#191 When Expenses Exceed Revenues

The Christian Economist | Dave Arnott

The US Federal Government's annual expenses are $1.9 trillion more than its revenues. That's a violation of the eighth commandment, and it is economically unsustainable. You will be poorer every day, for the rest of your life, because the Biden administration has increased the national debt in the last three years. That’s the message I gave my sophomores at Dallas Baptist University recently. Going back a little further, the Wall Street Journal reports this week that Federal debt held by the public mushroomed from less than $5 trillion in mid-2007 to more than $21 trillion in 2020. Sorry for being the bearer of bad news. They never liked prophets in the Old Testament either. Or, as I often say, “I’m just the boy at the edge of the crowd shouting, “The Emperor has no clothes!” I’m not responsible for who feels naked as a result. I arrived early to lead some Certified Public Accountants through a management seminar in Pittsburg in the winter of 1998. Trying to start a conversation with stereotypically reserved accountants was difficult. Reading the local newspaper, I asked, “How did the Pittsburg Penguins of the National Hockey League manage to go bankrupt?” There was no answer. I waded in again, “How did an NHL team go broke?” Finally, one of the participants answered, “Expenses exceeded revenues in the long term.” At the time, I was a columnist for a publication called Sports Business Journal. My column the next week was titled, “When expenses exceed revenues in the long term.” The Eighth Commandment & National Debt Expenses are exceeding revenues in America today. This is unsustainable. According to the US debt clock, this year the federal government will have $4.4 trillion in revenue and spend $6.3 trillion You can’t continue to spend 30% more than you take in. I don’t care if it’s your personal checkbook, your business, your church, or the federal government. Consuming without paying for it is stealing, and it violates the eighth commandment. So why do we continue to do it? When President Bill Clinton was asked why he had sexual relations with an intern, he flatly, answered, “Because I could.” And, that’s why the Federal government continues to spend more than they receive. Here’s how Investopedia explains it: “The nature of debts changed after the Great Depression and the rise of Keynesian economics. The extent to which British economist John Maynard Keynes influenced government spending in the 20th century can hardly be overstated. While both the Hoover and Roosevelt administrations extended public works projects and experimented with fiscal deficits in the face of the Great Depression, it was Keynes who provided the macroeconomic justification for running large budget deficits to stimulate aggregate demand and fight recessions.” Danielle Lacalle at the Epoch Times has this to say in a recent article titled The US Deficit Road to Ruin, “According to the U.S. Treasury, year-end data from September show that the deficit for the full year 2023 was $1.7 trillion, $320 billion higher than the prior year's deficit.” This is going in the wrong direction. On the Wrong Side of the Laffer Curve The Biden administration increased taxes, but revenues declined. That means we’re on the back side of the Laffer Curve. Arthur Laffer’s simple curve shows a starting point on the bottom left of the graph, where a tax rate of zero produces zero revenue. At the bottom right, a tax rate of 100% produces zero revenue. So, logically, there has to be a hump in the curve. Christina Romer was the Chief Economic advisor to President Barack Obama. She determined the hump was at 33%. That means tax rates above 33% reduce revenue to the Treasury. When the Trump administration reduced taxes, revenue to the Treasury increased, proving we were on the back side of the Laffer Curve in 2017. Apparently, we still are. Mr. Lacalle again, “There simply is no excuse.