to Washington to shrink the debt. Have you ever heard of something more ridiculous? But see, left, right, supply side, libertarian, they all say it. They say the way to fix the debt is to bring more dollars to Washington to pay it off. How's that worked out? Over the last 45 years, we've seen the debt explode, which is logical. Everyone wants to lend to the entity that's taking in more dollars in the future.
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If I can summarize that, the debt market will police itself because it will only allow the United States to borrow what the market is confident we can cover, either now or more likely, deeper into the future. Is that about right?
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A
That is brilliant and it's absolutely right. What's sad is you're the only person who agrees with me or at least understands my argument.
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B
John Tamney is president of Parkview Institute, also editor over at Real Clear Markets, and author of the Deficit Delusion. You can find him over on xontamney. John, thanks so much for joining us here on Future of Freedom.
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A
Scott, thanks so much for having me on.
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I'm very grateful now to hear another side of the discussion about debt and deficits. We talk with Adam Mischel, director of Tax Policy Studies at The Cato Institute, cato.org Also the author of a recent essay, the Deficit Trap, and you can find that over at the Civitas Institute website. Adam, thanks so much for joining us.
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C
Thanks for having me on.
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B
So we're talking about debt and deficit today. Is it a problem? Is it a crisis? You argue in your piece that focusing on deficits rather than spending is a problem and that could risk pushing us toward an even bigger tax state. What's your argument there?
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C
Yeah, so I care about the deficit and I think it is a problem because it accumulates into a ever growing a government debt. But focusing just on the deficit I think obscures the underlying thing that that I care about and that's the fact that the federal government has gotten too big, too burdensome and too intrusive. This measure of the deficit, which is an annual gap between spending and taxes, really just means one of three things. It means we are either going to see future inflation, future tax hikes, or future spending cuts or some combination of those Three and two of those three, three options, inflation and taxes imply that the burden of government is going to become even more, even larger and even more intrusive into our daily lives, undermining, continuing to undermine individual freedoms. And, and I believe that, that, that spending that the deficit implies makes us.
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All, all worse off.
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B
You argue in the piece that the, those who agree with you, fiscal hawks are split. Some are budget hawks, some are deficit hawks. What's the difference?
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C
Yeah, so I consider myself a budget hawk. I want a smaller government. I want, I point to the deficit as a symptom of that problem. But in this broader coalition, there are folks that simply just care about the deficit or deficit hawks and their, there's sort of balance at any costs. There, there's this, this idea that all we need to do is get to solvency and that could either come from higher taxes or larger spending. And, and they're often folks in this view are, are indifferent between the two. The, the end goal is only deficit elimination. And I think that, that this, this, this looking at only the deficit and using this rhetoric pushes policymakers towards the, quote, unquote, easier solution of taxes or inflation and kneecaps. Folks that really care about the size and scope of government who want to center spending cuts as the solution to this unsustainable trajectory that we're on.
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B
It seems no matter who's in charge, Adam, that trajectory continues into more and more spending. And part of the reason is anytime something is proposed, there are pushbacks. They become what we would say, politically unrealistic, perhaps. What kind of cuts, what kind of reductions would be both meaningful and make a difference and also achievable.
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C
So we need spending cuts across the board in basically every subsection of the federal government. The things that are making our budget unsustainable in the long run run are mandatory spending programs. Medicare, Medicaid, Social Security. And those programs need deep structural reforms or the budget is going to continue to balloon out of control. But we also need reforms in other parts of the budget. We need reforms to defense spending. We need continued reforms to other federal transfer programs like food stamps and federal housing support broader health and education spending. All of these areas are places where the government is disincentivizing work, subsidizing unhealthy behavior, trapping families in poverty and making the services that many Americans rely on, healthcare, education, more expensive and more unaffordable than it otherwise would be. And reducing the government's role in all of these subsectors of the economy would make accessing those goods and Services cheaper would make would increase the quality in each of those sectors and ultimately allow people to choose the life that best suits them rather than the one that the government is subsidizing.
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B
Adam, it does seem sometimes like we're locked in a cycle in which if there are spending reductions discussed or implemented, it's only to encourage more spending. In other places are we locked in this cycle where when we talk about reductions, spending reductions, it's only for the means to spend more elsewhere in government?
- [19:42]
C
I hope not. I think you're right that often they look for savings in one place to increase spending in another. I think the big reconciliation package that passed this summer is maybe a narrow example of getting outside of that, of the, outside of that paradigm. There was significant spending cuts in, in that package, over a trillion dollars, mostly adding work requirements to food aid programs and Medicaid. And those are, those were real spending cuts. They, they, they were largely used to offset tax cuts. But that's different than, than, than simply increasing spending elsewhere, although they did do a little bit of that as well. So if Congress can build that they started over the summer and continue to expand the types of programs that they are looking at reforming, I think there's a silver lining there, although I certainly wish they had gone further in this most recent big fiscal package.
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B
I want to ask about the debt, Adam, which of course is a product of the annual deficits that we run in the country now racing toward $40 trillion. We on the right conservatives believe in markets. If the market says that the US could afford more debt, the market trusts we will pay it back eventually or at least have the economic growth to be able to manage that debt into the future. Are the markets wrong? Should we be more concerned than the markets are about that debt?
