U.S. is still on the road to financial perdition

Shortly before Milton Friedman’s death in 2006, I had the privilege of interviewing him over dinner in San Francisco. The last question I asked him was: What are the three things we have to do to make America more prosperous?

His answer I have never forgotten: “First, allow universal school choice; second, expand free trade; third and most importantly, cut government spending.” That was long before Barack Obama and Joe Biden came along.

There aren’t too many problems in America that can’t be traced back to the growth of big and incompetent government.

It is notable that the two big bursts of inflation during modern times both occurred when government spending exploded. The first was the gigantic expansion of the Lyndon B. Johnson “war on poverty” welfare state in the 1970s with prices nearly doubling. Second was the post-COVID-19 spending blitz in the last year of Donald Trump’s first term, followed by the Biden $6 trillion spending spree, with the Consumer Price Index sprinting from 1.5% to 9.1%.

Coincidence? Maybe. But I doubt it.

The connection between government flab and the decline in the purchasing power of the dollar is obvious. In both cases the Washington spending blitz was funded by Federal Reserve money printing. The helicopter money caused prices to surge. (I still find it laughable that 11 Nobel Prize-winning economists wrote in the New York Times in 2021 that the Biden multitrillion-dollar spending spree wouldn’t cause inflation. Were they on hallucinogenic drugs?)

The avalanche of federal spending hasn’t stopped even though the COVID-19 pandemic ended over a year ago. We are three months into the 2025 fiscal year and on pace to spend an all-time-high $7 trillion and borrow $2 trillion. If we stay on this course, the federal budget could reach $10 trillion over the next decade.

This road to financial perdition cannot stand. It risks blowing up the Trump presidency.

Upon entering office, Trump should on day one call for a package of up to $500 billion of rescissions – money the last Congress appropriated but has not been spent yet. Canceling the green energy subsidies alone could save nearly $100 billion. Why are we still spending money on COVID-19?

We could save tens of billions of dollars by ending corporate welfare programs – such as the wheelbarrows full of tax dollars thrown at companies like Intel in the CHIPS Act. The Elon Musk Department of Government Efficiency is already identifying low-hanging fruit that needs to be cut from the tree.

Along with extending the Trump tax cut of 2017, this erasure of bloated federal spending is critical for economic revival and for reversing the income losses to the middle class under Biden.

This is especially urgent because the curse of inflation is NOT over. Since the Fed started cutting interest rates in October, commodity prices are up nearly 5%, and mortgage rates have again hit 7%, in part because the combination of cheap money and government expansion is a toxic economic brew – as history teaches us.

Nothing could suck the oxygen and excitement out of the new Trump presidency more than a resumption of inflation at the grocery store and the gas pump. Trump’s record-high approval rating will sink overnight if the cost of everything starts rising again.

Cutting spending won’t be easy. The resistance won’t just come from Bernie Sanders Democrats. He will have to convince lawmakers in his own party – many of whom are already defending Green New Deal pork projects in their districts.

Trump should borrow a line from Nancy Reagan: Just say no – to runaway government spending. Say yes to what Friedman titled his famous book: “Capitalism and Freedom.”