President Biden on Wednesday pitched a new plan to Americans before a joint session of Congress: more spending.

The just-released $1.8 trillion plan, presented just weeks after Biden signed a $1.9 trillion in COVID relief spending into law, includes “free” community college as well as universal preschool for all three and four-year-olds. . . .

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How Much Debt Is Bearable?

The announcement comes months after the Congressional Budget Office released a report projecting a $2.3 trillion deficit in 2021.

Biden’s plan will almost certainly make the deficit worse. Though the plan contains various tax increases to fund its programs, the taxes are likely to fall well short of government outlays, economists say. . . .

As a result, the $28.2 trillion national debt will swell even faster. Worse, when unfunded liabilities are included in the balance sheet, as private companies are legally required to do, the debt exceeds $120 trillion. . . .

There is a school of thought that suggests these debts pose no serious risk. After all, in theory, a government can roll over its debt indefinitely. However, in a recent article for the Federal Reserve Bank of St. Louis, economist David Andolfatto noted that ultimately the government doesn’t decide how much debt is bearable. The market does.

“There is presumably a limit to how much the market is willing or able to absorb in the way of Treasury securities, for a given price level (or inflation rate) and a given structure of interest rates,” Andolfatto wrote. “However, no one really knows how high the debt-to-GDP ratio can get. We can only know once we get there.”

A Dangerous Level of Debt?

Andolfatto is right that no one really knows the debt tipping point. But it’s worth noting that the US debt-to-GDP ratio—essentially a country’s debt compared to its annual economic output—was 129 percent at the end of 2020. In other words, the official US debt was nearly a third larger than the entire US economy.

That is considerably higher than Greece’s debt-to-GDP ratio in 2010, when it received a bailout from the International Monetary Fund to avoid defaulting on its obligations.

The United States is not Greece, of course. Its economic potential is far greater, and it is operating under a currency it controls. But there’s no denying that the US is in uncharted territory. Today, the federal government debt-to-GDP ratio is higher than it was at the conclusion of World War II, when the nation assembled one of the largest armies the world has ever seen. Perhaps even worse, the government is piling on debt faster than ever. . . .

In seemingly the blink of an eye, cryptos have gone from being discussed in the corners of Reddit rooms and university lounges to a market of more than $2 trillion. It’s no exaggeration to say cryptos are now mainstream; they are being gobbled up by hedge funds and star athletes signing 10-figure contracts. . . .

The market is hedging.  . . . .

Ignoring History?

In a popular 2016 article, author Richard Ebeling explored how central planners in ancient Rome destroyed the economy.

A lot of what Ebeling describes—debt, massive spending, inflation, and price controls destroy—sound eerily familiar to modern ears. And Ebeling naturally explores the age-old riddle: why did Rome fail?

For centuries, as any history buff knows, thinkers from Edward Gibbon to Peter Heather and beyond, have asked this question. The answers vary. Some blame barbarians, others immigration. Some claimed Christianity was at fault, while others point to disease or the weakening of Roman legions.

All of these theories are interesting and worthy of examination, but I’ve found no single better explanation than the one offered by economist Ludwig von Mises who concluded Rome’s decay stemmed from its rejection of individualism and free markets. . . .

“A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police.

The Roman Empire crumbled to dust because it lacked the spirit of [classical] liberalism and free enterprise. The policy of interventionism and its political corollary, the Fuhrer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity.”

The American president and statesman John Adams once reportedly said there are two ways nations are destroyed. . . .

(Excerpt from The Foundation for Economic Education. Article by John Miltimore. Photo Credit: Unsplash.)