Tuesday, March 15, 2011
Since we are in the middle of what will probably be a generations long "national conversation" about the role of government and the magnitude of federal spending, perhaps the following chart (courtesy of Mindles' Facebook scroll), which is expressed in constant (inflation-adjusted) 2005 dollars, disposes of a few myths. Defense is not the issue; it has barely budged in constant per capita burden. Health care has become and will continue to be a much bigger weight, which is why we needed some massive reform of the system of health care finance (without necessarily conceding that the version we got will cut costs). But take a look at everything else, which includes Social Security and just about every other damned thing you might think of. It would take a roughly 33% reduction in total spending just to get us back to the per capita (not absolute) level of 1995.
Much scarier stuff along the same lines, here.
I blame George W. Bush and Barack Obama, Tom DeLay, Trent Lott, Nancy Pelosi, and Harry Reid. Not necessarily in that order.
To confirm, the chart is both constant-2005 dollar, so presumably the same purchasing power, and it is per person, so appropriately accounting for population growth?
That means government grows six-fold over the 65 years of the chart.
Are we to conclude that (a) government is taking a metastasizing bite out of people, or (b) we can afford that size government because we are six time wealthier, more productive and better off?
IF the former, then is there no end, will liberals ever be satisfied, and say "enough?"
Or if the latter - we are that much wealthier, then stop the whining about "inequality of incomes" and "Gini indices." Six times better off, for goodness' sake!
In line with what Robert suggested, it would nice to see an inflation-adjusted per capita GDP superimposed on this. One of the remarkable things about this curve is that it is actually a pretty constant increase across administrations and eras, except for the "stimulus" spike in 2008 that really sticks out.
At the same rate as government spending has increased, people's reliance on government in their daily lives has also increased exponentially since The New Deal and Great Society laid the foundation for a moocher society.
Politicians today, both Republicans and Democrats, are scared to death to cut back on entitlement spending. They know that their political careers will more than likely be wiped out if they dare reduce entitlement spending. Until the baby boomers are no longer an important voting segment, we won't see any reforms via Social Security of Medicare.
If that doesn't work, try this-http://tinyurl.com/4m4tn3n
These come from usgovernmentspending.com and usgovernmentrevenue.com. Looking at the levels in this graph makes me wonder..
For general purposes, the first graph in this article probably covers it-
I think this chart must include state and local government spending, right? I hope so, or our situation is even more dire than I thought.
Yesterday evening I saw Senators Lee and Paul on with Larry Kudlow, arguing that in an effort to balance the budget, Federal spending "should" be made equal to present day revenues of $2.2 trillion. Based on the population of about 308 million people, as of the 2010 census, that equals about $7,125 per capita, or (as depicted on this chart) about 1974 levels of expenditure. If one adds in revenue from state and local governments, you are still at about 1995 levels of expenditure.
At a guess, I'd bet the number of American voters who would actually vote for that spending level, with all the political warfare, civil strife and program termination it entails, is very small (absent an absolute crisis on the debt funding side).
Even if we see an expansion of tax revenues, through an economic recovery (slim chance of that, in my opinion) or expansion of individual rates, such that tax revenues go up, we're still talking about a very marginal expansion in funded spending.
Honestly, until the world calls a halt to our ability to sell debt I see little or no chance this problem gets solved. If Washington is how we judge the problem, we are the new Japan: deflation, slow growth, high debt. And, we are at the mercy of the world.
Fortunately, the world may be becoming less and less willing to fund expenditures at the state and local level in the US. Dreck-- you may know the answer to these questions-- my recollection is that calendar of new issues for state and local governments is (relatively speaking) getting smaller. Are buyers less willing to take those risks?
I hope so, because strangling the serpent really cannot happen at the federal level (where the political will does not exist to cut, and with the power to print money if needed), but it can at the state level (where they can't print money, and limits on tax increases and debt issuance are often very specific and severe). To control overall government spending I think the only possibly effective point of attack is at the local and state level. Witness the efforts to rein in spending that are occurring in state budgets all over the place, and even the recall election that succeeded in Miami yesterday (against a Republican who raised taxes to cover a budget shortfall). Theses kinds of actions work at the state level and don't at the Federal level. Still, if we succeed at the state level, and voters see that it is good, we can build the political will for limits on Federal spending. I myself think it'll take a Constitutional amendment.
I agree with Anon 11:30. Fiscal discipline will likely start at the state level first. A state like Illinois going broke would be a real wake-up call, wouldn't it? Especially after the Wisconsin shenanigans.
Many states used Stimulus to increase their spending rather than to manage their way through a downturn. The jig is up.
We also had the Build America Bond program which just expired. The feds subsidized the sale of non-tax exempt municipal bonds by covering 32% of the interest. For most regular muni buyers the subsidy roughly equates to the foregone federal tax -- a wash -- so that the program only make sense as a means to attract non-taxable buyers ... e.g foreigners. To that extent it's a hidden payment to the states ... what Obama has lately been calling "spending through the tax code." Cynical me says that this will make a muni default even more problematic, given recent federal sponsorship.
By some measures the recent Japanese earthquake was no worse than the one that hit Kobe back in 1995 -- only a 6.8 but it was a near direct hit on a major industrial area and caused $100 billion in damage. The differences are the nukes of course, and a more fragile world economy. I don't expect the Japanese to be big buyers of US debt in the near-term -- they'll need the cash at home -- so expect Bernanke to launch the QE3 faster than he had planned.
