Most people don’t realize how devastating socialism can be to our collective financial security and to their personal financial security. Socialism will negatively impact all of us in the future if currently proposed programs are enacted into law.
According to Investopedia, in a purely socialist system, all legal production and distribution decisions are made by the government, and individuals rely on the state for everything from food to health care.
When a government pays everyone’s bills, it leads to excessive spending, which leads to annual federal deficits and ultimately to high levels of annual inflation.
The ultimate consequences of excessive government spending and increasing annual deficits can prove to be disastrous for each of us as individual consumers.
Massive Spending Raises the Federal Deficit
The centerpiece of President Joe Biden’s domestic agenda is composed of two huge pieces of legislation: a $1 trillion bipartisan infrastructure bill and the $3.5 trillion Build Back Better Act, which is a budget reconciliation bill.
The second bill, dubbed the Build Back Better Act focuses on a long list of social policies and programs. Examples include guaranteed preschool for children ages three and four, free community college, expanded Medicare and Medicaid, 12 weeks of paid family and medical leave and purchasing electric vehicles by the federal government. With Republicans unified in opposition, Democrats are using a special budgetary process known as "reconciliation" to avoid the 60-vote filibuster threshold and pass the bill on a party-line vote.
A Washington Times article notes, "Most of the programs in the plan are a redistribution of wealth programs that undermine job-creating free market activity. Expert economists agree that the Biden plan will massively expand an already too big federal government in a way that will be impossible to reverse."
On Oct. 14, 2021, Biden signed legislation temporarily raising the U.S. government’s borrowing limit, or debt ceiling, to $28.9 trillion. This act pushed off the deadline for debt default only until December. Without the increase in the debt ceiling, the U.S. Treasury had estimated it would run out of money to pay the nations bills on Oct. 18.
Ten years ago, at the end of 2011, the debt ceiling was $14.8 trillion, roughly half what it is now.
A trillion is a thousand billion. It is difficult to envision just how much money $1 trillion is. If you were to sit down and count one dollar per second, it would take you 31,688 years to count to $1 trillion! To count to $3.5 trillion, the amount of the Build Back Better Act, would take 110,908 years. In other words, it takes 31,688 years for 1 trillion seconds to tick off the clock and 110,908 years for 3.5 trillion seconds to occur. That’s more than 55 times the number of years that have elapsed since Jesus Christ walked the earth 2,000 years ago.
Spending Bills Increase the Federal Deficit
Massive spending bills almost always add to the federal deficit, which are harmful to the country’s economic health.
The Congressional Budget Office estimated that the infrastructure bill would add about $250 billion to the debt.
As for the Build Back Better Act, Biden claims it will cost zero. While that’s a novel use of the word "cost," he probably means it would not increase the federal debt because he expects new taxes and other revenues to pay for the new spending.
The bill’s total amount of spending and tax credits is expected to reach $3.5 trillion and to increase taxes by about $2.3 trillion, leaving a gap of more than $1 trillion. Democrats claim that the difference would be made up by imposing price controls on prescription drugs and through hoped-for economic growth.
The Bipartisan Policy Center reports that, in fiscal year 2021 (ending on September 30, 2021), the federal government ran a deficit of $2.8 trillion — the difference between $4.0 trillion in revenues and $6.8 trillion in spending. That FY2021 deficit is almost three times the $1.0 Trillion deficit of FY2019 because federal COVID-19 relief spending has continued to push outlays to record highs. The 2021 deficit amounted to approximately 13 percent of GDP, the second largest deficit as a share of the economy since 1945.
In the United States, annual federal deficits of more than $1 trillion have become the norm.
Add to That Debt the Cost of Interest
Making the problem worse, annual interest paid on the national debt is expected to increase drastically. In July 2021, the Congressional Budget Office estimated the annual interest cost will increase from $331 billion in 2021 to $910 billion in 2031 — a nearly threefold increase. These annual interest costs add to each year’s deficit and contribute to a burgeoning national debt. This year’s interest payments of $331 billion work out to roughly $2,600 per household.
The impact of interest on debt is not unlike interest paid by consumers on credit card debt. If you run up your personal credit card debt to $100,000, you could be making annual interest payments of $18,000 to $20,000 and get nothing in return.
On a much larger scale, this is what happens to the federal government as the debt increases and interest on the debt grows. The government may no longer be able to provide essential government services because of the large amounts it needs to pay in interest on borrowed funds.
Printing Excessive Amounts of Money Can Result in Hyperinflation
The impact to each of us as consumers is clear if the government chooses to significantly increase taxes to offset this expense. It can be even worse if the government chooses to also increase the money supply by printing more currency. The real danger is in the potential for high rates of inflation under that scenario.
Inflationary increases are already occurring at levels we have not experienced in 30 years, even before the passing of the new legislation. Another jump in consumer prices in September sent inflation up 5.4 percent from where it was a year ago. That rate matches the largest increase since 2008.
In response to such excessive growth in deficits and the national debt, all too frequently the response, in fact, is for governments to print more currency to support the excessive spending. History has shown that the consequences of an increased money supply can lead to high levels of inflation and even hyperinflation (defined as an inflation rate of more than 50 percent per month).
At the hyperinflation rate of 50 percent per month, you would need $129,746 at the end of just one year to preserve the purchasing power of $1,000 at the beginning of that same year. That would mean the cost of a consumer item (like a loaf of bread) could go from $1 to $130 after just one year of hyper-inflation.
Hyperinflation was rampant in Germany in the 1920s, Zimbabwe in 2008 and Venezuela in 2019. All these instances of hyperinflation were at least in part fueled by an increasing money supply triggered by excessive government spending.
The inflation rate was even higher than the hyperinflation threshold in the three historical examples above. At its worst, in Germany, the cost of consumer goods doubled every 3.7 days; in Zimbabwe, the cost of consumer goods doubled daily; and in Venezuela, costs doubled in a matter of minutes.
If you think high levels of inflation cannot occur in the United States, it actually happened in 1980, when the annual inflation rate in this country exceeded 14 percent.
A Higher Cost in the Long Run
Biden’s spending bills might appear to benefit Americans in the short run, but some experts say we will lose out in the long run.
Biden promises that his plan will not increase taxes on people earning less than $400,000 per year. Yet the official Congressional scorekeepers show the tax burden will increase for families bringing home as little as $30,000 per year.
Not only that — a higher tax burden will hinder American businesses’ ability to compete against foreign competitors. It would also discourage private-sector investment that creates jobs and drives workers’ wage growth.
Obviously, the impact of Biden’s spending on America’s fiscal health is a highly charged political issue. Many Democrats favor big government spending, while many Republicans seek to shrink the government’s reins over our lives.
Iain Murray is a prominent libertarian financial analyst and the vice president for strategy at the Competitive Enterprise Institute. He says the $3.5 trillion social spending bill lauded by President Biden and congressional Democrats would move the United States closer to a classical socialist economy. He says the $3.5 trillion figure for Biden’s Build Back Better plan represents a compromise from the $6.5 trillion that Sen. Bernard Sanders of Vermont, a self-described democratic socialist, had sought as "a starting point." He notes that the bill’s intent is to "transform America into a Western European-style democratic socialism, massively expanding the welfare state with lots of costly provisions.
Beware of the "free gifts" of socialism. They are far from free.
Fred Sievert is the former president of the New York Life Insurance Company, a Fortune 100 corporation. He is author of "Fast-Starting a Career of Consequence." Fred and his wife, Sue, have five children and five grandchildren.