What Would Everett Dirksen Think of Congress, and $40 Billion for Ukraine?

“A billion here, a billion there, and pretty soon you’re talking real money.” The previous quip is associated with 20^th century GOP powerhouse Everett Dirksen, but it’s likely apocrypha. Whether a real statement or not, Dirksen’s comment rates serious mention after a heavily bipartisan vote by Congress of $40 billion in aid for Ukraine.

While the $40 billion has serious meaning (as of this writing Sen. Rand Paul has thankfully blocked a Senate vote, though his courage will sadly prove symbolic) from a foreign policy standpoint, it’s arguable that it has bigger meaning from a government spending standpoint. $40 billion??? This is no small amount of money. Quite the opposite really, but it’s increasingly a rounding error to the wasteful stewards of our production in Washington. Funny about the allocation on its face is what it signals about the alleged “need” for bipartisanship. The self-serious in our midst regularly bemoan a divided nation, but the view here is that division in the U.S. and Washington is our only hope when it comes to keeping government spending at least somewhat in check. Look what happens when both sides get along.

In this case, opposition to Congress’s $40 billion allocation to Ukraine was rather muted. On both sides. The lesson here is that when the alleged Party of big government joins hands with the alleged Party of limited government, watch your wallet.

To some who oppose the $40 billion in spending, they’ll claim “we can’t afford it.” What a silly, unsophisticated argument; an argument belied by market signals. As evidenced by the willingness of global investors to buy U.S. debt, we can certainly afford it. The question is whether the spending is wise. More on that in a bit.

Some will acknowledge we can “afford it,” as in the $40 billion allocation to Ukraine, but they’ll add “what about the grandchildren?” The deficit hawks in our midst are almost as dense as the “we can’t afford it” crowd. The true burden on the “grandchildren” is government spending itself, not how government accesses the money it spends. Think about it. When government spends, that means Nancy Pelosi, Kevin McCarthy, Mitch McConnell, Chuck Schumer, and Joe Biden are allocating precious resources, as opposed to talented individuals in the private sector. The burden of government spending is the lack of freedom that it represents first and foremost, but also the much less evolved society left to the grandchildren as a consequence of government consuming so much precious resources in the here and now.

After which, every dollar spent by government now misses the point. That’s the case because every dollar spent now develops long-term constituencies that clamor for (and get) more spending. In other words, a focus on deficits versus surpluses isn’t just unsophisticated, it also misses what really causes the long-term burden of government to grow. Government’s size and scope always and everywhere multiplies, thus rendering “deficit” or “surplus” spending now utterly meaningless. What matters is total spending, simply because the latter is the true signal of what’s being left in the lap of the “grandchildren.” Put another way, $1 trillion in annual deficits based on $2 trillion in spending now is a much smaller grandchildren burden than $5 trillion in annual spending with a budget in “balance.”

Returning to $40 billion for Ukraine, it speaks to an obvious downside to prosperity. Prosperity quite simply enables a lot of foolishness. What does the great investor Howard Marks say? Something like the seeds of bad times are planted during the good times, and the seeds of good times are planted during the bad. Marks’s point is that boom times enable errors, while depressed economic periods force us to fix our errors.

With Marks top of mind, it’s hard not to think that $40 billion for Ukraine might be one of those mistakes born of prosperity. Think about it, and in thinking about it, let’s imagine just for fun that the $40 billion for Ukraine will be borrowed. Obviously it’s a rounding error for our Treasury, but where it gets interesting is that total debt for Russia’s government is $190 billion. The previous number isn’t a signal of parsimony on the part of Vladimir Putin as much as it’s a powerful market signal of how little the debt markets trust Russia’s future, and how much they trust ours. It’s bullish in a sense, but it has bearish qualities. A government capable of borrowing so much so easily has the capacity to commit a lot of stupid errors, and in considering $40 billion for Ukraine (in addition to whatever else has been sent its way before this latest gift), it’s easy to wonder if this isn’t a blunder of the monumental kind.

To see why, consider yet again Russia’s total debt of $190 billion. It’s a sign that precisely because the markets don’t trust Russia’s economy, there’s also little room for Russia to expand its empire. Wars cost money. A lot of money.

What’s scary about the $40 billion allocation to Ukraine is that the U.S. does have copious funds to war with others, and as evidenced by its “rounding error” allocation, the U.S. is increasingly in a war with Russia that it’s trying to win. Ok, but is this what we want? How does fighting a proxy war with Russia enhance our national defense? More terrifying, what does “winning” against Russia via Ukraine look like?

The bet here is that stock markets are asking the same question, and with it unknown what a “win” versus Vladimir Putin might bring, the markets are providing a more subdued view of what’s ahead. While the simpletons in our midst claim that Federal Reserve rate hikes priced many weeks ago are the source of market selloffs, the simple truth is that surprise is what moves markets.

What’s surprising is a war that U.S. politicians and the American people never wanted is increasingly our war. That it is must be priced. How tragic if war with Russia (and its externalities) prove the price we must pay for prosperity, but prosperity is certainly the source of this potentially bloody error, and worse. A country that can direct $40 billion to Ukraine has the capacity to do a lot of stupid things. Scary indeed.