A big part of why the bond market hates the GOP tax cuts is how they increase the debt: The bill cuts taxes for the rich while cutting spending on social safety net programs. Overall, economist Justin Wolfers summed it up as “the largest redistribution from poor to rich in American history.”
As a result, the GOP budget bill won’t just increase the annual government deficit, it will hurt economic growth. That’s because tax cuts to the rich provide less juice to the economy than other types of spending. Rich people are, well, already rich, so they have less of what economists call “marginal propensity to spend” the extra money they get to keep. Trump’s budget also cuts programs that directly increase economic growth, like clean energy tax benefits from the Inflation Reduction Act.
Add to that the fact that Trump’s tariffs remain at levels that amount to one of the greatest tax increases in American history, the cost of which will be borne disproportionately by middle- and lower-income consumers, and the outcome is simultaneous and wildly hypocritical fiscal austerity and profligacy that will hamper growth and increase the national debt.
Unfortunately, no matter who ended up in charge the debt was always going to rise catastrophically. Trump talked a good game up front, but all you need to do is look at his first term to realize he doesn’t want to be the guy who takes anything away.
But unfortunately even the discussion around this bill shows that his political instincts are correct even if they are going to ultimately help destroy the country. The moment that anything is on The chopping block, everyone starts to panic as if you can just spend unlimited money forever without consequences.
Now people who want to make this a partisan issue are being silly, there is no political party you could vote for other than perhaps the libertarian party who would actually cut spending if given the chance. Unfortunately that’s the game that we are playing right now, and you even see it in all the stories listed on this economics community – nobody wants to lose anything paid for by the state even though nobody is paying the full cost for all the services being presented.
In a previous analysis I realized that the unlimited debt spending is the price of unity. The fact of the matter is that most countries on Earth today need to heavily balkanize, the only reason that they haven’t yet is massive government outlays that effectively purchase loyalty. The same thing happened in the final days of rome, and it will continue to work right up until it entirely stopped working and all of these empires collapse. It also happened in Weimar Germany, the late Ottoman empire, and late Qing China. You can’t hold an empire together with money forever.
Ironically, nationalism is thought of as a conservative idea, but it is in fact a product of the Jacobins, it’s a new idea that doesn’t actually work when pressed. The idea of a nation is not new, but the idea that the Jacobins presented of nationalism was a revolutionary idea – literally it was built into their revolution. The problem is that often revolutionary ideas are empirically false. The United States is not the only country that is going to fall apart, we can already see that many European nations are unlikely to remain in their current form for the next century.