Welcome to the New Year, Same as the Old Year

2021 New Year baby?

by James A. Bacon

Three hundred and sixty-five days ago, my wife and friends and I tossed confetti, tooted our noisemakers and welcomed in a new year. Twenty twenty, we all agreed, couldn’t possibly be worse than 2019.

It didn’t take long to disabuse us of that notion. First came the coronavirus. Then the George Floyd protests and riots. And then the presidential election. We won’t be celebrating New Year’s Eve with anyone this year — we’ll be hunkering down in social isolation — but we’re thinking that, short of an outbreak of nuclear war, 2021 has got to be better than our current annus horribilis.

But it could be a close call.

On the positive side, we should be on the downward slope of the COVID-19 epidemic as vaccines are administered and herd immunity sets in. Life for most will return to normal. We’ll be able to socialize and travel once more. But 2021 will be no epidemiological nirvana. The virus will do plenty of harm on its way out. Millions more Americans will be infected and tens of thousands likely will die. Many people will suffer lingering medical after-effects from the virus. And the nation will be dealing with the economic, mental-health and fiscal fallout for years to come.

The unemployment rate in November stood at 6.7%. That is bound to come down as the epidemic recedes and the economy recovers. But the shutdowns have done lasting harm. Thousands of small businesses will have folded.ย Thousands of families will have been evicted from their homes.ย Anxiety and depression will have spiked, accompanied by a rise in substance abuse, drug overdoses and suicides. Millions of school children, stuck at home as schools closed, will have learned very little online. The after-effects will be especially pronounced for children from lower-income families, with potentially lifelong ramifications for learning, drop-out rates, criminality, and job advancement.

Most perilous, though less immediate and less visible, is the massive deficit spending. Ten years ago I wrote a book, “Boomergeddon,” warning of the consequences of runaway deficit spending. At that time the Obama administration’s Office of Management and Budget (OMB) was projecting that the structural imbalance between tax revenue and spending outlays would result in a $1 trillion deficit by fiscal 2020. I thought the forecast was naively optimistic, failing to take into account the possibility of a recession. With an end-of-decade recession, according to numbers crunched by Chmura Economics & Analytics for the book, the deficit could exceed $1.7 trillion. The actual deficit this year (fiscal 2021): $3.3 trillion.

In 2010 the OMB forecast a national debt by 2020 of $18 trillion. As of Dec. 31, 2020, the national debt stands at $27.5 trillion. That’s what bigger tax cuts and more defense spending (favored by Republicans) and more lavish domestic spending (favored by Democrats) and reckless stimulus spending (favored by both) gets you. At least in 2010 the Obama administration pretended to be fiscally responsible. Under President Trump — with eager support from Democrats — the nation has abandoned even the pretense.

Unless the U.S. has devised the economic equivalent of a perpetual motion machine, there will be calamitous consequences when the joy ride ends in a crash. When I was writing in 2010, I thought that the collision with reality would occur in the late 2020s or early 2030s. I did not then foresee the Federal Reserve Board’s strategy of quantitative easing and financial repression (keeping interest rates artificially low), which dampened the compounding effect of higher interest payments on the deficit. Whether the end result is massive inflation or fiscal collapse, no one knows. But history tells us the debt spiral cannot end well.

As ominous as the fiscal trends are, fiscal, economic and social collapse are still some years away. Boomergeddon won’t be on anybody’s radar screen in 2021. But racial justice will be.

It’s a healthy thing to critically examine our institutions and practices, and I expect that some of the changes we have enacted (or will next year) will have a beneficial effect. It would be a wonderful thing if Virginia can devise ways to hold police accountable for abuses and to end mass incarceration — as long as we can do so without seeing the surge in murder rates experienced in Chicago, New York, Baltimore and other major cities across the country. I remain hopeful that our criminal justice system will be more just toward African Americans in 2021, while also holding my breath to see what happens to the violent crime rate in African-American communities.

Meanwhile, the application of Critical Race Theory continues to spread through Virginia’s system of K-12 education and its higher-ed institutions. I see zero upside to this doctrine of victimhood and grievance, which does nothing to uplift anyone. To the contrary, I expect the application of CRT theory in our schools will lead to the opposite of what is intended. The racial gap in educational achievement will get worse, not better. Meanwhile, African-Americans, feeling more estranged and alienated on our college campuses, will self-segregate while many whites will pull back for fear of violating racism taboos that change by the day. There is nothing in CRT that will help minorities become more successful. These racial dramas will continue to play out in 2021 to the discomfiture of all.

