Red Tape Podcast, Episode 4 – South Park Explains Why We’re Trillions in Debt
Red Tape is the newest R Street podcast about the country’s biggest problems and the surprising ways that governments (and regular people) often get in the way of solving them. It was produced in partnership with Pod People. Listen wherever you find podcasts, including Apple Podcasts and Spotify, and learn more about the podcast here.
Episode description:
What can we learn about the U.S. debt crisis from a classic South Park episode? Turns out, almost everything. In this episode of Red Tape, Kelli and Shoshana dissect the classic Margaritaville episode from Season 13 of South Park in 2009.
Host Kelli Pierce is then joined by Nan Swift, a Resident Fellow for R Street’s Governance Program, to examine the complexities of the U.S. budget and why bad ideas persist in government. Also, why is Bill Gates receiving farm bill subsidies?
Kelli also speaks with Jonathan Bydlak, Policy Director for the Governance Policy Program and a Resident Senior Fellow, where they discuss the differences between how the federal government and states handle budgeting, and the implications of people seeking more and better public assistance. Also, what Bernie Sanders and Rand Paul have in common.
Episode Breakdown:
(0:05:36) Using Cartoons to Understand the World
(0:12:46) The Partisan Use of Budget Reconciliation
(0:21:52) Congressional Spending and Priorities
(0:32:51) South Park and Economic Perceptions
(0:38:34) Federal Reserve Versus US Treasury
(0:41:31) The Importance of Fiscal Discipline
(0:47:31) Public Perception vs. Actual Votes
(0:50:26) Budget Discipline and Hard Choices
Transcript:
Kelli Pierce:
So Shosh, as I was saying, the nation’s fiscal imbalance is nothing new. In fact, [Blender SFX] the US has been in debt since its inception according to the Treasury Department. Wars, economic downturn [Blender SFX].
Shoshana Weissmann:
Oh, I’m sorry, Kelli. I only caught bits and pieces of what you were just saying about our nation’s crippling debt.
Kelli Pierce:
Yeah, you don’t say. Hey, is that a new blender making a smoothie? What’s going on?
Shoshana Weissmann:
No, no. It’s a Margaritaville.
Kelli Pierce:
You mean a margarita maker?
Shoshana Weissmann:
No, it’s a Margaritaville. That’s what they call it on South Park.
Kelli Pierce:
Okay, but it makes margaritas?
Shoshana Weissmann:
Yeah, and only margaritas. Like Jimmy Buffett says, no working during drinking hours.
Kelli Pierce:
Wait, but you don’t drink that often.
Shoshana Weissmann:
I know, I’m making a virgin ube rita. You know how much I like ube and love making stuff with it. I just got this on eBay to set up our show about the economy since we’re going to use the South Park Margaritaville episode to help explain why we’re trillions of dollars in debt.
Kelli Pierce:
If it’s a conversation about government spending, you’ll need liquor.
Shoshana Weissmann:
Only If it’s ube.
Kelli Pierce:
I’m Kelli Pierce, an award-winning journalist and digital media associate at R Street.
Shoshana Weissmann:
I’m Shoshana Weissmann. I really like Ube and I’m a fellow at R Street.
Kelli Pierce:
And this is Red Tape. And Shoshana Eats Ube Brownies, which sounds disgusting.
Shoshana Weissmann:
How dare you.
Kelli Pierce:
The Margaritaville episode is one of South Park’s classics and it premiered in early 2009, so this is just after the 2008 financial crisis, although it could have been written today.
Shoshana Weissmann:
Which is helpful as we try to explain why the US is in trouble now.
Kelli Pierce:
So for those who haven’t seen it, the episode begins with the whole town of South Park losing their money in a savings and loan, and you may have seen those, “And it’s gone,” memes on the internet where it has a great story and at the bottom there’s a cartoon guy saying, “And it’s gone.”
Bank Teller (South Park):
A really smart decision, young man. We can put that check in a money market mutual fund. Then we’ll reinvest the earnings into foreign currency accounts with compounding interest and it’s gone.
Shoshana Weissmann:
Yeah, I love that meme.
Kelli Pierce:
Well, it’s from this episode because you have Stan going into a bank to open an account and he puts in $100 and within three seconds his money has evaporated into thin air.
Bank Teller (South Park):
It’s gone. It’s all gone.
Stan (South Park):
What’s all gone?
Bank Teller (South Park):
The money in your account. It didn’t do too well. It’s gone.
Stan (South Park):
What do you mean? I have $100.
Bank Teller (South Park):
Not anymore you don’t. Poof.
Shoshana Weissmann:
And then he’s like, “Next customer, someone who actually has money with the bank,” and he keeps doing it to every person who comes in, and then it cuts to Stan’s house where Sharon is serving hot dogs and tomatoes again and when she’s asked why they’re eating the same thing, which hotdog and tomatoes doesn’t make much of a meal, anyway, Randy starts going into a tirade about why the economy is so messed up, but no one can hear him because he is also using this massive expensive looking Margaritaville margarita machine at the same time.
Stan (South Park):
Mom, dad, how come there’s suddenly no money?
Randy (South Park):
I’ll tell you what happened, son. They wanted a bigger house and materialistic things that they didn’t even need because they thought money was endless. [Blender SFX]. Meaning less money coming in.