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C
No, but I think the market is very clearly uncomfortable with the level of debt that we've seen. We just went through a period of inflation was in the high single digits that Americans most certainly did not find an enjoyable experience. And that is a product of Congress spending beyond its means, racking up, accumulating larger and larger debts. In 2023, we saw the federal treasury rate, so the cost of occurring additional debt spike to 5%, which was a sort recent high. And while it's come back down a little bit, it's the markets are still telling Congress that they are on an unsustainable path. And this idea that simply because the thing isn't broken yet, we haven't hit, we haven't actually gone off the edge of this cliff, doesn't mean that cliff isn't ahead of us. You look at debt crises around the world and countries are able to borrow until they can't. And that time is coming for the United States. It's just a matter of when, not if.
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B
There was an attempt to try to restrict spending earlier this year, as we talk in 2025 with Doge and Elon Musk running that department inside Donald Trump's government that did not appear to go according to plan or perhaps did not see the savings or permanent savings some thought could be possible. Are you discouraged by what you saw around Doge?
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C
I'm both discouraged and optimistic. And I'll tell tell you why. I think that this particular effort ran into a number of different problems in that they were focusing on on many. They weren't focusing on the biggest line items like if we actually want to reduce the size and scope of government, we need to be looking in these large mandatory programs. But the I'm optimistic because the, the Elon Musk and through the campaign cycle, I think really did sell this idea that the federal government is doing too many things and is and in the things that it is doing, it's doing it in wasteful ways. And that this and he proved that you can create a political movement around this idea that we need to make government work better, smarter and be smaller than it already is. And so simply because the, the mechanism that Musk chose to implement Doge through didn't work out, I think we can take away that it is popular and it can be sold to the American people. That government does not need to be as big or as intrusive as it is today. And that should be a roadmap for similar reforms in the future.
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B
Adam, if we want to work toward spending cuts in that way, a balanced budget is a balanced budget of amendment a good idea. I have heard some say that just means that, well, we'll hike up tax rates to account for whatever spending we want. We'll be balanced. It might be a lot larger, but it'll be balanced. Is a balanced budget amendment a good idea?
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C
I think a balanced budget goal is important for Congress. We do need to live within our means. And what we've been doing over the last several decades is Congress has been sort of giving Americans a government at a discount. They are doing all of this spending, but they are not making the American people pay for it with higher taxes. And if you actually pair the higher spending with higher taxes, it becomes a lot less popular. And I think we actually get, we get a much smaller government. If Congress was living within its means. I think designing a balanced budget amendment is, specifics of how it's designed are incredibly important. But this idea that we can continue to live beyond our means simply can't go on forever. And politicians need to be honest with the American people that if we don't cut spending, it will mean higher taxes. And those taxes have real economic costs, not just in disincentivizing work, making the economy slower, turning the United States into a European tax state. And all of those things come with broader costs that we should be talking about if we're not willing to cut spending.
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B
If we get to a point where spending is reduced in a meaningful long term way and we start running surpluses, which did happen once upon a time, would you advocate using that money, putting it toward paying off our debt? Is it more important to return that money once we spend less and perhaps have a balanced budget, return that money to Americans?
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C
Yeah, I think that any, any additional surplus should be returned to, to the American people. We most certainly should also begin paying down down the debt. But I think as a matter of, of, of good faith to the American people, if we are, if we indeed can cut spending to a level that's living within our means, we should most certainly be cutting taxes on Americans, on investment. That's the way that the United States can continue to grow, can continue to attract additional investment in our economy. And as the economy grows, the relative size of the debt will shrink. And so one of the most important, beyond spending cuts, the second most important element in a, in a, in a, in right sizing or putting us back on a, on a sustainable fiscal trajectory is strong economic growth. And that requires low taxes and letting Americans sort of live their, their best life.
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B
It's said that some, you know, things will continue until they can't anymore. Our spending, our deficits, what external forces are looming out there that would force us to stop this as opposed to choosing to stop this?
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C
This is the 30, $40 trillion question, right? The size of our national debt. And that if we knew what that forcing mechanism is, it would, I think, have already forced Congress's hand. But you could look out into the future and see the insolvency of the Social Security Trust Fund in the next several years being a forcing mechanism. Another government funding deadline, the expiration of these most recent tax cuts that were passed that expire, and largely expire in 2028, when all the new Trump proposals, no tax on tips and overtime and a larger senior deduction, all expire. All of these are fiscal inflection points, and any one of them could be the thing that spooks markets. And then markets would people would stop lending the federal government money, which would then create the crisis and enforce some sort of reform.
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B
Adam Michel is director of Tax Policy Studies at The Cato Institute, Cato.org, also author of the recent essay the Deficit Trap over at the Civitas Institute website. Adam, thanks so much for joining us here on Future of Freedom.
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C
Thanks for having me on.
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B
We thank both of our guests for joining us. John Tamney, president of Parkview Institute, editor at RealClear Markets, and author of the Deficit Delusion. He's on X on Tamney and Adam Mischel, director of Tax Policy Studies at the Cato Institute, cato.org to find additional episodes of Future of Freedom, go to Apple Podcasts, Spotify, or wherever you get your audio. Thank you for listening to Future of Freedom, a production of Franklin News Foundation.