Page 17 The Sun Bay Paper January 5, 2024 Last issue’s puzzle solution to ‘BAR NONE” Systemic Infl ation – America’s Biggest Financial Problem Inflation solutions typically involve official bickering about spending and tax policies. Here I’ll discuss more subtle factors such as informal government processes, bad governance habits, or unintended consequences of policies. Those are labeled systemic inflation because they drive inflation automatically. And there’s an interesting solution being suggested for our biggest barrier to spending control. First, our undisciplined budgeting process, a huge systemic problem, doesn’t lend itself to the careful analysis of spending and borrowing decisions. These problems don’t get our legislators’ attention until spending authorizations are depleted or we’re bumping up against our debt ceiling. Only emergencies attract attention. We go through an endless stream of emergency budget and debt ceiling debates strung together with omnibus spending bills and continuing resolutions. There’s dangerously little old fashioned “scrutinizing” going on. A related process, “baseline budgeting,” was intended as a tool only. It’s a projection of receipts, expenditures, deficit or surplus that would result from making no changes in law or policy. When baseline budgeting dominates the process rather than just being informational, serious budget analysis doesn’t happen. There’s a built-in inflationary bias when we simply do the same thing, but with inflationary adjustments. When baseline budgeting is controlling our financial planning, we hear claims that budgets have been reduced, even after increased deficits have been announced. It’s seems like a pretend world. A cynic might complain that under baseline budgeting, “balanced is bad, reduced is a code word for increased, less means more, down means up; and ‘draconian spending cuts’ somehow result in borrowing increases. It’s an upside down world.” Our financial management should return to “regular order” by thoroughly analyzing all 12 spending budgets. Before I discuss what I consider our biggest example of a systemic financial problem, I’ll just mention there are many other examples of systemic causes of inflation such as cramdown energy policies, overwrought federal regulations, and the trendy Modern Monetary Theory which preaches deficits and debt are of little concern. It’s easy to add to that list. I consider our entitlement programs to be the biggest example of systemic inflation. This includes Social Security, Medicare, Medicaid, as well as several others. They comprise 70% of total federal expenditures and are apparently politically untouchable. As a result, legislators are forced to hunt for spending reductions by nibbling inconsequentially at discretionary spending budgets which make up a mere 30% of total spending. However, I’m convinced we have a potential ally in changing the nature of this problem and funding entitlements from “normal operations,” without straining the system. I’m endorsing an idea that has been bantered about by many pundits, including Dan North, Senior Economist at Allianz Trade North America, who really got my attention. Let’s acknowledge that entitlement programs are, as of now at least, politically impossible to be reduced in any significant amount. Let’s also have as a goal of maintaining current individual benefit levels. The U.S. is experiencing a dramatically aging workforce resulting in an urgent demand for more skilled workers and entrepreneurs. While we have established limits on the number of skilled legal immigrants, we’re being overrun by illegal, largely unskilled illegal immigrants, a major drag on our economy. It’s simply common sense to dramatically reverse those immigration statistics. Let’s legislatively increase legal immigration of skilled workers and professionals to strengthen the economy, expand employment levels, and fund stabilized entitlement programs. Let’s also establish measures to stem the uncontrolled border crossings. We have no choice but to establish “old fashioned” border security with barriers and entry points. This would require finishing a physical barrier along with expanding technological and human surveillance. In November, Republican senators introduced legislation that would emphasize attracting skilled legal workers immigrants the U.S. Let’s get that done and follow that up with make sure we take back physical control of our borders. Common sense can go a long way to solving our systemic problems! Visit my website at myslantonthings.com Steve Bakke
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