Common Cents & The Right Route on December 11, 2020

This year, more than most, I have had numerous people from both sides of the political aisle tell me: “I am extremely worried about the future of this country.” Interestingly enough, to a person they have the same basic, long-term objective: a generally more prosperous country with greater opportunities for growth. The problems seem to be the roadmap and the routes the two sides want to take.

If someone were to ask me how to get to Columbia, South Carolina, from Birmingham, Alabama, I would tell them to get on I-20 East, put the hammer down, and in about 5 hours they will get there (assuming no significant stoppages in Atlanta, of course). I have done that drive enough to know there isn’t much to it, and it is pretty forgettable and boring at times. However, it is the easiest and fastest way to get from here to there.

Another way of getting to Columbia, if you like white knuckle driving and an elevated blood pressure, would be to hit I-85 North in Atlanta and take it to I-185 just outside of Greenville, South Carolina. This will take you to I-385 which ultimately runs into I-26 East, which will take you the rest of the way. Since I-85 is a real mess in Atlanta, this route should take an additional 45-60 minutes of enjoyable driving on far more heavily trafficked (and trucked) interstates. I have been there and done that, as well.

Finally, if time isn’t much of an object, I suppose you could take Hwy 78 from Birmingham to Washington, Georgia, where you hit Hwy 378 which will take you the rest of the way. This would be the far more scenic of the 3 routes, as you will hit any number of small Southern towns. Some of these would be: Heflin, Tallapoosa, Snellville, Monroe, Athens, Lincolnton, McCormick, and Saluda. At various points on your trip, you will find yourself stuck behind tractors and elderly ‘locals’ who drive much slower than the stated speed. But, so what, right? That is the ‘charm’ of taking the long way, and this long way would be at least 2 hours longer than simply hitting I-20 in the Ham and keeping it between 75-80 mph.

All other things being equal, which route would you choose? That is, of course, you have some need to travel from central Alabama to central South Carolina in the near future. I would be willing to be dollars to doughnuts most would opt for the quickest, easiest route. As an aside, now that doughnuts cost about $1 or more, should we change that expression? Perhaps “bet you dollars to potted meat food product” would be more appropriate? Vienna sausages? Pronounced ‘Vie –enuh,’ by the way. I digress.

Now, let’s make it a little more interesting than that. Assume, someone bets you $10,000 you can’t make it from Birmingham to Columbia in under 6 hours, and you have to take the other side of the bet. How would approach it? Take one of the longer routes? Leave the house whenever you want? Try to hit Atlanta right at rush hour? Take a car with bad fuel efficiency? Fill up on coffee and Mexican food before you leave? Plan to stop for hot dogs at the Varsity? Make a detour to the gates at Augusta National? Stay up for 48 hours straight? Drink a bunch of Nyquil? Go bar hopping the night before? Borrow a baby and put it in the back? A couple of incontinent dogs? Pick up a few chain-smoking hitchhikers along the way? Tow your boat behind the car? Check with friends and neighbors if you can deliver anything for them along the way?

Or would you leave around midnight, by yourself, in a Honda Civic with a full tank of gas? Unless you aren’t emotionally attached to your money, I would strongly advise you to do the latter and forget about all those things in the previous paragraph.

There is more to this week’s newsletter than simply my knowledge of the highway system between Alabama and South Carolina. You see, in these same conversations about the future of the country, everyone, again to a person, mentioned something about how: “we can’t just keep borrowing money we don’t have and hope nothing bad comes from it.” Not surprisingly, both sides blame the other for Washington’s fiscal irresponsibility.

My response to this is consistent and somewhat surprising to most, at least when it leaves my mouth. However, it is pretty straight forward and I will paraphrase it:


“The absolute level of debt isn’t the issue. After all, if we had $25 trillion in debt against a $200 trillion economy, no one would be talking about it. Further, debt isn’t necessarily a bad thing. If Washington can borrow $1 and turn it into $2 of economic activity, it should do so…over and over again. However, Washington has been borrowing $1 and turning it into, say, 50¢ of economic growth. That is a problem and a horrible use of leverage. As a result, our debt to GDP ratio has exploded over the last two decades. So, it is the relative amount of debt we have amassed which concerns me. At some point, not yet, it will swamp our ability to service it…but that is long years down the road, or should be.

