October 17, 2023 - 10:45am
In a recent appearance on Sky News, US Treasury Secretary Janet Yellen was pressed on whether the United States could afford to devote resources to the conflicts in both Ukraine and Israel. Praising the American economy, Yellen bluntly replied that “America can certainly afford to stand with Israel and to support Israel’s military needs and we also can and must support Ukraine in its struggle against Russia.”
Yellen’s remarks come at a time when the latest US annual deficit has crested to an eye-popping $2 trillion. Indeed, President Joe Biden may be facing the same “guns and butter” tension that perplexed his Democratic predecessor Lyndon Baines Johnson. In the Sixties, Johnson poured money into both the Vietnam War (“guns”) and the Great Society expansion of the welfare state at home (“butter”). And it was LBJ’s fiscal policies that helped contribute to the inflation of the late Sixties and Seventies, which resulted in pushing the US off the gold standard.
Biden may now be grappling with his own version of this challenge. On one hand, American financial commitments to Ukraine since Russia’s invasion have totalled around $113 billion, a small fraction of the over $6 trillion in annual federal expenditures. On the other, the growth of domestic spending supported by Biden could place significant fiscal pressures on the American defence budget over the long term.
The White House’s 2024 budget proposal reveals this tension. A president’s annual budget is mostly a messaging document, but the message communicated by Biden’s 2024 budget is at odds with his foreign policy.
Even as it pledges to honour (and, in some cases, extend) American defence commitments, the Biden administration projects minor increases in the defence budget over the next decade — and an overall reduction in defence spending relative to the US economy. The proposal says it would aim to shrink the size of defence spending as a percentage of GDP from 3% in 2023 to 2.5% in 2033. In the War on Terror era, the demands of multiple military theatres prompted the United States to spend between 4.5% and 5.5% of its GDP on defence. Biden says he aims to keep U.S. defence spending well below that threshold.
The White House’s budget projects an average annual deficit of over 5% of GDP for the next decade, a historically unprecedented number outside major economic downturns or world war. Yellen’s rosy assessment of the state of the American economy stands in stark contrast to the massive deficits run by the federal government at the moment. Raising defence spending to earlier historical levels would only add to the burden of those deficits. By 2028, the administration projects that the United States will spend more money servicing its debt than on its defence programmes.
Perhaps the more pressing geostrategic question is not simply whether the United States can afford support for Ukraine and Israel. It’s whether the United States can do so while also maintaining enough financial resources and defence materiel to be able to project power abroad in response to additional challenges. Those bigger strategic reserves will be especially important in high-stakes geopolitical negotiations with China. Maintaining that defence infrastructure will almost certainly require considerably more spending than the White House is willing to admit.
By deferring fiscal trade-offs, deficit spending has been at the core of “Bidenomics.” So far, Biden has been trying to have it both ways on spending — borrowing for both guns and butter. In a time of rising interest rates, that policy might be less sustainable.
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SubscribeJoe Biden is running nothing. Joe’s handler is.
Altogether boys and girls
Beat me to it.
Haha. Was just luck that I got there so quickly!
The US is in the same position as Britain and much of the rest of the world. Consecutive governments have created entitlements, expanded the state and generally spent obscene amounts of money. As a consequence they are mired in debt and unaffordable obligations in relation and are taxing business and individuals to the brink.
Not willing to face up the reality, we’ve had 12-13 years of ultra-loose monetary policy. Naturally governments got used to pulling out the national credit card and loading it up with cheap debt.. The Covid came. Then the invasion of Ukraine, and with them inflation and high interest rates that made the accumulated debt unsustainable. At this point the US should have have begun make drastic cuts and introduced supply side measures to increase business activity.
But Biden and the Democrats needed to pay off their donors and supporters with massive handouts. But how to justify handouts government deficits and debt is already dangerously high? Easy – just call the trillions of dollars to be spent government “investment” in “infrastructure”, and assert without basis that the “investment” will not only pay for itself, it will actively reduce inflation. Put the climate change cherry on the top, and start shovelling out the money. When so much is already being burned through, what’s a couple of hundred billion more for a proxy war?
But for anyone with knowledge of the history of government “investment” knows, the trillions in subsidies will disappear in union demanded wage rises, corporate appropriation schemes, and in producing goods and services that have insufficient demand to be sustainable, leading to inevitable business collapse once subsidies are removed. The trillions in government spending will fuel inflation not reduce it.
15 years ago the US national debt was $10 trillion, 70% of GDP. Today it is $33.56 billion, 121% of GDP. Just paying the interest on the national debt is estimated to hit £1 trillion by 2030. By then the national debt will be well over $50 trillion.
Politicians won’t stop spending. The voters don’t want them to. So they will both continue to dance until the music stops. Then, God knows what will happen.
I assume you meant $33.56 Trillion. Otherwise I’d have to reluctantly give some credit to Biden.
At current rates of debt growth and assuming we still have a US dollar (both massive assumptions), and I can last another 50 years (not sure I really want to), we may hit $1 quadrillion for the US debt.
Now, if Biden would only decide not to run for re-election, as LBJ did …
Money means NOTHING to the elected plutocrats in Washington, DC, Sacramento and Albany. Taxpayers are merely serfs whose hard-earned incomes can be expropriated by fiat to cover the insane spending and debt constantly being churned out by the buckets full by bureaucrats and their sympathizers. This is not leadership. It is a dereliction of one of the first duties of government: fiscal responsibility with the people’s purse.
Don’t forget the $1.2 trillion cost of the Inflation Reduction Act.
Someone might note that LBJ’s spending put the national Republican party back in business, at least until the Clinton presidency. Expect the same to happen again shortly.
I wonder what the background of the quoted Treasury Secretary and Brooklyn-born former Federal Reserve Chairman Janet Yellen (77) is? Japanese-American, perhaps? Cuban-American? Not that it would influence her stance on US foreign policy and taxpayer funding priorities in any way, of course…
So US aid to Ukraine is around 6% of their defense budget. In return for exposing the ineptitude of the Russian soldier and his high command, not to mention the destruction of a large proportion of Russian military capability, that’s a bargain.
But perhaps wiser to have left the Russians as they were with an inefficient military. They might actually improve it after their disastrous performance in Ukraine. As Napoleon once said, “never interrupt the enemy when he’s making a mistake”.