Richard Hanania and the Myth of the Inevitable Debt Crisis

Richard Hanania is usually on the mark, but misfires in his recent post, “Why Socialism Isn’t Coming to America.”

Beneath the paywall, he parrots tired arguments about the national debt and spending: “We’re already running a $1.9 trillion deficit. In other words, we have less money coming in than going out, and the problem is about to get much worse,” and “In the end, you will need some combination of tax hikes, cuts to entitlements, and borrowing. You can’t indefinitely borrow with increasing deficits and no long-term plan to balance the books.”

This came as a surprise because I generally assumed he rejected the debt-crisis alarmism typically seen on the libertarian-right. It’s also wrong. His claim that the “books must be balanced” only makes sense if you think linearly that there is some finite quantity of capital that is being consumed subject to such constraints, which, when exceeded, causes the system to fail. But there is the overlooked third dimension: growing the size of the actual economy. Richard is basically arguing the fiscal equivalent of Malthusianism.

This is why these predictions or projections of a “debt crisis” or the unsustainability of such programs keep being wrong, going as far back as people have been making them, which is a really long time. A search of headlines from before 2013 shows that such fears have always persisted:

As long as the US economy keeps growing, it can inflate its debt away while keeping interest payments under control. This has been the prevailing way of handling this. People get old and die and are replaced by new people, who create economic value. The system continues. In each cycle or generation, the US economy has grown in real terms and on a per-capita basis thanks to gains in productivity.

Of course, it is possible that a demographic imbalance (e.g., too many old people relative to young people, or a dysgenic IQ decline) could upset this equilibrium. The priority needs to be on raising national IQ, not squandering too many public resources on unproductive, low-ROI people. But to say that the ONLY way out is to raise taxes or cut programs is factually wrong or, at best, incomplete.

Second, entitlement spending tends to be indexed to CPI-based inflation (e.g., COLA adjustments), whereas GDP consistently exceeds that, so the burden of such spending relative to GDP does not increase. This is why people are constantly complaining about how Social Security does not match inflation, or that there is a considerable lag between inflation and COLA adjustments (which is by design, as they are calculated based on backward-looking inflation metrics versus current price changes).

Projections of the inevitable insolvency of Social Security date to its inception, yet “payments as a percentage of GDP” have held steady between 4–5%—albeit gradually increasing—contrary to the usual framing of it as a “Ponzi scheme”:

Even if you think Social Security ought to be cut or even eliminated, on which I agree with the author despite the issue being radioactive, we need to at least be honest about it, too. We can’t just keep crying “it’s insolvent” when clearly it’s not, and the evidence doesn’t bear it out. Rather than inventing reasons that don’t align with reality, there are other reasons to oppose it, such as its being an inefficient use of taxpayer resources or how it penalizes the young.

I say if at 60+ years old you still don’t yet have your financial house in order, too bad. You had a lifetime to save money. Same for too much money wasted on end-of-life care or costly cancer treatments that only marginally add to life expectancy. So this is not to say that there isn’t room to cut spending. The point is that the case for doing so should rest on efficiency and economic accuracy, not on endlessly recycled predictions of an imminent debt crisis that never comes.

Quoting the Cato Institute, he writes: “Comparable progressive proposals put the ten-year federal cost of Medicare for All at more than $33 trillion almost a decade ago. Large-scale energy and infrastructure programs have been estimated at $8 trillion to $12 trillion….Free college, loan cancellation, reparations, housing for all, job guarantees, and an expansion of Social Security would cost tens of trillions more.”

Again, Cato has been crying wolf forever:

True, the national debt has surged, but again, so has the size of the US economy. Continuing, Hanania writes: “But once you factor out Social Security, Medicare, Medicaid, the Pentagon budget, and interest, there really isn’t all that much spending to go after. DOGE ignored the sources of our budgetary difficulties for the sake of cheap wins that had little impact on the country’s fiscal health.”

Well, no kidding. DOGE never had the unilateral authority to cut those things. This would have required legislative approval and was outside the scope of DOGE, which was a temporary advisory organization operating out of the White House with a strict mandate to terminate by July 4, 2026. Just saying “cut Medicaid” would have required putting it to some sort of vote, which would have far exceeded DOGE’s authorization. For someone who positions himself as a “policy expert,” this shows a basic misunderstanding of how the government works.

Again, this is not dismiss such concerns about the debt altogether. But it’s not as simple as “balancing the books,” which is factually wrong. I want to emphasize that the focus needs to be on optimal allocation of resources, and we can start by not spending as much money on low-ROI programs and people. We need to invest those resources in creating tomorrow’s companies and leaders who will grow the economy and make the debt sustainable, even if at the same time we wish there wasn’t so much debt.