Now, we can do something about it. First, we could inflate like crazy, and pay back all that debt with increasingly worthless dollars. That is an oldie and not necessarily a goodie, but it is an option. However, the prospects for that level of inflation are pretty dim to non-existent. Second, we could simply stop spending so much money, but our five biggest line items are: Social Security, the Department of Defense, Medicare, Medicaid, and debt service. We could eliminate all other spending, and still run a deficit at these levels. However, who wants to cut the Big 5 (I will call them), at least to the necessarily levels to run budget surpluses sufficient enough to pay down debt? No one. Third, we could simply try to keep everything going until the actuarial tables start to turn over at the end of the decade, when more people hit 40 instead of 65. You have the stomach for that, another 10 years of accumulated debt and a higher debt to GDP ratio? Finally, we can simply grow our economy faster than we borrow money. In other words, grow the denominator faster than the numerator.”


Frankly, I like the last option the best, and it isn’t even close. After all, what is the old expression about a rising tide and boats? To be sure, the dinghy might not be as nice as the sailboat which isn’t as fancy as the bay boat with the quad 200s which isn’t as extravagant as the 79’ yacht which pales in comparison to the massive cruise ship. However, they are all still floating higher, aren’t they? To be sure.

Now, some of you might have noticed I didn’t mention anything about raising taxes. The reason for this is I have done the math in the past, and higher marginal tax rates don’t necessarily generate higher tax receipts in and of themselves. It seems the biggest factor in growing government ‘revenue,’ with a near perfect correlation, is, drum roll please, economic growth. Taxes go down when the economy tanks and go up when the economy expands. It really is as simple as that.

Consider this, despite all the ‘news’ about Trump’s tax cuts blowing up the debt, the US Treasury collected some $3.497470 trillion in calendar year 2019. This number was 7.89% higher than total receipts in calendar year 2016, which were approximately $3.241814 trillion, and was an all-time high. Interestingly enough, receipts as a percent of GDP actually fell from 17.82% in 2016 to 16.16% last year. All of this according to the St. Louis Federal Reserve. You see, a so-called tax cut isn’t really a cut in taxes. It is a reduction in marginal tax rates. But how can tax receipts go up when tax rates go down? Grow the economy. The faster it grows, the faster tax receipts will.

With this in mind, let’s go back to your $10,000 bet over whether you can make it to Columbia from Birmingham in under 6 hours. What was your answer(s) to how you would do it? Was it to take one of the longer routes, making sure to add a number of the encumbrances in that paragraph? Is that what you would do? Or would you take the most efficient route? Leave in the middle of the night? In a fuel-efficient car with a full tank of gas? You can do what you want, but I would want to do whatever I can to win…and that wouldn’t include towing a boat behind an H3 after drinking beer at the all you can eat Mexican buffet. I am just saying.

The fewer impediments and the most efficient roadmap are essentially to winning the bet as well as growing the economy (and therefore tax receipts). We can make it much more complicated than that and we can make it much harder on ourselves, but why would we? To me, that is counterintuitive. As for being worried about the future of our country, only be so if we enact policies and legislation which discourage risk taking, inhibit economic growth, and/or directly engender economic class warfare.

Absent that or those things…and it is all good, my friend, all good.

Take care and have a nice weekend.

John Norris

Chief Economist


As always, the opinions expressed is this newsletter are mine and mine alone, and I am subject to change them at any time and without warning. Further, nothing in this communication should be considered or otherwise construed as an offer to buy or sell any form of financial service and/or product. Any decisions or actions you undertake after reading this newsletter are yours and yours alone.