One thing will make millions of Americans deliriously happy — the departure of Donald Trump from the White House (either voluntarily, or kicking and screaming). Even Americans who voted for him feel exhausted by him, and many will not miss him when he’s gone. President Biden has promised a return to normalcy. Given the divisions rending our society, though, I worry that the new normal won’t look much different from the old normal.

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42 responses to “Welcome to the New Year, Same as the Old Year

  1. The growing national debt with no acceptable plan to reduce it and the growing political divisions are two major problems that could destroy the foundation of our democratic system. A new Administration with a commitment to bi-partisanship offers a slight, very slight, glimmer of hope.
    What will it take for politicians and the rest of society to take to heart Thomas Jefferson’s words at his first inauguration the “But every difference of opinion is not a difference of principle”? Is it possible to find a way to promote an understanding is the solution to incivility?

  2. Nice post, Jim. It is fairly balanced; I am with you on some of it and, in some areas, I think your concerns are not as great a threat as you think.

    I do see that Sen. McConnell agrees with you about the debt. He is objecting to the proposal of sending $2,000 to everyone because it would greatly inflate the debt and benefit some families who are not in need of financial assistance. It is too bad that he was not using that criteria a couple of years ago when the tax cuts were being considered. (By the way, I happen to think that the idea of sending me (and others like me) $2,000 is not a good idea. It would be a better use of the money to increase the unemployment benefit supplement.)

    • Wasn’t the $2K based on last year’s income? Something about $75K?

      And, you’re right. I don’t need the $1200 ($600×2) we are currently going to get, so I’m going to split the difference.

      Charitable giving is way up this year. The new tax code has moved “charitable donations” off of Schedule A and on the front of the 1040 as a straight income deduction — IF you use the Standard Deduction.

      I guess the churches, i.e., Robertson’s and Falwell’s must’ve tweaked McConnell’s uh, um, ear and that got snuck in somewhere.

      So, donate it. Food Bank, Salvation Army, somebody, not Trump.

      • I make too much money to get the stimulus.

        Nevermind that the amount of money I make is required to be as high as it is because I live in Northern Virginia, where $300k buys you a crappy townhouse with equally crappy neighbors.

        • They need to better target those in need. When the stimulus is going to people that are not going to spend it – it defeats the purpose of the stimulus. It’s like going into debt to put money in a savings account.

          I don’t think the 2K is too much at all – IF it is going to someone who really needs it AND they are going to spend it – AND it’s going into the economy.

          • And if we didn’t have a flood of illegal immigrants in the workforce, a helluva lot of citizens and legal residents would have earned more this year. Also, there would be a continuous upward pressure on worker’s pay that would negate the campaigns for higher minimum wages. Finally, we would be seeing additional capital investment in technology.

            Perhaps, this is why approximately 12% of black males voted for Trump. Illegal immigration hurts Americans with less education and fewer skills. As Biden bends over for the ultra-woke white folks, watch more Hispanics and blacks vote for the GOP in 2022.

          • Couple of issues with “illegal immigrants”.

            First, more than 1/2 of “illegals” are not Mexican laborers. More than a vew are folks from other countries on work or education visas.

            Second, the GOP has had plenty of opportunity to tighten up E-verify and they have chose not to and now they want to blame the Dems? That’s so bogus.

            Third – a roof installed by low-paid “illegals” is 1/2 the cost of one done by “real” Americans. That’s TWICE the productity!
            ๐Ÿ˜‰ The higher the wages, the lower the productivity!

            Fourth – when Americans are fighting for low wage, menial labor jobs, WE have a problem and blaming it on illegals is evading responsibility for our own failures.

        • Well, still not enough to pay January’s Dominion Energy bill.

    • Yeah, the $2,000 give-away is a sign that many in Washington have lost all touch with fiscal reality.

      • And taken due note of Americans historic bent for material goods having collapsed into uncontrollable lust for stealing other peoplesโ€™ money, including that now or hereafter belonging to their children, grandchildren, and great grandkids!

  3. and just like that $1200 deposited in the bank account… !!!

    and the word is that MOST people won’t spend it… geeze… that sounds like it was way over-targetted.