Kelli Pierce:
Right. Just like Shoshana cutting me off with a blender. This setup though in South Park, it’s set up for a few visions of what went wrong with the economy, a few explanations of what went wrong with the economy. You have the free marketers complaining about low interest rates, you have the Occupy Wall Street folks blaming corporate greed and Cartman being bigoted.
Shoshana Weissmann:
Yeah, it’s a really unique plot line for Cartman.
Kelli Pierce:
Fortunately, the townspeople don’t end up following Cartman, they end up following Randy who gets them to cut their expenses to only the, quote, unquote, bare essentials. These essentials apparently include the Margaritaville machine, which his son, Stan, tries to return throughout the episode. That’s why it’s called Margaritaville.
Shoshana Weissmann:
One of my favorite memes is Randy standing on stage preaching with his arm up, wearing bedsheets like a robe.
South Park Soundbite:
And so why is our economy failing us? Because the government kept interest rates too low for too long. The government took our economy for granted and now we are all here paying the price. How long will we sit and watch our economy fall as the people…
South Park Soundbite:
And so I say to you, do not listen to the Wall Street brokers for they or the ones who put us in this situation.
Kelli Pierce:
Yeah, and whether you’ve seen it or not seen it once people start following Randy, bare essentials really means bare essentials. They start living like people did in Jesus’ time. That’s why Randy’s on that stage with those bedsheets, and this is really useful because it’s something we can see today because people get really religious when it comes to things like the role of government, how much government should be spending and what Congress should budget for.
Shoshana Weissmann:
Which I think is a perfect setup for your first interview on today’s episode. Tell us who you’re speaking with first.
Kelli Pierce:
I’ll be speaking with Nan Swift. She’s our streets resident fellow in the government program. She works with Congress to get our streets priorities passed, and what that means for you listening is she gets a bunch of bad stuff cut out of bills, and Nan has no problem telling politicians where they’re getting it wrong, while also simultaneously being the nicest person on the planet.
Shoshana Weissmann:
Unlike Cartman, Randy, even kind of Stan, pretty much every character on South Park.
Kelli Pierce:
I like Stan and Kyle. However, if you want to know how we budget and where the US is getting it wrong, here’s my interview with Nan Swift.
Nan, you meet with lots of powerful people. How often do you tell them to watch a cartoon and come back when you learn how the world works?
Nan Swift:
Rarely, but I do often show cartoons when I have the chance to talk to not powerful people so that they can better understand how Washington works, namely, I’m Just a Bill is very helpful, particularly the Simpsons one and the best cartoons these days are excellent satire of the real world and help us unpack really complicated things. I had a class that I made for myself an independent study in college on writing satire, and my advisor said that I should be watching as much Simpsons as possible. He thought that was the best satire out there. Although for anyone who really wants to understand monetary policy, I also recommend some Discworld novels.
Kelli Pierce:
Just some of the best satire that’s just ever been created. And in this particular episode, Margaritaville, I think it’s fascinating how it opens because it opens with Stan and a bunch of others from town putting their money in a savings and loan and it instantly disappears, and if you know any history, savings and loans went under in the ’80s because when interest rates went up, their lower mortgage rates lost value. Also by federal law, they had to keep the interest rates on things like savings accounts low, which meant a bunch of people took their money out. And when we talk about budgets, when it comes to the federal government, it seems like in recent times politicians are making budgets assuming that interest rates will stay low forever, and that’s a pretty big mistake they’re making, right?
Nan Swift:
Yeah, a lot of the spending that we’ve seen in the last decade and a half really has been perpetuated because of this myth of the forever low interest rates, but anyone who’s serious about budget policy, about spending, about finances knows that that’s historically inaccurate, that’s inaccurate from a policy perspective, from a way money works, from a fed perspective and everywhere else. This is not something that anyone should have counted on.
Kelli Pierce:
And thank you for sticking with me through the history lesson, I really appreciate it, but there was also a congressman who recently, he was on the floor and he said, “Ah, no one’s going to call our debt anytime. We can just keep going,” and I thought, “Oh, my goodness. That is crazy thinking,” but he’s not alone in thinking that, I think.
Nan Swift:
Well, we are kind of this powerhouse in that there’s not another economy like ours. Most people and most other governments still want to bet on US prosperity and are willing to invest. Part of that is because it’s unclear if there’s any other safer bets and you have to park your money somewhere if you want to get a return, but that doesn’t mean that some of the big investment movers and people like that and the markets, doesn’t mean that they don’t send signals that they aren’t worried about out debt, and they have for sure sent those signals in the past to other governments and to our government. Our credit has been down-rated. We are not as solid a bet as in the past. I think people shouldn’t jump to, “They’re not going to call our debts in.” There’s a lot of bad things that can happen before you get to that point.
Kelli Pierce:
Yeah, people tend to catastrophize instead of actually looking at what’s in front of them and what the facts are. That’s absolutely true, but it is true that you also have to think logically when it comes to interest rates because people are… There were some economists who were dragged on Twitter recently because they had pointed out that interest rates can’t stay low forever,. There will be times where they rise and you’ve got to adjust, and people were quite upset about that, but they were correct. And when you go back to the episode, after everyone loses money, Randy starts accusing other people of ruining the economy by taking out stupid loans for things they couldn’t afford all while he’s using this massive Jimmy Buffett Margaritaville machine, which to me was kind of a perfect metaphor for how Congress not only budgets, but talks about budgets as well.
