Envelopes! Envelopes!

By Mary Williams Walsh.

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What follows was reported and written by Mary Williams Walsh, managing editor of News Items and “columnist” for Political News Items. Mary has covered public debt “issues” for much of her career and won awards for her work. When you read this piece, you’ll see why.

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Years ago, I lived and worked as a journalist in Mexico City. The big story then wasn’t immigration or drug cartels, but a debt crisis that was strangling national economies all the way from the Rio Grande to the Strait of Magellan. At the time, Mexico had been governed by the same political party since 1929. A frequent topic of conversation when journalists got together was how long the Institutional Revolutionary Party—the PRI—could hang on, what with the government spending billions on debt service. That left less for the routine things that mattered to people, like the fresh, hot, subsidized tortillas you could buy for pennies a stack from the tortillerias in every neighborhood.

During an election campaign, my friend Peter was offered a seat on a Mexican press bus to a candidate’s rally, the only gringo on board. After the rally, when all the reporters were back on the bus, a party handler came down the aisle, handing out envelopes stuffed with cash. “¡Sobres! ¡Sobres! ¡Sobres!”--“Envelopes! Envelopes!”--the reporters chanted while waiting for their money. If anyone had qualms about taking cash from the party whose candidate they were covering, they didn’t show it. When the handler reached Peter, he stopped, puzzled, and asked, “Do you get one?” Peter said no. 

The U.S. journalists didn’t take cash from the pols they wrote about. Back then, the Mexicans did. Cash for journalists was just one small part of a vast system of mutual favors and loyalties that had helped to keep the PRI in power for decades. The PRI touched everything. Its land reforms created small farmers. Its commodities agency paid the farmers a set price. Its mills turned the corn into flour. Its distributors supplied the neighborhood tortillerias. On and on it went, in every industry, until seemingly everyone had a stake in the PRI, which won re-election every six years. 

In 1990, the Peruvian novelist and future Nobel laureate Mario Vargas Llosa called the system “the perfect dictatorship.”

“I don’t believe there has been, in Latin America, any case of dictatorship which has so efficiently recruited the intellectual milieu, bribing it with great subtlety,” he said at a conference in Mexico City. “The perfect dictatorship is not communism, nor the USSR, nor Fidel Castro. The perfect dictatorship is Mexico, because it’s a camouflaged dictatorship.”

But back to me and my journalist pals. We all laughed when Peter described the scene on the press bus. I suppose I felt a twinge of superiority. Much as I loved living in Mexico City, I was glad that in the end I’d be going back to my homeland, where, I thought, the elections were honest, and envelopes of cash weren’t part of the glue that held the body politic together.

And now, the joke is on me. No one’s trying to slip me cash, but in this election year, Vargas Llosa’s words about “recruiting” and “bribing” people “with great subtlety” keep coming back to me when I look at what’s going on with the federal budget and the national debt.

They’re piling up fast. The national debt passed a record $34 trillion this month. That represents an unprecedented accumulation of tax cuts and program expenditures which, boon or boondoggle, we simply didn’t have the money for. 

Example: This winter, millions of Americans, more than ever before, have been signing up for health insurance on the Affordable Care Act’s federal marketplace. This isn’t random chance. Some $64 billion worth of enhanced federal subsidies for Obamacare were included in the Inflation Reduction Act of 2022, that oddly named law known best for subsidizing the green-energy transition. 

The Act’s health-care provisions will be lowering people’s insurance premiums through 2025, paying for “exchange navigators” to help them apply for coverage, and buying ads to promote the program. The law is aimed in particular at people who got temporary access to Medicaid under a separate pandemic-relief measure, and who were bumped out of Medicaid last year when the relief measure expired. (Medicaid is means-tested and you can’t get it if your income is more than twice the federal poverty level. This year’s cutoff is $29,160 for a single person.) 

So: Should we be happy, because millions of Americans still have health insurance, even though Medicaid cut them off? Or sad, because we’ve taken on another $64 billion in debt, in the name of “Inflation Reduction?” 

Team Biden wants us to be happy. “Donald Trump is campaigning on a threat to rip away health care from millions of Americans,” said his campaign communications director, Michael Tyler. “We’re going to use every tool in our arsenal to make sure the American people know that lives are literally on the line next November.”

Life in the Mexican debt crisis left me wary of good deeds in election years. Another example: In 2022, a week before student loan payments were to resume after a three-year freeze for the pandemic, Biden announced debt relief for some 43 million borrowers, nearly half of whom, he said, would have their debts completely canceled. The Congressional Budget Office said it would cost $400 billion over 30 years. Lawsuits were filed. The program was struck down by the US Supreme Court—but not until after the midterm elections of November 2022, when youth voter turnout was credited with delivering wins for Democrats.

After that, the Biden administration salvaged enough of the debt-relief plan to get about 3.6 million borrowers out from under $132 billion of debt. This year, the administration is working to make the relief immediate for certain borrowers.

“I won’t back down from using every tool at our disposal to get student loan borrowers the relief they need to reach their dreams,” Biden said.

It isn’t just the Biden administration. When the global pandemic was first declared, eight months before the 2020 elections, the Trump administration swiftly came up with an unprecedented $2 trillion stimulus package to rescue the economy. Then, on December 28, with parts of the rescue set to expire at year-end, a second, $900 million pandemic relief bill was flown to Trump at Mar-a-Lago, where he was actively working on his election-fraud claims. He signed the package into law, but issued a statement calling it “a disgrace” because it gave people stimulus payments of just $600 apiece; he thought people should get $2,000. 

Not to be outdone by the Trump White House, President Biden took office proposing a third fiscal stimulus plan, with a $1.9 trillion price tag. It included more stimulus checks for up to $1,400 apiece; extended supplementary jobless benefits, rental, and utility relief; and transferred $350 billion to support state, local and tribal governments. 