    Economists are now saying that debt is not near as bad as they used to say it was:

    New Thinking in Washington in the Debate Over Debt

    ” a growing band of economists who argue that long-held doctrines about debt โ€“ such as it crowding out private investment, leading to inflation or otherwise harming economic growth โ€“ have not proven true.

    With interest rates at historically low levels, these economists say now is the time to go big with federal spending to address the COVID-19 pandemic and its damaging effect on the economy as well as deal with chronic needs like infrastructure, economic inequality and health care reform.

    The ranks of those making this argument include some notable voices, including former Treasury Secretary Lawrence Summers, former Federal Reserve Board Chairman Ben Bernanke and even the current chairman of the Fed, Jerome Powell, who was appointed by President Donald Trump. ”

    https://www.usnews.com/news/economy/articles/2020-12-07/new-thinking-in-washington-in-the-debate-over-debt

    But the GOP – debt for military spending is GOOD, but for domestic spending it is BAD!

    The Dems – are, of course somewhat the opposite.

    All the other developed countries by the way think like Dems – spend on health care, transit/rail, free education, etc.. but not so much on “defense”.

    • “But the GOP โ€“ debt for military spending is GOOD, but for domestic spending it is BAD!”

      At some point that is analogous to spending $20k for a security system to protect a broken, rusted-out cash register with 50 cents in it.

      • Perhaps – but it it provides jobs ? Does it matter what it is they are producing? I mean no matter what, a $600 toilet does employ people!

        And for that matter so does Medicare spending , rail/transit –

        it all translates to jobs, right?

        Virginia, more than any other state, knows this.

        ๐Ÿ˜‰

        • It’s probably true that the US military is largely a jobs program at this point.

          • At this point? The entire Cold War, the military was and is the largest social program in history.

          • I just hope that someday, they’ll locate our “Freedom” wherever it happens to be in Afghanistan, take it back, and be done with that operation.

        • I guess we could pay people to dig holes and fill them back in.

          Ideally, though, it would be nice if they could do something productive that benefits society for the tax dollars that they get paid.

  4. James Wyatt Whitehead V

    One of my favorite US History lessons to teach 11th graders was the story of debt and deficit spending. I would always ask them what should be done. The answer was almost universal from them year after year. Kick the can down to the next generation. The national debt and deficit spending will only be resolved in the crucible of economic calamity. Where is Albert Gallatin?

  5. Regarding CRT and how it will no doubt ruin all past gains we’ve made in race relations over the years, I’m leaning more towards Gavin McInnes’ recent assessment that we are headed for a long period of “soft” apartheid. Most balanced folks that I know already have had enough. Things were pretty civil until the Obama administrations “fundamentally” changed us. Statistically you have a greater chance of dying of constipation than by a law enforcement bullet. Black lives matter? Better not go to Chicago.

  6. To call the military a giant jobs or social program is a yes but comment. First and most important, the military is an absolute requirement for the defense of our nation. Given that it ought to be also a jobs and social program. The implication is that defense spending is wasteful. If efficiency is the metric all government spending is wasteful. The biggest problem is figuring out where the waste is and how best to reduce it without seriously reducing program effectiveness.

    • Yes, Defense is an absolute necessity for the US and for that matter , the US role in safeguarding the world from threats.

      How much it SHOULD cost is an issue as it really is with any govt-provided service or infrastructure from roads to health care to innumerable other.

      BUT – ANY collected tax then spent by the government – produces jobs – whether it taxes to pay a soldier or to pay a civilian to build a tank or a doctor to provide medical care via the VA or Medicare or public schools where salaries are 90% of the costs and even things like schools and buses are built by people paid salaries.

      The premise is that if the private sector provided these things, they would do it more effeciently with less waste – which is almost surely more true than not as even the govt will outsource to the private sector but even when they do that , if it is a govt contract, the contractors are not the same as pure private sector enterprises. A Boeing contract for a plane will be different than a Southwestern contract for a plane!

      But maybe an interesting question might be if we compare countries and government taxation and spending – in other words, what percentage of the total national economy is govt spending…would the US rank high or low compared to other countries?

      Maybe here :
      https://en.wikipedia.org/wiki/List_of_countries_by_government_spending_as_percentage_of_GDP

      Happy New Year and here’s to hope for a better 2021 though I do have some doubts.

