(First published at TheHill.com)
Economics is the study of scarcity. Resources are limited. Human desires are unlimited.
But while the laws of economics haven’t been repealed, it is clear that Americans don’t think much of the idea of scarcity. We prefer to focus on prosperity. Start with spending, which is abundant, both by consumers and governments.
Until recently, lawmakers in both parties preached the need for the government to show financial restraint. To be fair, for decades they never followed through on that rhetoric. But they liked to talk about reducing spending and trimming deficits. During the 2008 presidential campaign, for example, Barack Obama declared himself in favor of a “net spending cut.”
In 2010, he appointed a bipartisan commission led by former Sen. Alan Simpson and former Clinton administration official Erskine Bowles. “This can’t be one of those Washington gimmicks that lets us pretend we solved a problem,” the president announced in his State of the Union address. “The commission will have to provide a specific set of solutions by a certain deadline.”
But when the commission did make recommendations, everyone in power in Washington simply ignored it.
They’re still ignoring the deficit. Consider the big “compromise” lawmakers agreed to last year. Republicans kept the tax cuts they’d enacted in 2017, and Congress agreed to spend $320 billion more over the next two years. Lawmakers also lifted budget caps during that time. The annual deficit neared $1 trillion in 2019, and will soar higher in this fiscal year. The only thing scarce in D.C. is fiscal discipline.
This matters, because everyone looks to the federal government to step in during emergencies.
When banks seemed on the verge of collapse in 2008, it was Uncle Sam that ponied up, whether banks wanted the money or not. A decade later, the “too big to fail” banks are even bigger: S&P Global found Wells Fargo is 300 percent larger, J.P. Morgan has doubled and Bank of America is 50 percent larger.
But failures are looming: Social Security, for example, is set to run out of money in 15 years, even as American life expectancy approaches 80 years, up by a decade since 1960. Yet there’s no political urgency to address this; Americans just seem to assume scarcity won’t be a problem for Social Security and other entitlement programs.
Another way scarcity could come back to bite is if it causes a drop in consumer spending, which goes up month after month and year after year. Consumer spending is two-thirds of the American economy. Just as with the government, a share of that spending is borrowed money. As of 2018, the average American had about $38,000 in personal debt, excluding home mortgage debt. That is $13.21 trillion that year, accounting for about two-thirds of the entire economy ($20.55 trillion).
Only about a quarter of us claimed to carry “no debt” in 2018. Most Americans admit they couldn’t raise $400 in case of an emergency. And while the government may be too big to fail, individual households can, and do, fail all the time.
As usual, Dr. Martin Luther King, Jr. was ahead of his time on this. “The contemporary tendency in our society is to base our distribution on scarcity, which has vanished, and to compress our abundance into the overfed mouths of the middle and upper classes until they gag with superfluity,” King wrote in 1967.
That quote encapsulates the hubris of the 1960s, when President Lyndon Johnson promised Americans that we had such abundance, we could have both guns and butter. Instead, we ended up with “stagflation.” King is correct that the upper classes are doing well. Today we have more millionaires and billionaires than ever before.
Still, scarcity hadn’t vanished in the 1960s, and it hasn’t vanished today. We ignore that at our peril.