Nan Swift:
Actually, what it reminds me of is grocery shopping the night before Thanksgiving or Christmas Eve morning and everyone in the store complaining about how crowded the store is and how long the lines are, and it’s like, “You’re here. You’re part of the crowd.” Yeah, I think there’s a similar head in the sand problem that Congress really has when it comes to this, “Yes. Oh, we’re going broke. This is terrible, but we need the shiny new ship. We need the shiny new you-name-it.”
Kelli Pierce:
I have to ask, a lot of people wonder if Congress actually does budget, and if they do, what are their priorities there. Can you kind of take us through the sausage making process on a 30,000-foot level?
Nan Swift:
How many hours do we have?
Kelli Pierce:
Okay, maybe not the entire sausage making process, but are there certain priorities that really stand out and do they actually budget?
Nan Swift:
In terms of the process, there’s actually a couple things that get confused. Technically, the budget is a resolution that the House and the Senate are each supposed to pass and they create a joint resolution, and this is guidelines that are just for them that says, “These are the top line numbers, these are the big priorities that we have going forward.” However, it is not a law. The President does not sign it and where the money gets spent and what we often call budgeting, although it’s technically not, but in terms of operationally it is, the spending is in appropriations. Those are annual bills that have to be passed each year that fund the various parts of the federal government.
Of course, a lot of money also gets spent at our mandatory spending, which we’ll talk about, but that’s not part of the budget, and increasingly, the budget is a political item that is used only when one party has a majority in each chamber in order to ram through a major priority by taking advantage of a tool within the budget called reconciliation. This was originally intended to help Congress make quick adjustments if throughout the fiscal year something changes, “Oh, no. We’re not getting as much revenue as we thought, or there’s a crisis we have to respond to when we need to spend more.” A bill that would get fast tracked on the Senate floor that’s hard to hold up would be a smart way to make those adjustments so that the budget can continue to be executed on an even keel. However, these days, that’s really just a way to jam the other party with a purely partisan plan, whether it’s the Trump tax cuts, parts of Obamacare. Lots of other things are used that way.
Kelli Pierce:
And I think that’s a very important point where it’s not just one party doing, it’s all of them.
Nan Swift:
Yeah. This is something where everyone has not blood on their hands, green on their hands, they have red ink on their hands, everyone does, and it’s made a budget this really kind of toxic political thing when it’s not supposed to be that way at all. Budgets are supposed to be a reflection of our shared priorities, and it’s important that these are shared. One, just like interest rates, you aren’t going to be in charge of Congress forever. These things change all the time and change hands, and you don’t want or you shouldn’t want to push through a wholly partisan policy that the other side finds anathema because then you get wild swings in our policy. This is bad for businesses, it’s bad for individuals who can’t plan, businesses love things to just stay the same, and it’s bad for Congress. Instead of Congress doing its job, which is funding the federal government and oversight, everyone spends all their time trying to undo the previous guys’ thing instead of prioritizing things where there’s more buy-in and things are more sustainable, less of this whiplash that voters and our economy has.
Kelli Pierce:
Another issue that’s very critical that you’ve written about is the Farm Bill. For those who don’t know, what is the Farm Bill? What does it do?
Nan Swift:
The Farm Bill is a package that comes around every five years. It has a five-year authorization that funds key subsidies and other policies for farmers, things that are supposed to be in place to help farmers avoid disasters, but are really so generous that… Actually, one program’s called A Shallow Loss Program. So if you take a big hit if, “Oh, I just didn’t make quite as much.” So they’re actually profit guarantee programs, which any business would love to have. It also reauthorizes the Crop Insurance Program, which is more payouts on top of the other subsidies, and there’s some conservation programs in there. It’s also how we fund the Supplemental Nutrition Program, or SNAP, food stamps as some people come to know them. So it’s a lot of foodstuff. We focus on the farm side because those are often some of the very richest people. Bill Gates is a huge farm land owner who is a recipient of these subsidies, and here at R Street we think it’s really important that we go after the subsidies that benefit people who don’t really need them before we tackle other problems.
Kelli Pierce:
It seems like there’s a lot of poor planning or old thinking when we try to help farmers.
Nan Swift:
That’s one reason why we focus on the farms in Title I. Other Republicans will remind us that, “Well, Nan, SNAP is where a lot more of the money is with the big dollars,” but when you think about how it’s used and who the beneficiaries are on an individual basis, those aren’t big bucks, those are much needed dollars going to those who need the most in most cases, and let’s fix that if there are people getting food assistance that don’t need it, but let’s do that after we have the wealthy people off welfare.
Kelli Pierce:
What an idea. The wealthy people off welfare. That would be amazing. But when you think back to the South Park episode that we’re talking about, Margaritaville, as you get further in, people start blaming things, like Wall Street, government spending, other stuff for the bad situation they’re in, but there’s a couple things that have popped out to me, which is one, some of it is our priorities, it’s our choices that we’re making or forcing our congresspeople to make, but a lot of the US’ annual budget is really locked in.
