Embrace the Musk-alypse
by James A. Bacon
From reading the news clips yesterday, one would have thought the end of the world was at hand. Gog and Magog in the form of Elon Musk and DOGE have unleashed a cascade of horrors across the Old Dominion.
The Washington Post sounded the alarm: “With federal cuts looming, Northern Virginia localities face budget crunch.”
“Hampton Roads lawmakers get an earful over Trump’s federal cuts,” reports The Virginian-Pilot.
“Officials: Trump administration’s VA hiring freeze impacting new Fredericksburg facility,” The Fredericksburg Free Press informed us.
“Youngkin must stand up to the White House on Virginia’s behalf,” lectured The Virginian-Pilot editorial staff. “The first few weeks of the Trump administration have been harmful to Virginia and … thousands of residents and many critical institutions are threatened by the reckless and illegal actions of Elon Musk and his team.”
Other editorials decried the local impact of cuts to the National Institutes of Health budget and rollbacks to the Inflation Reduction Act. All this in single day of journalistic coverage. Not a glimmer of hope or consolation was to be found.
Time to get real. Here’s the choice we face: DOGE now or bond vigilantes and hyper-inflation later. The hardships Virginians and other Americans can expect from DOGE’s assault on the federal budget is nothing compared to what we’ll experience if we let the nation’s fiscal profligacy run its course.
If you think DOGE is chaotic, wait until you see what happens when hyper-inflation rips through the U.S. economy. If you think Elon Musk is heartless, he’s a teddy bear compared to the faceless money managers — the bond vigilantes — who will stop purchasing the trillions of dollars in Treasuries it takes to keep the grift going.
Americans exist in alternate realities, so they don’t agree on much of anything. But two indisputable facts stand out. The U.S. national debt exceeds $36 trillion. The federal budget deficit is expected to run $1.9 trillion in fiscal 2025.
According to the Congressional Budget Office (CBO), without a major change in tax and spending patterns, in ten years debt held by the public will increase by $22 trillion. Interest payments on the national debt will amount to $4.1 trillion in 2035, up from about $1 trillion today. Oh, and that doesn’t take into account the fact that the Social Security Trust Fund is scheduled to run out of money around 2033, forcing Congress to choose between letting payouts to beneficiaries be cut by roughly a quarter or offsetting the Social Security deficit by adding it to Uncle Sam’s credit card.
By 2035, the $4.1 trillion in interest payments will equal nearly 40% of the nation’s $10.7 trillion a year in federal outlays. The longer we kick the can down the road, the bigger the national debt, the higher the interest payments on that debt, the greater the risk premium investors will demand, the higher the interest rates, and the higher the percentage of federal resources (indeed of the entire U.S. economy) that are consumed by those interest payments. At some point, the Ponzi scheme of borrowing money at ever-higher interest rates to roll over a $50 trillion (and growing) debt will become unsustainable.
This is not speculation. It’s arithmetic.
Maybe the wheels won’t fall off the bus in 2035, but the bus will be running on exhaust fumes. The easiest — and probably inevitable — way to keep the jalopy moving will be to print money, which will fuel inflation. Americans have had a brief taste of moderate inflation, and they didn’t like it. The burden of inflation, we learned, is spread most unequally: the pain disproportionately afflicts the poor. Prolonged inflation, as we have seen in other nations, leads to inefficient market distortions that crimp economic growth. That way social and economic catastrophe.
Some will argue that the solution is to raise taxes. Perhaps that would help on the margins, but tax hikes run the risk of slowing economic growth. The only way to escape fiscal Armageddon is to grow the economy faster than the national debt. We can argue endlessly about the economic impact of higher taxes, which are exceedingly difficult to disentangle from a host of other factors such as AI, technological innovation, foreign wars, international capital flows, and black swans like epidemics, earthquakes, tsunamis, terrorism, or the detonation of a nuclear weapon. But under no scenario are higher taxes more than a partial solution.
(I would add that cutting taxes, as some propose to do, is the height of recklessness.)
DOGE is indeed a blunt instrument. It is engendering chaos, confusion, and unpredictability. Virginia, like every state in the union, will feel pain. It is the worst possible solution… except for every other. We need to learn to live with it.
