From: allin
The 2023 State of the Union (SOTU) address left at least one observer profoundly disappointed, describing it as “one of the more profoundly disappointed saddening states of the Union I’ve ever seen” [01:18:18]. The focus should extend beyond the annual cycle to the more concerning long-term trends regarding the US’s ability to fund its financial obligations [01:31:29].
Fiscal Challenges Highlighted
The State of the Union address underscored a serious problem that was evident from President Biden’s “inability to kind of articulate much very well” [01:31:50]. The political atmosphere also saw “both sides engage[] in a lot of weirdness,” with Biden “bellowing at various points” and some Republicans acting like “jackasses” [01:38:38]. This behavior, particularly the Republicans’ lack of “impulse control,” diverted attention when the President was “doing the damage to himself” [01:39:09].
Runaway Debt Projections
A projection from the US Treasury, shared by Lynn Alden, forecasts a runaway debt scenario for the US [01:32:03]. This forecast operates under several assumptions:
- Current debt levels persist [01:32:17].
- Social Security and Medicare continue without cuts [01:32:21].
- Interest on existing debt accrues and is paid [01:32:27].
- Current tax rates remain unchanged [01:32:32].
Given these conditions, the US “by definition has to default at some point because you cannot tax every dollar of the economy at 100%” [01:32:39].
The Social Security and Medicare Dilemma
During the address, President Biden claimed that Republicans sought to cut Social Security and Medicare [01:32:00]. This elicited strong denials from Republicans, who “screamed and they said no way no way we’ll never do that” [01:33:19]. Polling indicates that “on both sides of the aisle people do not want to see Social Security and Medicare cut in any way” [01:33:26]. This resistance is exemplified by recent events in France, where pushing back the retirement age by two years led to “effectively riots across the country” [01:33:35].
Beyond publicly funded programs, “a lot of the private pensions that are going to need to get bailed out with the same Federal money” represent “another trillion plus of liabilities” [01:33:53].
Potential Solutions and Obstacles
There are two primary ways to address the escalating debt:
- Cut expenses: Significantly reduce major commitments like Social Security and Medicare [01:32:48].
- Increase taxes: Implement substantial tax hikes [01:33:00].
However, increased taxation tends to “affect[] economic growth and it makes it really hard to eventually pay off that debt” [01:33:03]. The government is also considered a “far worse investor in economic growth than the free market” [01:35:35].
Political Strategy
President Biden’s team appears to be adopting a strategy similar to Bill Clinton’s post-1994 midterms, triangulating to the center by focusing on “small ball politics” like “curbing Ticketmaster fees and fixing right turn red lights” [01:36:13]. They also aim to “pose as the stalwart defender of entitlement programs” [01:36:38], which are “very popular” [01:36:42]. This strategy is potentially a pre-emptive move against figures like DeSantis, who previously voted for Republican budgets containing entitlement reform [01:37:08]. Any “smart Republican” would likely “take entitlement reform off the table because it is a total third rail and they will lose” [01:37:25].
Wealth Taxation
A “wealth tax” on the change in net worth from year to year was discussed [01:39:36]. While some might be “totally cool” with a tax on billionaires, the feasibility of execution is challenging [01:39:43]. Historically, France experienced an exodus of “an estimated 42,000 millionaires between 2000 and 2012” after wealth taxes were introduced [01:42:25]. This exodus led to a reversal of the policy because “they were just losing the tax base so violently” [01:42:39].
Similar trends are observed in California, with San Francisco experiencing the “largest population of Exodus and business Exodus of any city in the United States” [01:46:57]. San Francisco’s budget per capita is $18,000, which is “more than every single state of the union on a per capita basis except Oregon and North Dakota” [01:46:18], and also “more than the federal government per capita” [01:46:50].
Broader Perspective
The long-term cycle, as described by Ray Dalio, indicates that the final “couple decades get really nasty” [01:34:55]. Political satirist P. J. O’Rourke’s formula of “X minus Y equals a big stink,” where X is what people want from government and Y is what they’re willing to pay, encapsulates the ongoing challenge [01:45:22]. Politicians have failed to manage this “stink” effectively, leading to an eventual “blow up” [01:45:40].
Paths to Economic Growth
To address the US national debt and economic implications, a significant increase in energy capacity could offer a path forward. If the cost of energy “drop[s] by 50 to 75%” and energy capacity can “increase by 10 to 20 fold,” it provides “a Fighting Chance because you can actually grow the economy out of the problem” [01:41:56]. This growth could come from new industries and production systems fostered by abundant energy [01:42:22].
Some point to the Sun as the “cheapest source of energy today” [01:42:47], with China already deploying solar on every rooftop [01:43:09]. The challenge remains scaling energy capacity by 10x “fast enough” [01:42:51] and achieving scalable storage solutions to meet the “real technical bottleneck to Abundant zero cost energy” [01:44:14]. Without such a “miracle” in energy, one of the three factors (entitlements, taxes, or debt) “has to give, and it’s going to be ugly” [01:44:01].