Nan Swift:
That’s true, and I’ll tackle that part first. Most of our spending is what’s called mandatory spending or for entitlements, other people call it direct spending. It’s on autopilot. These are not dollars that members of Congress have authority over to adjust on a year-by-year basis the way they do discretionary dollars. Unfortunately, this is due to a couple things. One, we have two really, really big programs, social security and disability insurance as well as Medicare. We have an aging population who are taking advantage of these programs and we don’t have the funds to sustain these long-term. We don’t have the number of workers we had in the past to maintain the high levels of care and other services that people were promised. People are also living longer.
So that’s one problem. But another factor when it comes to mandatory spending is particularly when there have been spending caps in place as happened during most of the last decade, putting spending on autopilot became a really a favorite way of legislators to free up room under the caps. They did this with veterans spending, they’ve done this with a lot of other air of spending. They say, “Well, now this is mandatory. This is just going to go out the door, thus leaving more room for us to spend on other things.” So it’s also become a much abused gimmick.
Kelli Pierce:
So putting a spending cap or having a spending on autopilot is actually a gimmick in the world of Congress?
Nan Swift:
Yes. Well, when you have a spending cap in place, then all Congress can do is think of how to work around it, whether it’s by using mandatory spending, designated funds as emergency spending, so off budget or just special.
Kelli Pierce:
There’s always a way for Congress to get what they want. That is what you’re telling me essentially.
Nan Swift:
There is. Well, and that’s what people need to fundamentally understand. I strongly support all kinds of budget process reform plans and things of that nature. I think we should make it as easy as possible and have the right incentives in place for Congress to want to do the right thing, but we also have to accept that at the end of the day, short of changing the Constitution, there’s very little that can actually bind Congress. If they want to spend, they’re going to spend, which is why it’s up to voters to respond and to demand better from their legislators. Unfortunately, the way these things work, if you benefit from the programs that get a lot of money, you’re going to keep voting for people who perpetuate those things. We’re kind of in just a tough place unless members of Congress are willing to make hard choices and the longer they wait to do so, the harder those choices will be.
Kelli Pierce:
And you bring up a good point because it really is about we the people because there was a fascinating Associated Press poll that was just released and they asked people, “Does Congress spend too little or too much?” And everyone pretty much said, “Oh, they spend way, way, too much,” but when you drill down into the areas that people really cared about, they asked people, “Does Congress spend too much or too little on education?” They go, “Oh, too little.” “Healthcare?” “Too little.” “Social security?” “Way too little.” “Medicare?” “Too little. They spend too little on border security. Military, that one seems a little bit even-steven with too much and too little,” but you can see that all these really huge programs, Medicare, social security, regular people, even though they say in theory Congress spends too much, we have too much debt, they actually want more spent on the things that they care about.
Nan Swift:
Yeah, so that’s exactly right and that’s a very problematic incentive structure that we have in our system. This is one reason why at R Street we focus so much on in increasing congressional capacity specifically to do better oversight because in so many cases it doesn’t matter how much we’re spending on something, it’s really how we’re spending. I wish people could see that everything the government touches, it does really, really poorly. It almost doesn’t matter what we spend in terms of a dollar figure, we just do it badly, and the plans we make, they don’t work. There’s always a host of unintended consequences, of other costs that are associated with practically any decision, and the government is just not good at so much of what it does, which to me that says we should stop doing those things, but we can also do those things better and use our dollars more effectively.
Kelli Pierce:
Absolutely. And sort of a three-part question where despite all this, is there really a point to budgets? How would you get to a good budget and how do you balance those needs that everyone has of the government with the principles of a good budget?
Nan Swift:
Well, it is important to have a budget. It’s important, because like I said before, this is where we lay out, “These are what our shared priorities are, this is what’s important to us as a country and this is what we’re going to do.” Those types of plans, those types of statements are important, but budgets need to matter. As my former boss, the late senate budget chairman Enzi would say, budgets have to matter, and right now they don’t have any teeth and it’s a process that’s just politicized. Like I said before, it’s used to ram things through. Better budgets could be made to matter, could bring in and reflect better the wide variety of perspectives that we have in Congress and across the country. This is a very evenly split country, and while I might not love all the priorities that one side or another has, there’s something right and beautiful about our legislation reflecting all of those opinions, and we can do that better by letting more members have access to power, by taking votes more often and making sure that those votes count.
Kelli Pierce:
So as we end our time here, you go back to the episode of South Park, the Margaritaville episode, and people get in town very religious when you ask them how to solve the problem and what happened to their economy.
Nan Swift:
I love thinking about faith in money, because if you think about it, if you really think about it, money doesn’t mean anything. I can even remember where on the road we were sitting in the backseat of my mom’s station wagon as a fifth grader really starting to think about money and then for a second you become a communist because you’re like, “Why even have money? Let’s all just do what we want to do and trade with other people,” but then my mom reminded me that, “Well, then you don’t really have a check and balance for people acting badly, and that’s what the market gives us.”
But my favorite example of faith in money is the example of Brazil in 1980. They’d had decades and decades of horrible inflation problems and they brought in an expert, I’m simplifying this, who set up a system and said, “Okay, what we need to do is we all need to agree on what the real value of the money is.” And so over time they set up kind of a new internal exchange rate, and then they kind of flip the switch and they’re like, “And now that’s the new money, the Real.” Yeah, it’s basically one day you have one kind of money and it’s worth this, the next day you have another kind of money and it’s worth that and it saved them. Now, they haven’t been without problems, but it’s nothing like what it was before. It’s a fascinating story. I urge people to read more about it because it’s really, really interesting and says a lot about just people and human nature, and if we’re going to talk about the real problem with the federal budget, it’s that it’s run by humans and not robots.
