This article was published by The McAlvany Intelligence Advisor on Monday, December 19, 2016:
Michael “Mick” Mulvaney (shown) rode the Tea Party wave in 2010 into Congress, replacing a 14-term Democrat from South Carolina’s 5th District. He has been handily reelected ever since. He took his oath of office seriously, saying in 2010 that “If political reporters want to know what drives the Tea Partiers, it is their belief in the Constitution. That’s what has always driven me in politics and will guide me in Congress.”
He remained as true to his word as any of those riding the same wave, co-founding the House Republican Freedom Caucus and generating an impressive Freedom Index rating of 83 out of 100. He was instrumental in removing House Speaker John Boehner, first voting against him in 2013 and then helping to force him to resign in 2015. He has consistently pushed for caps on government spending, including cuts to Medicare, and supported government shutdowns in 2013 and again in 2015 over the issue.
After a brief interview with Donald Trump, followed by a much longer one with Trump’s transition staff, Trump nominated Mulvaney as his budget director on Friday:
Right now we are nearly $20 trillion in debt, but Mick is a very high-energy leader with deep convictions for how to responsibly manage our nation’s finances and save our country from drowning in red ink.
Mulvaney said he was up to the task:
The Trump administration will restore budgetary and fiscal sanity back in Washington after eight years of an out-of-control, tax and spend financial agenda.
Oh, to have been a fly on the wall during that longer interview with Trump’s people, listening to Mulvaney explain just how he was going to pull a stunt like that!
Consider his challenges:
The 2016 government fiscal year ended on September 30, with the government spending $4 trillion while taking in only $3.5 trillion. That left a deficit of $500 billion.
Obama’s present Office of Management and Budget projects those deficits to continue, and to increase, as far as the eye can see, generating an increase in the national debt by 2025 of $6 trillion.
Trump wants to cut taxes. But he wants to increase spending, estimated to be in the realm of $1 trillion. Financial wonks have estimated that that would add between $5 and $6 trillion to the national debt during his first term.
Mulvaney has pushed for caps on government spending, and cuts in the Pentagon’s budget. That got him sideways with House Speaker John Boehner, and he voted against him in 2013. In 2015 Mulvaney, working with members of the House Freedom Caucus, forced Boehner to retire.
Interest rates are on the increase. Last year fedgov spent $433 billion on servicing the $20 trillion national debt. That’s 10.8 percent of government spending. If interest rates are allowed to rise to “normal” (4 percent? 5 percent?), then very soon the government will be spending one out of every four or five dollars just on debt service.
The so-called recovery from the Great Recession has run twice as long as the normal recovery, setting the stage for another recession in the next four years. With history as a guide, politicians and nervous Fed officials will, according to Keynesian ideology, expand the money supply in order to “spend” the country back to health.
Could Mulvaney become a David Stockman, Ronald Reagan’s Director of his Office of Management and Budget? In the early 80s, following Jimmy Carter’s “malaise,” Reagan had an opportunity that looked awfully similar to that facing Trump. Stockman proposed tax cuts, offset by reductions in government spending. It was based on the Laffer Curve, or “supply side economics” and became known as Reaganomics.
The idea was simple: cut taxes, which would stimulate the economy, which would increase incomes, which would increase tax revenues, which would allow the government to move to “surplus.” That would give the government the opportunity to begin, at long last, to begin to pay off the national debt.
Stockman got half a loaf, and that half worked. Writing later in his book, The Triumph of Politics: Why the Reagan Revolution Failed, Stockman said getting the tax cuts done was the easy part. Cutting government spending proved impossible. He couldn’t persuade enough Republicans to reduce spending, and the net result was larger deficits and an even larger national debt.
The tax cuts worked, dropping the unemployment rate at the start of Reagan’s first term in 1981 from 11 percent to five percent by 1988. He reigned over a net job increase of 21 million, which continued into the 1990s, long after he left office. The “misery index” – the inflation rate added to the unemployment rate – dropped from 19.3 at the beginning of his administration to 9.72 when he left office, the greatest improvement since the Truman administration.
But, unable to secure the spending cuts, Stockman saw government spending soar to 22.4 percent of GDP, far above the 20.6 percent average from 1971 to 2009. The national debt tripled, from $712 billion in 1980 to $2.1 trillion in 1988.
What did Mulvaney tell Trump’s people? Just how is he going to pull the country back from the brink of bankruptcy? Can he stall his boss’s desire to spend a trillion dollars on transportation infrastructure, the VA, and the military? Will the $2.1 trillion multinational companies have stashed overseas come home? If so, will those companies generate the kind of revenues needed to keep the deficits in check?
With a paper-thin Republican majority in the Senate, and the Democrats eating into the Republican majority in the House, just how will Mulvaney navigate a Trump budget bill onto his boss’s desk?
Of course he could “pull a Stockman,” quit out of frustration after a few years, and write a book.