Else US rates will back up -- I still expect this to happen at some point. This will crowd out private investment -- and even crowd out our states. Bernanke can put a trillion or two more onto the Fed's balance sheet -- but can he do five trillion? On current trajectory we'd need him to do $20 trillion.
And Princeton's own Paul Krugman told us we should have been spending more. I'm convinced that Krugman's been trying to accelerate the coming of the Liberal version of The Rapture:
"Then we which are alive and remain shall be raptured together with them in the clouds, to meet the Lord in the air."
1 Thessalonians 4:15-17
One man's Rapture is another man's End of Days, I suppose.
Nearly over, nearly out .....
huh. *I* blame FDR, JFK, LBJ, and fat ted kennedy, myself. *they're* the ones who got the whole 'entitlement' avalanche rolling, i do believe. doesn't matter that they started small - all it took was to somehow get the camel's nose under the tent, and time and political human nature ("vote for me and i'll get you more goodies!") would do the rest. they damn well knew it, too.
the guy who causes a dam to break by tapping a crack into a vulnerable key section is exactly as guilty as a guy who uses dynamite to blow it all up, i think. in the end, the results are exactly the same: no more dam, death & destruction, all that.
good comment on this subject, as is usual, from the AOS co-bloggers.
I read the AOS link.
Yes, it's inevitable that entitlements will get cut. But it's an open question whether this is "managed" or we instead have a train wreck. (Congressman Ryan)
Some are surprised that this is hitting now, instead of in a decade. In part, that's because tax revenues are down a lot. Raising tax rates might "solve" this on a spreadsheet -- but don't count on it working in practice. (Animal Farm's Boxer, John Galt)
I do agree with AOS that we'll have the train wreck first. The current Republicans are only good in so far as they will resist raising taxes as the answer. Collectively, they're nearly useless at cutting spending.
If the Young gain class consciousness after the train wreck, and some politicians figure out how to channel it, it'll be a game changer. This can happen, but it's not inevitable.
The core of the Democratic party is isolated. It's actually quite elitist. It's also concentrated in just a few states, and hence vulnerable in a Presidential race.
The right Republican can rock if they figure out broad-based Back-To-Work populism. It ain't Romney and it ain't Huckabee. The Republicans have a brand problem, and are limited by some of their traditional elements -- Holy Rollers, Hawks. The Crony Capitalists work both sides of the aisle.
Radical but necessary answer: shut down Medicare-Medicaid and let the states do what they want. It's the only way to make the numbers work. OK, past 65 you get a big-breasted nurse and all the morphine you want. I can't wait.
Developing (Crashing?) ....
MHD - I believe the GDP graph you linked to is NOT inflation-adjusted despite the caption on the vertical scale. The rise is too exponential. Note that when you use the drop-down to "change" the vertical scale ($bn, per-capita, etc.) nothing changes.
Sanity check - according to this graph GDP has risen at nearly a 7% clip annually since 1950. Way too high, this cannot be real GDP.
I cannot blame GW, honestly.
The Man was a fine CEO, but mostly the entitlement issue was a monster long before he got there.
And after the 2004 election, he wisely and bravely tried to reform Social Security, which even the Gipper failed to try to do.
IF the Gipper inherited the mandated spending of the Government in 2000, he would have had the same outcome, if there was no entitlement reform.
And frankly, nearly all the conservative voices grew weak - reactionary after 2004, missing the big picture.
Remember some of the finest high profile bloggers stuck on PORK? They simply showed they were missing the big fish, which GW was focused upon with Social Security.
They were lost and revealed a true ignorance to the priorities. They even grew hyperbolic about Immigration, when the Bush Administration provided more Border Security than the prior 4 Administrations combined.
Sorry, I blame all Americans. The ugly Democratic Partisans, the many of us who have failed, the media who have lied, the anti-establishment folks who abandoned the process, the reactionary name calling types who vilify everyone from the sidelines, etc., etc.
We have to do better. GW gave it an honest try to tackle the big problems, and lead like a serious CEO. He was undercut by the infantile Democratic Partisan Machine, but debased by many on the good side as well.
"GW gave it an honest try to tackle the big problems,"
Do you mean the same guy who pushed through the Prescription Drug Benefit in Dec 2003 to win the elderly vote, so he could then eke out a narrow win in Nov 2004. Whose VP said "deficits don't matter"?
Health care spending is is driven by the fact that medicine can actually do something now, unlike fifty years ago. It improves geometrically, and will continue to get more expensive.
Hell, even I'd be in favor of giving everyone 1991-level health care for free. But it's politically impossible. Once a treatment exists, everyone feels entitled to it. We don't feel that way about food, housing, cars, or electronics, but we do about medical care - and that attitude will bankrupt us.
I'm a bit confused. What is the point of posting a graph including state and local spending, and then using it to conclude that "Defense is not the issue". The Federal government does not control state and local taxation or spending. And the proportion defense makes up of what it does control would be more relevant to examine. To make matters worse, it looks like most graphs of defense spending, including this one, do not even include the recent war expenditures, because they were voted as "supplementary spending bills"! It would be SO much easier to debate this budget stuff level-headedly if we had cleaner presentations of facts!