    • The Founders didn’t think it wasteful, just dangerous. You know how they felt about standing armies, especially if they were just standing around.

      Fortunately, they proved to be mostly wrong.

      Nevertheless, determining an efficient size is governed by “better too big than too small.” As to being a social program, there was the GI Bill, not to mention much of the Defense Industrial complex.

      • How can you equate the GI Bill to the industrial military complex? Don’t you think that we owe a debt to those who served in combat? Th industrial military complex is why we have a $13 billion carrier that is still not operational and Littoral boats that the engines fall off of.

        • Money spent into the conomy. That’s how.

          Even the “Bridge to Nowhere” was a boost to the local economy.

          • I’m sure that is a response to some comment, just not the one that I made. Do you believe that we owe something special to those who serve during times of conflict? That’s a yes or no question.

          • Your question was “How can you equate the GI Bill to the industrial military complex? ” Pay attention.

            As to your 2nd question, is not patriotism it’s own reward? If not, We could hire mercenaries for less.

          • Bill O'Keefe

            You didn’t answer the question and explain how you equate the two. Who needs to pay attention?

          • Look up. Repeat: Money spent into the economy.

            Jobs, better jobs. GIB money goes to education institutions, instructional staff, to educate GIs, who in turn get better paying jobs, often in the MIC.

            MIC money employs millions, including GIs.

            All of which drives consumption.

          • Bill O'Keefe

            So does employing all of the unemployed to dig holes. Do you really think that helps the economy?

  7. Biggest cost for the military is for personnel – of which most are “support” and only a tiny fraction actually make it to combat but all of them get “benefits” beause they are subject to be used in combat or places where there are hostilities.

    But the military is starting to reduce manpower needs with technology like drones and autonomous vehicles.

    And we really found the ugly truth about how big and extensive the military HAD to be versus what local towns “needs” and we had to go to BRAC to allow the military to actually close bases they did not need.

    Ships built today need much fewer crew – on purpose.

    Some fighter pilots can be replace with drones.

    Submarines need less and less crew…

    Carriers are more and more sitting ducks – modern day battleships – think in terms of drone “swarms” – 50-100 drones attacking…

    but interesting site:

    U.S. defense outlays and forecast as a percentage of the GDP 2000-2030

    https://www.statista.com/statistics/217581/outlays-for-defense-and-forecast-in-the-us-as-a-percentage-of-the-gdp/

    • So, what point are you making? Do you have an alternative force structure that is cheaper but also as or more effective?

      • Basically commenting that the biggest cost to the military is personnel and benefits and bases in towns they don’t want or need.

        They want to cut down on personnel costs and base costs but still maintain their force structure.

        The proof of this is 1 – they are building ships that require far less personnel. 2. the army too is using technology to replace people.3. ditto the air force. 4. this will also result is lower GI benefit costs and VA costs. 5. – towns that rely on military bases don’t care about the costs as long as they get to keep their base that provides jobs to their town. There are other constituencies that depend on military spending for their own benefit and they lobby for their interests.

        The military could reduce costs significantly – if those who benefit from military spending – were kept from forcing the military to spend even when they don’t want to.

        BRAC (and other spending like shipyards) tells us all we need to know about how the military wants to reduce spending and towns – and Virginia argue against it.

        Large Carriers are becoming obsolete but building them is NN/Virginia bread and butter but it also could be called “waste”.

  8. Agree.

  9. re: paying people to dig holes.

    I have to ask , how intrinsically important are things like eating out in restaurants and other forms of “entertainment”, cruise ships, professional and collegiate sports, amusement parks, etc??

    We count those activiites as important contributors to GDP – but what exactly are they actually “contributing” in terms of what they are “producing”?

    • It should be obvious that they provide some intrinsic value–pleasure, enjoyment, relaxation–or else people wouldn’t choose to spend money on them and they would not survive as industries.
      Taking your comment to the extreme, we could all just go back to living in caves or an agrarian life style.

  10. On the debt, The Trump tax cuts are paid for with debt. They did NOT generate extra economic activity to pay for itself โ€“ almost none of it.

    Supply-side economics does not work.

    But not a peep out of the self-proclaimed debt-hawks until now, nary a whimper on the tax cuts adding to the debt!

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