Guns-and-Butter Redux

 WWII, when war demanded sacrifice

One of the hallmarks of a modern economic democracy is that you can have guns (expensive wars and social programs) OR butter (low taxes) but not both at the same time. If you lower taxes while keeping government spending high, there is what I will call a conflict of expectations. Ever since Franklin Delano Roosevelt enacted the New Deal to pull the United States out of the Great Depression of the 1930s, the government has been pumping money into the sophisticated infrastructure our nation needs (he built roads, dams with power generating power, levees and conservation enhancements to our national parks) and Roosevelt-era programs like Social Security and Medicare (paid, today unfortunately only in part, for by employers and their employees, deposited with a government agency). Those social benefits have been revamped and expanded but continue today with pledges of support by both parties.

As evidenced by the Vietnam War and all the significant wars and conflicts we have fought since, Americans do not like paying for such obvious major expensive choices with the necessary tax hike needed to pay for these “extraordinary” and expensive military forays… and they are addicted to the benefits that began in the Roosevelt administration, a contribution clearly associated with the Democratic Party. Republican orthodoxy, however, has mislabeled these social programs as “creeping socialism” and virtually every post WWII Republican (with the notable exception of Dwight “beware of the military-industrial complex” Eisenhower, who began the construction of our interstate highway system) has vowed to repeal those social programs to keep taxes low. Today, we are so used to so many government expenditures inside our economy that taking those out of the mix could actually trigger a depression.

Even as arch-conservative Ronald Reagan pledged to repeal these social “entitlements” to keep taxes low, he actually did neither. Nixon even expanded those “entitlements,” and while the Bush presidencies fought military conflicts in the Middle East (expanded to Central Asia), they kept taxes in check. Effectively, Americans want those Democratic-embraced benefits and Republican-adored tax cuts… and what should have been conservative zeal to melt aways those benefits to keep taxes low under the mythological falsehood – trickle down economics which incent the job creators… except that never happens – find perilous political support among most Americans.

So, the benefits continue even as Republicans threaten to eliminate those much-loved social programs to fund those tax reductions they cherish. The upshot is that the only way to pay for those expensive wars and those social programs Americans will not live without raising taxes is… er… to borrow. Which creates a massive “gotta pay it” annual interest carry on our deficit. Or we could create hidden taxes like high tariffs for products Americans truly use; the government gets the cash, and the consumers face higher prices, effectively a consumer sales tax. And de facto taxes on goods impacts those Americans in the lower half of the economic ladder, those with the least discretionary income, far more than those in the upper half. Hence such taxes bear the label “regressive” vs a graded increase in income taxes as earnings rise (a “progressive” tax schema).

There are hidden problems that attach to government spending habits that begin to have a life of their own and the momentum of expectations that becomes immutable. For example, Social Security was created in the 1930s, a time when rising younger workers vastly outnumbered the elderly retirees drawing Social Security. Slowly over the years, beginning to reverse in the 1980s, that cadre of young workers was soon supporting an increasingly larger, retired ex-workforce. Simply, the funding model that has supported Social Security at inception no longer worked. Back to “borrow, don’t tax”… and the deficit climbs.

The “sacrosanct” military ignored Eisenhower’s admonition and asked for more, and more, and more. Indeed, that evil “military industrial complex” quickly learned to spread its manufacturing facilities far and wide, embracing as many Congressional districts as possible. Sorry is the legislator from either party who pares military orders from his or her district… leading to the “I won’t challenge your support for your district if you don’t mess with mine” willingness to claim we need that strong military to protect our nation. That military appropriation is massive and almost never budges… even as modern wars end.

Noting that the second largest modern air force in the world is the US Navy, second only to the US Air Force itself, we love to build massive aircraft carriers (at $15 billion each) with aircraft than can cost north of $50 million each. Yet the world is rapidly replacing their manned military aircraft with drones. Harsh reality for one of the finest and best trained militaries on earth: the United States has repeatedly been brought to its knees by asynchronous enemies (hit-and-run irregulars), as in Vietnam and Afghanistan.

Is that the deep state Donald Trump rails about? Or does he want his own private deep state? Even though it seems embedded in our political system, where the tax code is often amended to cater to special interests and where military suppliers love to hire retired US military officers, we are facing a new form of favoritism – that cronyism Americans claim they hate – where those steering our major economic decisions (the DOGE “advisors” – Elon Musk and Vivek Ramaswamy) are absolutely generating massive wealth increases from their political involvement. Musk already got Trump to reverse his opposition to EV vehicles (or was that just for Teslas?), amped his support of Trump and watched his holdings skyrocket in value. Tesla shares alone jumped 40%.

I’m Peter Dekom, does America live on Dunkin’ or is that conflicts-of-interest… and exactly how can billionaire DOGE plans to restore “fiscal sanity” really work without triggering economic horribles like practical cronyism, rising inflation or a trickle-down recession?