Everything would be easier if it was just robots making these choices, but it’s all very complicated people making decisions for a host of reasons that defy logic and have nothing to do with the numbers on the page. If anything, I think prices and money are the closest thing to real magic that we have here. A price has so much information in it without anyone saying, “This is all the information and this price,” and the same with the market, which is far from perfect, but it contains so much information about our future, about what people are feeling, about emotions, but also about the real things that are happening and the choices that we all collectively need to make and hold our members accountable for.
Kelli Pierce:
So you’re saying my Congress people and my senator are not ordained with power from God?
Nan Swift:
I am saying that.
Shoshana Weissmann:
So yeah, there’s a lot in this, but my favorite things here is that Bill Gates gets farm bill subsidies.
Kelli Pierce:
As if he needs public assistance. Oh, goodness.
Shoshana Weissmann:
That’s ridiculous.
Kelli Pierce:
I also thought it was interesting how many state governments rely on the Feds just sending them money to cover their debts. I’ve lived in a blue state, I’ve lived in a red state, and it’s the same. There’s a lot of reliance on the federal government to pay for a portion of their budget. However, there’s a lot of people who argue they use it better than the Feds do.
Shoshana Weissmann:
Yeah, I think both of us in R Street generally like federalism. Not to say it’s everything, but I think that it is overall a good principle as well as subsidiarity is where just the smallest local entity handle stuff because it’s closer to the people and does a little better, but it is kind of funny to watch the flow of money and also just weirdly spent money from the government, and I think the Farm Bill is a really good example of just weirdly spent money. It kind of makes sense because of course people want more and better stuff, but of course, people also conflate more spending with better outcomes, and in different areas, sometimes you’ll see that more spending doesn’t always work quite that way or even go to the places you would think it would go if you increase spending, like Bill Gates getting farm subsidies.
Kelli Pierce:
Well, it also is an answer for why it is that Congress cannot set a budget because they have all these people coming to them all the time with more spending requests, and it’s really, really hard to say no in a lot of cases because those are your voters, those are your constituents, and they’re wanting more and you’re supposed to represent them. They want more for their district. And Nan talked about this setting a budget for your household and we should do that too, but that oftentimes comes up against political reality and it’s us that gets in the way of a good budget, which is sad to say, but it’s true.
Shoshana Weissmann:
It’s interesting too because Governor Ducey, the former governor of Arizona, when he talks about budgeting, he’s just very matter of fact like, “This was my job here. I did the budget because we had to pass a budget and that’s the thing,” and he took it as very solemn like, “This is my duty here to make sure that I signed a budget and helped get one passed too.” Well, if you talk to Congress about it, they’re like, “Well, maybe. Well.” Just it’s so funny to see the difference. And I know Jonathan Bydlak, who you’re talking to next, will talk about the difference between the federal government and states a little bit here too.
Kelli Pierce:
Yeah, and he also talks a lot about those political realities that people tend to run up against when they try to actually get those significant budget cuts and what the government actually is required to spend on.
Shoshana Weissmann:
So we’re going to take a break and Red Tape from R Street will be right back.
Kelli Pierce:
Welcome back to Red Tape from R Street. Okay, Shosh, we last left off, you have Kyle stepping in kind of as this Jesus figure and he’s going, “You just have to have faith in the economy. The economy’s not just this magic thing. You have to have faith.”
Shoshana Weissmann:
Yeah, I really love that one because economics is social and the value of money is social. I mean, to toss in another South Park episode where the alien visited and he gave them alien money and then they built all this stuff with it, the aliens were like, “Are you guys so stupid to not realize that you’re the ones who gave the money value?” And I think that that’s a real piece of it here too, that we forget how much confidence and trust in the economy matters and how much this is really a social exercise.
Kelli Pierce:
And as I’m going to talk with Jonathan, the solution to problems in the episode, it’s presented as a good thing. I don’t know that we can say that now, just sort of running up the credit card and not really caring about the rest. So I had to ask Jonathan about that as well.
Shoshana Weissmann:
That’s great. I’m excited to hear the conversation and hope Jonathan takes the South Park tie-in.
Kelli Pierce:
He did really well. Here’s my conversation with Jonathan Bydlak about why we’re spending, what we’re spending, where we’re getting it right and where we’re getting it wrong.
Jonathan, South Park’s really the reason we’re tens of trillions of dollars in debt in this country, isn’t it?
Jonathan Bydlak:
It’s all South Park. We can blame it all on that one show.
Kelli Pierce:
Not blame Canada, blame South Park.
Jonathan Bydlak:
That’s right.
Kelli Pierce:
But we’re talking today about the Margaritaville episode and it really hacks a lot in, it starts with the townspeople losing their money after putting it into a savings and loan, which happens because the entire economy’s crashing, then the blame game starts, and for me, it’s really interesting because I think it sets up three common perceptions of why we’re in the pickle we’re in now. Bad policy, which in the episode is because of low interest rates, fat cat greed, which people associate with Wall Street or spending on things we don’t need. Do any of these philosophies guide Washington spending?
