Picture a government bathtub with the faucet running and the drain open. The faucet is the taxpayer money running in. The drain is all of the government spending running out: welfare, wars, waste, you name it. The welfare-warfare state comes under threat of interruption when the money being drained exceeds the money coming in through the faucet.
The inflows come via the nation’s assets. The outflows fulfill the nation’s obligations or liabilities.
The tub’s water level is like the excess of the nation’s value of assets over its liabilities. This is the nation’s net worth. It’s like a reservoir ready to go down the drain, even if the faucet is turned off. If the faucet’s inflows exceed the drain’s outflows, the tub’s water level or reservoir rises. If the drains exceed the inflows, the water level falls.
The welfare-warfare state comes under more risk of failing to meet its obligations as the water level falls, which can happen if the faucet stream slows down and/or the drainage speeds up. In these cases, the nation’s net worth is declining.
The federal government collected $3.7 trillion in 2017. It has payout promises to keep in the not-so-distant future (going 0-40 years out) that have a present value of anywhere from $80 to $200 trillion. Let’s use the midpoint, which is $140 trillion, as a figure. Even if every single tax dollar went to pay these obligations, they couldn’t be met. These promises are called unfunded liabilities. They are future drains, slated to begin pronto, and we know that the faucet can’t keep up with them. This will pressure the welfare-warfare state severely.
However, the government can always attempt to rob Peter to pay Paul, by tapping into the tank that supplies the faucet. The non-government sector has a net worth of about $125 trillion, being held as real estate, stocks, bonds, and businesses. Tapping these sources means raising taxes. That will reduce the flows from the faucet. Besides, it’s not so easy politically to raise taxes. The rates can be raised but then various counter-effects come into play that reduce the government’s revenues. If the government taps this tank, it’s because of the welfare-warfare state’s drains.
Another source of revenue is for the government to tap its own tank. The government owns lots of land and mineral resources. No one knows how much these are worth or what could be realized from them, but the numbers may be very large. They are in the neighborhood of the unfunded liabilities. The U.S. government may in desperation seek to exploit this wealth to keep the welfare-warfare state afloat. If this happens, it’s because of the welfare-warfare state’s drains.
The other option is to renege on its unfunded liabilities, which means cutting back the welfare state.
All roads lead to Rome, in this case Rome being financial constraints upon the federal government’s spending on welfare and warfare. It’s going to run out of other pools (tanks) of assets to drain into its bathtub. Its victims may begin to squawk and resist.
Paradoxically, a burst of capitalism might enhance the faucet’s flows and extend the life of the parasitic democratic socialist government. This cannot be counted upon because the processes that create and destroy wealth are subject to so many unpredictable factors. It’s predictable that the central bank’s policies are bound to create another recession at some point, and that will cause the faucet’s flows to diminish while the drains will rise. Crisis will again be in the air.7:45 pm on May 11, 2018 Email Michael S. Rozeff