Moneybeat: A problem created by the people

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen.

He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN, GUEST: Well, good morning, Nick, good to be with you.

EICHER: Before we get to listener questions this week, David, I’d like a quick comment on GDP for the last quarter of 2022, that report came in last week. The government reported Gross Domestic Product in quarter four at 2.9 percent. Some say that represents cooling. Some say it’s good growth. David, what do you say about the report on economic growth?

BAHNSEN: Yeah, it's funny you said that because there was a tweet that had gone up where someone took the pop-up from two different newspapers and one of them said, "Economic growth continues with 2.9% GDP" and the other one said, "Slowing economy at 2.9%." So I guess people get to interpret it how they want. It was a negative print in the first quarter and second quarter, for reasons we talked about at that time. And then it picked up in the third and fourth quarter, and it still ended up only averaging a 1% annualized growth for the year. But an annualized growth of 2.9% in the fourth quarter wasn't slowing. It was just the continued more muted growth. If they had gotten 2.9 every quarter all year, it would have been a really fine year, compared to where we've been. So all eyes are on 2023's economy and GDP output and not on '22. But the fact that 2022 proved not to be recessionary is not a surprise to me. But that '23 has a lot of questions is the subject of much debate. And it's not a debate I'm able to resolve. I believe there are a number of very compelling reasons to think we're heading into a recession. Some of them are really hard to argue with and there are others that argue against the kind of severe type recession coming and they're hard to argue with. So there's a lot of ambiguity in the economic air.

EICHER: One more economic data point in the December numbers we received last week: Consumer spending. The Commerce Department figure was a two-tenths percent decline month-on-month, December versus November.

You’ve said many times, the American consumer is a big spender and in December, an especially big spender. But it fell.

BAHNSEN: Yeah, but the entire drop was because gas prices were lower in December than they were in November. That's it. If you take that out, there wasn't a real drop and when you look to retail sales, and things like that people are buying at the mall and e-commerce as opposed to grocery store and gasoline type shopping. The idea of the consumer is still wanting to go out and spend money, there's nothing in the data suggesting that's slowing down. So as I always say, that isn't the primary thing I look to anyways. Look, consumption was up all four quarters last year. So the whole famous line that the consumer is 70% of the economy, I don't think it's true because the consumer can't consume what people haven't been producing. But apart from that, a little economic obsession of mine, the fact of the matter is the consumer behaved very optimistically and robustly all year. But the impact of inflation was a factor because if dollars are higher than their spending, and then dollars go lower than they're spending, that reflects in the consumer number as well.

EICHER: Let’s turn to listener questions now: First up, Courtney Zumalt, a listener from Central Texas.

ZUMALT: In the Monday, January 25th conversation about the debt ceiling debate, you mentioned that instead of showboating about the debt ceiling, Congress should focus on balancing the federal budget. I've often wondered about this. It seems logical that governments ought to balance their budgets—like households and businesses do—to remain functional and solvent. But many argue against balancing the federal budget. Some go so far as to state that it is a fallacy that the federal budget should be balanced like a household budget. So I'm curious, how would you respond to claims that the idea of balancing the federal budget is a fallacy?

BAHNSEN: Well, I guess I can't respond because I don't know why it would be a fallacy. I've never heard that argument before. It's possible what she's referring to is those who claim it's dangerous to require a balanced budget if we then run into a war, or we run into a national emergency, we run into a global pandemic, for example. And so that is a common argument that the federal government may need emergency borrowing powers that do go into a deficit situation. And, again, to use a household analogy, if someone is running their household on a balanced budget, and then all of a sudden there's a death in the family and they have a medical cost or travel cost in an emergency, everybody would say it's okay to pull out the credit card in that emergency. I very much believe those of us who believe in a balanced budget amendment believe in authorizing in that amendment, very tight and defined criteria for an exception for where deficit spending can be appropriate. But the idea that it's just holistically or categorically a fallacy because the government and a household are a different thing, unfortunately, I think the burden of proof is on someone claiming it's a fallacy. I would be totally unaware of an argument as to why a church, a company, a household, a person, any entity should have to live under the laws of mathematics and the government should not.

EICHER: Well, our discussion last week around debt ceiling, David—no surprise—generated significant interest on questions of balancing the federal budget. But this next question makes me wonder whether there’s a movement afoot. Seth Shirk, Lancaster, Pennsylvania:

SHIRK: It's mind boggling to me how we can be the richest nation on earth and be so far in debt and we have oodles of advisors and people who know money. How is it that we are so far in debt? To me it just speaks of an incredible irresponsibility and, yeah, I really wish we had somebody that knew money and practiced money. I personally work with some people on budgeting, personal finance, and it's just a simple fact you don't spend more than you make. So, I can't figure out how the U.S. government can't figure this out. So I'm saying Bahnsen 2024.

EICHER: There you go, David, Pennsylvania is a bellwether state. Just saying …

BAHNSEN: Well, that's very nice. I want to answer the thing that he's questioning, which is how the government spends so much money and why we don't have more people in government that can do the math and realize we shouldn't spend more than we make. And this is going to upset a lot of people, but I don't think there's very many things I feel more strongly about than this. This is not the government's fault. This is the people's fault. The people demand that spending. There is absolutely overwhelming recurrence of the people wanting the things that government is spending money on, and throwing a fit when certain things get taken away. Now part of this is a vicious cycle where the people get used to a benefit, and then it just from a human nature standpoint becomes very difficult to take it away. But my point is that we see this time and time again when different people are all screaming, we have to cut spending, we have to cut spending, eliminate the debt or reduce the debt, and then you get into the room to talk about what you're going to cut. And it's absolutely overwhelmingly unpopular to cut anything specific. So, I think it's something like 90% of people that want to see government spend less money, and it's 7% of people that have an idea of what they can be cutting. And so that's the real problem is that I believe, over time, an inadequate level of self-government has led to the need for a much bigger government. As for his very kind suggestion that I consider running I will quote a famous line that if nominated, I will not run and if elected, I will not serve.

EICHER: We never mention this, your role as a trustee for the National Review Institute. I grew up on the late William F. Buckley and NR—my favorite magazine in college until the upstart WORLD Magazine published its first issue and then WORLD became my favorite magazine, as it is today.

BAHNSEN: Yes, well, and unfortunately for me, Buckley actually did end up running for mayor in New York. And, of course, didn't win. But no, I feel very, very strongly called to the things that I'm doing. And unlike some people's ambiguous denials, mine is as explicit and permanent as one's will be. And someone would have to know me the way my wife knows me to know that I am never running for office.

EICHER: Glad to hear that. The country’s loss is WORLD’s gain, David!

Maybe you have a question, now that a Bahnsen candidacy is out of the question, but I’d encourage you to send your question to feedback@worldandeverything.com. I can summarize or you can send an audio file as we heard from Courtney and Seth today. Same address: feedback@worldandeverything.com.

David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. You can visit his nonpartisan, nonpolitical website is Bahnsen.com.

David, thanks!

BAHNSEN: Thanks so much, Nick.

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