The rescues were a godsend when the pandemic was raging. But the fact is, once you turn on spending like that, it’s hard to turn it off, even when the public-health emergency ends. And while there were rules for how the money was to be spent, there wasn’t adequate enforcement. The Associated Press sent a reporter to find out how local governments had spent their allocations and he found all sorts of anomalies: Broward County, Florida, spent $140 million on a luxury hotel with a 11,000-square-foot spa. Alabama spent $400 million building new prisons. Puerto Rico spent $70 million to market itself as a tourist destination. Dutchess County, New York, spent $12 million to upgrade a minor-league baseball stadium to meet the New York Yankees’ standards for farm teams. Colorado Springs spent $6.6 million to replace irrigation systems at two golf courses. Pottawattamie County, Iowa, bought a ski area. St. Louis, Missouri, spent $1 million paying off overdue child support.

It’s hard to see how any of that protected us from the pandemic, but it did add to our public debt. 

The United States isn’t alone in this. In November, the Global Debt Monitor—a quarterly report of the Institute of International Finance, a trade group—said total indebtedness worldwide was a record $310 trillion in 2023, up 27 percent from 2018. That included the debts of companies and households, but the most notable increase was in government debt.  

Among just the world’s advanced countries, public debt is now 112 percent of economic output, compared to just 75 percent two decades ago, according to the International Monetary Fund. Much of the increase resulted from three things: emergency relief during the pandemic, pensions and healthcare for aging populations, and programs to fight climate change.

The Global Debt Monitor said public debt would keep climbing in 2024, which was also going to be a banner year for elections worldwide. Some 2 billion people—roughly half the world’s adult population—will have the chance to cast ballots in more than 50 countries. The Monitor cited the risk of public money being used to buy votes, saying, “If upcoming elections lead to populist policies aimed at controlling social tensions, the result could be still more government borrowing and still less fiscal restraint.”

There’s already one stunning example of that, in Argentina. In the late stages of its presidential campaign last fall, the de facto incumbent, a Peronist, effectively halted personal income taxation. But that didn’t make much of a splash, because lots of Argentines were already paying no income tax. So, to make sure everybody got a tax break, he offered sales-tax rebates, too.

Despite his largess, he lost. Now Argentina is even more broke than it would have been without the tax cuts. Its new president, Javier Milei, is struggling to rebuild the tax system while also selling state enterprises, laying off government workers, and otherwise trying to balance the budget. No one knows if he can pull it off. Milei is also working with the International Monetary Fund to finance payments due on pre-existing debt.

Argentina is an extreme case, but it’s certainly not the only place to time tax cuts to elections. Portugal’s leading contender for prime minister is promising tax cuts for the middle class ahead of a snap election in March. British Prime Minister Rishi Sunak is hoping to squeeze in a tax cut before Britons go to the polls in the second half of the year. Lower-income workers, like teachers, in Rwanda just had their income taxes cut in half, with elections coming in July. 

By enlarging their deficits, all governments add debt. Bloomberg reported this month that the United States, the U.K., and the Eurozone are about to “start flooding the market with bonds at a clip rarely seen before,” because they’re “saddled with the kind of bloated deficits that were once unthinkable.”

And rising interest rates are making the debt more expensive. In France, interest on the public debt is expected to exceed the whole national defense budget this year. Australia’s public debt obligations are forecast to double by mid-2026. In the US, interest on the debt is now the fourth-largest government program, after Social Security, Medicare, and the military, according to the Committee for a Responsible Federal Budget. The federal government spent more on interest last year than on all of its assorted programs for children, more than on Medicaid, more than on veterans’ programs, more than food and nutrition programs, and more than on education.

The Global Debt Monitor listed the countries it saw allocating more of their tax revenue to paying interest: Egypt, India, Malaysia, Pakistan, South Africa, Turkey, and the United States. It said the trend could affect investor sentiment, causing “mini boom-bust cycles in fixed income markets,” as recent volatility in the market for U.S. Treasuries showed.

The Fed has been working on shrinking its balance sheet, by selling billions of dollars’ worth of Treasury securities that it bought in the spring of 2020 to help finance pandemic-relief programs. But the process, called Quantitative Tightening, isn’t as straightforward as it might seem. If the Fed tries to sell its Treasuries faster than the market can absorb them, the price of the securities can fall—and that in turn would make yields go up, slowing economic growth. We don’t want that. Growth is what lets a country pay down its debt uneventfully.

None of this is to say the United States is heading into an all-out debt crisis like the one Mexico had, where you have to go hat-in-hand to the IMF for emergency loans. But we’re moving in the wrong direction. A lot of Mexico’s public spending that was supposed to raise living standards and foster loyalty ended up hurting people and making them angry and bitter. To work with the IMF, Mexico had to end sacrosanct practices, like paying decent prices to subsistence farmers. The farmers couldn’t make a go of it and moved off the land. Some went to Mexico City and ran into triple-digit inflation. Some went to the United States. It wasn’t what anybody wanted; it was survival. The PRI toughed it out for longer than we journalists expected, but it finally lost the presidency in 2000. 

The far likelier scenario for the United States is a public debt that gets big enough to impair economic growth. We’re flirting with that now. Two of the three big rating agencies have already removed the US Treasury’s triple-A rating–not that many people understand how much we’ve benefited from having flawless credit. Once it’s really gone, we’ll miss it, and then we’ll find it’s very hard to get it back.  

Americans have been hearing for years–decades!--that deficits don’t really matter. But, as they say in international finance, this time is different. When debts are as big as ours, and growing as fast, we’ll soon find to our sorrow that they matter after all.