Jonathan Bydlak:
I mean, can I pick all three I suppose? I think that there’s a little bit of a disconnect sometimes between how people think about spending decisions in their own lives when it’s their own money that’s at stake and how they think about spending decisions when it’s someone else’s money and you’re spending on things for someone else. I think in many ways it’s sort of the naive view of policy that you know want to do something good or you want government to do something, and so the response is just, “Well, we just need to spend a little bit more money.” So we don’t have a good education in this country, let’s just spend more money even though we know that we spend more pupil than any other country in the world, right? Spending is not necessarily a bad thing.
It’s, again, a question of what are you spending on and what are you getting in return, and so to some degree, I mean it largely is a cost benefit analysis, and if we’re wasting money, then all that’s doing is taking away the ability to have more resources to spend on the things that are actually good and that we actually need. Is it greed? Is there an element of greed? Sure, that comes into play, but I think it largely is just a question of incentives, and when we have people who are elected officials who are largely incentivized to talk about all the great things that they’re doing and all the great things that the government is doing, they tend not to have the same kind of incentive to economize on costs because it’s just a lot easier to tout all of the times when things go right, but as people who are policy analysts, we need to be looking at this in a little bit more of a dispassionate way and really assessing again, “Okay. Yeah, you’re doing these great things, but what is it really costing and is that worth it?”
Kelli Pierce:
Yeah, and when we talk about that fat cat greed or Wall Street greed, the critique is really the influence that well-heeled people, specifically bankers, really have on what we spend on, and then the other side goes, “Well, politicians want to buy off votes,” but you’re really saying those are a couple of factors into why we spend the way we do.
Jonathan Bydlak:
There’s oftentimes many parties that are to blame. I mean, when you talk about inflation, for example, most recently there are a number of people who have had a hand in that. You had the Biden administration and the American Rescue Plan and all of the spending that took place during COVID that may not have been necessary, for example, at that point of the pandemic, but you had the Trump administration spending like crazy both because of the pandemic, but also before the onset of COVID-19.
You had the Federal Reserve being sort of really slow to respond, and in many ways, of course, expanding the money supplied dramatically, in a sense enabling this expansionary fiscal policy, and I think that unfortunately, a lot of people look at these issues and they just want to go and sort of slap their preexisting ideological perspective as their preferred explanation, whether that’s a libertarian blaming the Federal Reserve, or it’s someone blaming the Obama administration or the Bush administration before, but people just want to go and say, “This is the one thing,” because it’s easier to wrap your mind around it, but when you’re talking about economic phenomena, they’re very rarely that simple.
Kelli Pierce:
And let’s go back to the South Park episode, and we see throughout here, Stan’s trying to return the Margaritaville machine his dad got through financing, and he ultimately ends up at the US Treasury. So we’re talking about all the people who possibly have a role in our spending issues in this country. Does the US Treasury actually play a role in Washington’s spending habits?
Jonathan Bydlak:
I mean, there’s the Treasury and there’s the Federal Reserve. I think the easiest way to understand this for a layman or a layperson is to just recognize that they control the money supply. There are many different ways to theoretically manage the currency in a country, but essentially we manage the country’s finances through a sort of quasi-independent bank, it operates independently from Congress and the President, but of course, the President also goes and appoints people who serve on the Federal Reserve, but at the end of the day, through the issuance of bonds, they’re sort of able to expand or reduce the amount of currency that’s available for economic transactions, and that can have effects that are either inflationary when it’s perhaps too loose or it can have effects that are sort of a way of curbing growth when policy tightens.
They utilize, obviously, interest rates are the most common, but there’s other things that the Federal Reserve does in particular, like encouraging banks to hold reserves at the Federal Reserve and paying interest and all these sorts of things. So there’s a lot of obviously nuance and complicating factors, but by and large, these entities, Treasury and the Federal Reserve are an important intermediary to how transactions take place in the broader economy.
Kelli Pierce:
So for those who don’t know, what would be the difference between what the Federal Reserve does and the US Treasury does?
Jonathan Bydlak:
Yeah. I mean, they’re basically flip sides of the same coin. I mean, Treasury is the entity that’s ultimately responsible for issuing debt. And so well, what is debt? Well, I mean, it’s just largely an IOU. Okay, so when you go and you buy that treasury bill, that bond for your kid or grandkid and it pays out in the future, you’re essentially loaning money to the federal government to go and spend on whatever it is they may want to do. The Federal Reserve is able to go and control interest rates, so the Treasury is issuing that debt, but the Federal Reserve kind of has control over interest rates, and through doing that, they’re able to go, as I said earlier, expand or reduce the amount of currency, or I guess the amount of money that is available within the economy to transact these sort of various transactions. And as I said, obviously it gets complicated when you start talking about the relationship of the money supply and economic growth, but they’re sort of all playing a part in terms of encouraging economic transactions.
Kelli Pierce:
No, you did a great job explaining that, I have to say. I think South Park also does that really great job because when Stan gets to the treasury, his Margaritaville machine’s valued at $90 trillion. So that’s trillion with a T, which he acknowledges is crazy, and luckily doesn’t take the money, but he gets to see that decisions are made like how to bail out insurance companies, how much we should bail out a bank by having treasury officers, this kind of gross for people, so ear muffs if you have to, cut the head off a chicken, have it run around a game board, and that’s kind of nuts, because it is South Park. But it does seem to the average person that things like how much we’re going to spend on education or the military or to bail out someone are random. Is that really true? How are judgments actually made about the value of things and what we’re going to spend on.
