You Are the Collateral Damage

Last week Korean President Yoon Suk Yeol declared martial law in  a late night television broadcast declaring the measure was needed in order to confront “anti-state forces.” Within a few hours legislators in the Korean parliament voted unanimously to rescind the declaration of martial law. As it turns out, the anti-state forces were not the nuclear-armed North Koreans across the DMZ but those very same legislators.

Also last week the French parliament held a vote of no-confidence ousting French Premier Michel Barnier from office throwing France into political turmoil following snap elections last summer that resulted in no party gaining a majority. The left wing New Popular Front and the right-wing National Rally joined together in opposition to French President Macron’s centrist coalition.

Earlier, the German coalition government collapsed when the finance minister, Christian Lindner, was fired by German Chancellor Olaf Scholz. Lindner, from the pro-business Free Democrats refused to issue more bonds to finance spending demanded by coalition partners, the Social Democrats and the Greens, that skirted Germany’s constitution.

But what is causing all this turmoil? Martial law and crashing governments throughout our democratic allies. Budgets. Budgets are important. Elected officials are responsible to the voters and budgets are supposed to bring transparency to the government’s priorities. But democratic countries have difficulty in creating budgets and even greater difficulty sticking to budgets. Budgets are the inflection point between governance and politics.

Here in the US we don’t even have budgets. All we have are continuing resolutions that continue the spending priorities of the previous year. But spending is only half of the budget. Our household budgets have to balance spending with income. If we spend more than we make we have to borrow to balance the budget. But we can only borrow so much and we have to pay back our loans plus interest. But our government’s deficit in 2024was $1.8 trillion, equivalent to 6.4% of GDP. That’s greater than the budget deficit that caused the collapse of the French government. Washington DC may think that the US is immune to the budget problems that afflict other countries, but we aren’t.

Politicians may not understand how budgets work but people do, and, thankfully, they are beginning to learn how to treat politicians that play loose with their money. Massive spending was the death knell for the Biden administration. Of Course, Mr. Trump is no stranger to deficits (or bankruptcies). His Department of Government Efficiency (DOGE) intends to cut trillions of dollars from wasteful spending. But I will be very surprised if those cuts come even close to offsetting the all the tax cuts Mr. Trump has promised.

Meanwhile, Argentine President Javier Milei has cut spending by a third, closed ministries shouting “afuera”(that means “out” in Spanish) and fired thousands of government workers in order to create the first budget surplus in recent memory. As a result, inflation in Argentina dropped from 13% a month to 3%.

The point I am trying to make is that balancing budgets is not easy. If it was easy there would be no problem. But balancing budgets is not easy. It is hard. It demands sacrifice. Not balancing the budget has consequences, as political leaders in Korea, France and Germany have found out. But it is not just the political leaders that must suffer the consequences of unbalanced budgets. Sacrifices must be borne by workers and ordinary citizens as well. The Argentines are paying a price as Milei’s reforms have sent the poverty rate up to 52% from 42%.

If you think that tax cuts will spur economic growth to reduce the deficit, you are delusional. If you think that you will not have to make a sacrifice to help balance the US budget, you are delusional. If you think that geniuses like Elon Musk and Vivek Ramaswamy can save trillions of dollars by eliminating waste and fraud you are also delusional. Discretionary spending only makes up 26% of federal government spending. Even if Elon and Vivek could eliminate all discretionary spending they could not balance the budget, and that’s before all of the tax cuts President-elect Trump has promised. To get even close to balancing the budget will require that every American citizen will have to pay more in taxes (some in the form of tariffs), will have to accept a reduction in benefits (because Social Security and Medicare are going broke) and pay more for goods and services (as the government prints money to pay its bills). We all have been living beyond our means and it will soon be time to pay the piper. All that our politicians do is hope that the piper comes after the next election.

Sorry to tell you this but you are about to become collateral damage in the battle of the budget.