As we approach Halloween at the end of the month, many of our children's and grandchildren's attention will turn to what costume they will wear for Trick-or-Treating and what candy they will receive during their annual trip knocking on doors around the neighborhood.
For those of you who saw Jerry Seinfeld's stand-up comedy routine in the 1990s or early 2000s, you know that he had a routine in which he reflected on what Halloween candy meant to him as a child. I will include a portion of the transcript below and the YouTube link to the entire 6-minute bit, which is highly entertaining if you are looking for a laugh and have the time to watch.
Jerry summarized his thoughts about being a kid and getting candy as follows:
Candy was my whole life when I was a kid.
In the first ten years of my life, I think the only clear thought I had
was: “GET CANDY, GET CANDY, GET CANDY!”
Sources: Amazon & YouTube
So the first time you hear the concept of Halloween when you’re a kid
your brain can’t even process the information.
You’re like: “What is this? What did you say?”
“What did you say about giving out candy? Who’s giving out candy?”
“Everyone that we know is just giving out candy?”
“Are you kidding me? When is this happening? Where? Why? Take me with you!”
“I’ll wear anything I have to wear.”
“I’ll do anything I’ll have to do to get the candy from those fools”
Jerry Seinfeld take on Candy and Halloween
Unlike children going out for Halloween, politicians like to “Give Candy, Give Candy, Give Candy.” They generally believe that if they give enough candy away, they can get enough votes to stay in office. Brian Wesbury, the Chief Economist at First Trust, recently published an article describing the period from 2002 to 2022 as the “Age of Candy.”
This followed the 1980s and 1990s when interest rates were much higher. This led to the government spending approximately 3% of GDP on interest payments on our federal debt. This was not sustainable and led to the 1982 to 1998 period, which Wesbury titles the “Politics of Limits.”
In 1982, a bipartisan deal was reached to raise payroll taxes to fund Social Security for the baby boomers moving toward retirement in the coming decades. In the mid-1980s, bipartisan legislation was passed to try to control the growth of government spending.
In 1990, the elder George Bush cut a deal with Democrats to raise taxes and set spending caps on military and other government programs. This violated his “Read My Lips, No New Taxes” pledge and ultimately led to him being a one-term president. Finally, democratic President Bill Clinton worked with a republican Congress led by House Speaker Newt Gingrich to keep spending caps in place and reform Medicare and welfare programs to balance the budget and produce surpluses we have not seen in the last two decades.
These actions, coupled with lower interest rates, lowered the annual interest cost on the debt to approximately 1.5% of GDP in the 20 years after the turn of the Millennium.
So, what do politicians on both sides of the aisle do when they have more money available? You guessed it, they spend it. They had candy to give away, and they acted like it was Halloween all the time. In 2004, prescription drug benefits were added to Medicare. In 2010, Obamacare was passed, becoming the first major entitlement expansion we had seen since the 1960s.
This all worked great until it didn't. As long as interest rates were low, the government could spend more money and create more debt without significantly impacting its interest expenses. However, we then moved through the COVID-19 pandemic, with its multiple rounds of stimulus checks and enhanced unemployment benefits. We followed that up with more massive spending bills, such as the humorously named Inflation Reduction Act and the CHIPS Act, both passed in 2022.
Unsurprisingly, inflation took off to the upside and rose to levels not seen in nearly forty years. This was followed by the Federal Reserve Bank raising interest rates aggressively to rein in higher prices. This led to interest costs on our burgeoning debt rising to levels not seen since World War II.
Even now, the government is running budget deficits that are nearly double their historical levels, and this is while we have historically low unemployment and GDP running north of 2%. The government is spending money at levels historically seen only during times of crisis or war. This means there may not be any ammunition left if and when we have a our next financial or geopolitical crisis.
Everybody understands that this is not fiscally responsible or long-term sustainable. However, nobody is stepping up to address this as politicians did in a bipartisan manner in the 1980s and 1990s. This led to the following projections and comments from the General Accountability Office:
“The federal government is on an unsustainable long-term fiscal path that poses serious economic, national security, and social challenges if not addressed. And the longer we wait to act, the more dire the consequences will be on the economy and the public.”
—Government Accountability Office (GAO), a nonpartisan federal agency that serves as the country’s chief auditor, February 2024
How quickly have things changed? In March 2021, the interest on the government debt totaled $315 billion. As you can see above, in the current calendar year, the debt servicing cost will rise to more than $1.1 trillion, more than tripling in just a few years. This amount already exceeds what we are spending on our National Defense and, if left unchecked, will ultimately be more than what we are spending on either Social Security or Medicare, as you can see in the chart below from the Peterson Foundation.
As Jerry Seinfeld said above, “I’ll do anything I’ll have to do to get the candy from those fools.”
They have now given away the candy, and somebody is going to have to pay for it. That likely means you and me, the taxpayers of this great nation. Brian Wesbury surmises that the “Age of Candy” is ending and may usher in a new “Politics of Limits” era.
We can only hope this is true. From the examples above, we know politicians have worked across the aisle in the past to rein in fiscal irresponsibility and put us on a more sustainable path forward. It would be welcome news for all of us as we continue “Moving Life Forward.”
© 2024 Jesse Hurst
Senior Wealth Manager
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