Jonathan Bydlak:
I don’t know if I would say it’s random so much as just there are competing interests. The federal government in particular does so much and is involved in so many different things that it’s very hard for every member of Congress to be an expert on all of these things. Their background isn’t necessarily in policy the vast majority of the time, maybe they’re a doctor or maybe they’re a businessman or an attorney or whatever it might be. So what happens, I think, is this is sort of almost decentralized decision-making process whereby they’re all kind of lobbying for what’s important to the people who live in their district. Maybe they have a large military installation and so maybe increased understanding or need for dollars to flow to the Pentagon that benefits them, or maybe they have an agriculture-oriented district, and so they’re kind of very concerned about that sort of thing.
So a lot of times these decisions, what legislators are effectively lobbying for is driven by what’s important to their constituents. Now, what Congress or what the government broadly is supposed to do is essentially have a budget where you’re looking at all of these requests and all of these various needs, and you’re weighing those trade-offs against one another. The challenge, of course, is that that process increasingly in recent years has broken down a lot. We don’t necessarily have budgets being presented, or at least budgets that are realistic or anything more than just a way of signaling to your political base. So we end up in an environment then where it’s very easy to overspend because, again, their incentives are to brag about bringing home the pork, if you will, or the bacon into their district and talking about how much new funding they’ve gotten for that military base or they’ve gotten for farmers or whatever it may be.
Kelli Pierce:
Yeah, and I hear a lot from the left on how we should model ourselves after European governments, and they really talk about the tax rates there, but something we don’t talk about with European governments is how much fiscal discipline they actually have. They don’t spend as much as we do on the widest variety of things.
Jonathan Bydlak:
That’s such a great point. In many ways, they spend more, but they actually have a plan and have sort of rules in place that guide what that spending is. So if there’s some sort of generous social program that you want to pay for, you have to have the means of actually getting those dollars in, having enough revenue to pay for them. The United States is in this sort of unique position, as is talked about a lot, in that we’re the reserve currency of the world, there’s always demand for US dollars to engage in transactions, and so we maybe have a little bit more flexibility and can play a little bit fast and loose, if you will, with the money supply in a way that certain European countries aren’t able to do, but many of these countries that we think about… Sweden is a great example.
Everyone talks about how Sweden is this socialist paradise or whatever maybe Bernie Sanders might portray it as, but actually Sweden in the 1990s was facing an entitlement crisis, and they kind of had to deal with that, and the way that they coped with it was by imposing sort of statutory controls on what they could spend, where they basically limited expenditures as a function of what their available tax dollars were. And we’ve seen that countries like Sweden or Switzerland or generally countries that have these kinds of rules in place have tended to fare better in instances where in the financial crisis in ’07 seven or ’08, or they fared better from a governmental finances standpoint during the pandemic because they were sort of in a better place to begin with so that when these emergencies came up, they were able to go and deal with them much more effectively without necessarily blowing up their budgets. So it’s something that I think the United States would well serve to emulate and maybe rethink the debt limit a little bit and recognize that there are alternatives that I think could potentially serve as better.
Kelli Pierce:
And speaking of debt, and this conversation coming from the left, if we go back to this Margaritaville episode, the solution to all the economic problems comes when Kyle pays off everyone’s loans with a credit card, and then everyone starts buying stuff again. And is this really how the economy works? And is there any downside to what Kyle does when we look at it from a government spending standpoint?
Jonathan Bydlak:
Yeah, I mean, obviously it’s a reference to bailouts, and I think that’s something that we could probably spend our whole time talking about. There’s sort of this attitude that a lot of people have taken that, well, it’s the whole idea of being too big to fail, and the Federal Reserve is going to step in and solve these situations, and there’s a lot of good in that, right? There are ways that government can go and sort of smooth out certain panics and things like this that occur, but there are also very real costs to bailouts the way that people become incentivized to essentially take on more risk, moral hazard, and so I think these are some of the most complicated policy questions for us to be debating.
What are we comfortable doing? When you look at some of the bank failures that have occurred recently, Silicon Valley Bank and Signature Bank and First Republic, there’s this idea that, “Well, we’re stepping in to make depositors whole because depositors are just depositing their money at the bank, but we’re not necessarily going and bailing out the people who actually own the banks.” So we’ve kind of made this determination that we are okay with that kind of intervention, but we’re not okay with kind of full-fledged bailouts we may have seen in the past. I would argue there are certain answers that are better than others and that we should obviously be thinking about things like moral hazard very concretely.
Kelli Pierce:
Is there anything else that we really need to be discussing when we’re talking about things like the debt and deficit?
Jonathan Bydlak:
This is maybe kind of weird as someone who does budget policy, but to some degree, I actually don’t like talking about the debt all that much. The real question is where are our actual risks? We talk about the already accumulated debt, but there are all of these other promises that we’ve made, these unfunded liabilities that are really important. That part of the debt picture is oftentimes just completely forgotten. The other thing I think is completely forgotten about is just spending itself. In many ways, spending is the core problem in part because it’s driving the national debt and it’s driving the sort of accumulation of additional debt over time, but also because spending itself can be a cost that we pay, whether we’re realizing it or not, immediately, and I think that we oftentimes forget about that immediate cost, and we focus too much on the national debt is so many trillions of dollars. So it’s easy to get really worked up over the idea of having a lot of debt that we forget that there are all these other costs that we should be thinking about as well.
Kelli Pierce:
And it might surprise you who’s actually responsible for all the spending. Maybe their public perception or their public words are different from their actual votes.
Jonathan Bydlak:
Yeah. I mean, there’s a lot of things to say about that, but I’ll tell you one quick funny story. When we crunched the numbers for the very first session of Congress, the two lowest ranking, lowest spending members of the US Senate at the time were Rand Paul and Bernie Sanders, which was hilarious, and it makes total sense when you think about it, but it was the kind of thing that I never would’ve recognized until actually doing the math.
Rand Paul is perhaps a little more self-explanatory, but in Bernie’s case, he may want to have really expansive social programs, but when you look at, well, what bills is Congress actually enacting into law, a lot of those things Bernie Sanders is pretty fiscally conservative on. I mean, he tends to not want to support various instances of corporate welfare. He doesn’t want to support massive increases to the Pentagon budget, and so when you look at a lot of the new spending that’s being enacted, oftentimes Bernie Sanders has a more fiscally conservative impact on the federal budget than certainly more moderate Democrats, but also a large number of Republicans, even some that are perceived as being sort of fiscal hawks.
Kelli Pierce:
I would end this on you blowing my mind about Bernie Sanders right now, but I do want to end it with what we should actually take away from this South Park episode as we’re faced with some very serious questions about our fiscal future, because the thing that I really liked about the episode was it had so many different points of view about what to do going forward, but what do you think we should be doing?
Jonathan Bydlak:
We should be being more realistic with our expectations about what the proper role and the proper size and scope of government is and should be. There are many ways in which the government is not a household, it’s not an individual, but I do think there are a lot of lessons that we can be learned by thinking about it in those terms, and the biggest is just trade-offs. I mean, if we want to spend on something and we decide that it’s an important enough priority for government to create a program or increase spending on an existing program or whatever it may be, then we should recognize that maybe there are other things that we should cut in response. Maybe there are offsets, right?
But I think the way that adults typically think in terms of their own household finances, which is that I have so much money and I need to go and figure out how best to spend it, and when you recognize that you’re running up too much debt on the credit card, most reasonable people are not going to say, “Well, I just need to cut out Starbucks, and that’s going to go and solve the problem,” or they’re not going to say, “Oh. Well, I just need to go to my boss and it ask to double my salary.”
Kelli Pierce:
So basically, you’re just telling me there’s no avocado toast that I can have. So if I cut the avocado toast out of my budget, it’s not going to do anything.
Shoshana Weissmann:
No matter how many times budget policies explained to me, it just goes way over my head, Kelli.
Kelli Pierce:
Right? Bernie Sanders fiscal conservative is still throwing me from this interview. But a couple of things that strike me is that gloom and doom, that’s not entirely accurate. The US has a lot of tools it can use to, quote, unquote, solve budget problems that maybe other countries don’t, but this might be a case where we learn from what happened in Europe a couple of decades ago and start having some real discipline in our budget. Either way, we need to make some hard choices now, I think, to avoid even harder ones in the future, I don’t think we can do what Kyle does at the end of this episode and just run up the credit card and forgive debt. It just seems like a Hollywood fantasy there.
Shoshana Weissmann:
I don’t know. I’m open to picking a guy and putting all the national debt on him. We just choose a guy, maybe through a wheel, maybe a flat wheel, maybe we, again ear muffs, maybe we cut a chicken’s head off and have it run around a table of every adult name in America.
Kelli Pierce:
Let’s wrap this all up. What did we learn today, Shosh?
Shoshana Weissmann:
Oh, man. I mean, I’m still stuck on Bill Gates getting farm subsidies, and people don’t know what they want with spending and that I still feel like the states are a lot better with spending, but those were my big takeaways and that I still don’t want to work on budget policy because it’s too much. That’s my biggest takeaway.
Kelli Pierce:
Yeah, it seems a lot more complicated than it needs to be.
Shoshana Weissmann:
Yeah, agreed. So what’ll be on the next episode?
Kelli Pierce:
Next week’s episode, I’m talking to Adam Thierer about how our robot overlords are going to take our jobs, or actually why we should not panic about AI. And I’ll be speaking with Dr. Kristy Smith. She’s going to tell us what clean slate laws are and how they can help people who just got out of jail or prison get a job, something that’s good for them and their communities.
Shoshana Weissmann:
Until then, thanks for listening.
Kelli Pierce:
Red Tape is produced by R Street in partnership with Pod People.
Shoshana Weissmann:
To learn more about the work we’re doing at R Street, follow us on LinkedIn and on Twitter, and our Twitter is @RSI.
Kelli Pierce:
And for more resources and information on the topics we explore today, you can check out rstreet.org.
Shoshana Weissmann:
Also, if you’ve enjoyed listening to today’s episode, the best thing you can do is share a Red Tape with a friend or an enemy.
Kelli Pierce:
And if you’re an overachiever, please leave a glowing review and rate us on Apple Podcast, Spotify, or wherever you listen to podcasts. It really does help us introduce the show to new listeners.
Shoshana Weissmann:
I’m Shoshana Weissmann.
Kelli Pierce:
I’m Kelli Pierce.
Shoshana Weissmann:
Thanks for listening.
Audio Logo:
Pod People.
