Government Spending

Economy Goes Down, Spending Goes Up. Economy Goes Up, Spending Goes Up.

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The WSJ chart next door lays out spending increases over the last two years. About the only increase that makes sense is the one on unemployment benefits, seeing as the economy has been in the crapper for so long (yes, I know there's a serious argument – or at least one made by Larry Summers—that extending and re-extending unemployment benefits keeps people from going back into the labor force).

What more do you need to know about why we're stuck with huge deficits? Well, maybe this: These increases are barely out of line with previous years in the 21st century.

The Journal writes:

The costs of TARP declined by $262 billion from 2009 as banks repaid their bailout cash, payments to Fannie Mae and Freddie Mac were $51 billion lower (though still a $40 billion net loser for the taxpayer), and deposit insurance payments fell by $55 billion year over year. "Excluding those three programs, spending rose by about 9 percent in 2010, somewhat faster than in recent years," CBO says.

Somewhat faster. You've got to laugh, or cry, when a 9% annual increase qualifies as only "somewhat faster" than normal.

What did Washington spend more money on? Well, despite two wars, defense spending rose by 4.7% to $667 billion, down from an annual average increase of 8% from 2005 to 2009.

More here.

NEXT: David Brooks: Golly, How Did Government Get So Expensive?

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  1. But little Pauli Krugnuts is saying that spending hasn’t increased. It is a myth.

  2. What was the increase for hookers and blow? Inquiring minds want to know.

  3. The US has been able to get away with deficits for so long because of its status as the main reserve currency. For the most part, there is no other place to go at this time.

    When investors finally bolt from the US dollar, the fiscal pain is going to be incredible. The current record price of gold is only the first indication that investors are getting restive.

    1. I have always been skeptical of that. But I am a lot less today. Whenever people start rationalizing and saying something “will never happen” a little to vehemently, I get nervous. The worst is the Kruginuts who say “there is no evidence of any loss of demand for US treasuries” like it is some kind of talisman. Of course there is no evidence right now the bubble hasn’t burst yet. There was no evidence that housing prices were about to crash in 2006. That is the problems with bubbles; they don’t show any signs of bursting until they do.

      1. The very existence of a bubble is all the sign that anyone should need that it’s going to burst. There may be no clues as to exactly when, but it always happens.

        This incontrovertible fact shows (among 3,000 other things) what a partisan hack Krugabe is.

        1. If you need further proof, look at his deficit hysterics circa 2003-4.

          He declared that the bond markets were about to burst and rates were going to skyrocket due to Bush’s deficits.

      2. I am not predicting a collapse – just a lot of economic pain.

        If there is some sort of fiscal crisis, the most likely effect will be a rise in inflation (I expect 6 or 7%) with a corresponding rise in interest rates, followed by unemployment in the 12 to 14% range. The only way to fix it will be to bring the deficit down to the point where debt is rising no faster than GDP. As nobody seems willing to accept spending cuts, the balancing will be done by increased taxes – leading to more unemployment.

        1. I think Aresen is mostly right, but I think we will have a Greece style bankruptcy (because of the bond market bailing on us) followed by austerity.

          I’m kinda rooting for this.

        2. If what you describe is not a collapse, I shutter to think about what you would consider a collapse. I am a little more optimistic. I think the public has caught on to the fact that this cannot continue as it is. The political and media class haven’t, but the public has. I think enough changes will be made in the next two election cycles to start fixing things. We know what the solution is and it is not complex. It may be hard but it is not complex and we know how to do it.

      3. “there is no evidence of any loss of demand for US treasuries”
        Maybe because of how much is being bought by the Fed? (how much they are behind buying).
        I wish I had the link from the St Louis Fed, but starting in the 40’s, statistics on US debt and the return on debt were compiled. 50 years ago, one could argue that the US under borrowed, as every borrowed dollar returned 4 dollars. But over the years, the return has gotten smaller and smaller, until now, when there is no return on borrowed money.
        Think about it – what to invest in:
        Auto companies?
        Airlines?
        Starbucks?
        Housing?
        Malls?
        Now, that doesn’t mean investment should not happen, but as long as the gubermint believes that assets should be sold at a price higher than income, we are going to have a problem.

    2. The US has been able to get away with deficits for so long because of its status as the main reserve currency. For the most part, there is no other place to go at this time.

      This morning, someone on NPR said that “deficits don’t matter” and then provided the postscript “as long as the country can convince creditors that it can pay those deficits back”.

      Frankly, I was stunned.

      1. Deficits don’t matter if your economy is growing. Britain ran up huge deficits and debts during the Napoleonic wars. But it was never really worse for wear because its economy grew so fast during the rest of the 19th Century.

        If you have a really vibrant economy, you can get away with running up a lot of debt. Just like you can get away with being a spendthrift if you are always getting higher paying jobs. But what you can’t do is tax and regulate everything that moves like liberals want to and run up a lot of debt. That kills your economy and thus your ability to pay all that debt back. That is the reason why 19th Century England could get away with debt and 21st Century Greece can’t.

        1. I just thought the postscript was kind of…dumb.

          I have deficits too. My ability to pay them back remains rock-bottomed and copper-sheathed. So my deficits don’t matter. Duh.

          The point is that creditors are getting shaky about our federal government’s ability to pay those deficits back.

          And even if the country can pay them back, an increasing amount of GDP is going to debt service, instead of building a road, inspecting a bridge, or putting out a fire. This is both at the local and national level.

          I just thought his comment was ridiculously oversimplified.

  4. “When investors finally bolt from the US dollar, the fiscal pain is going to be incredible. The current record price of gold is only the first indication that investors are getting restive.”

    Like I said the other day, that’s already happening.

    This is from the WSJ as of about five minutes ago…

    “The dollar ground down to a fresh 15-year-low against the yen of 80.88 yen, with investors on high alert for yen-weakening intervention by Japan. The ICE Dollar Index dropped to its lowest level this year at 76.259.
    More

    China’s yuan surged to its highest point against the dollar since the Chinese currency began regular trading in 1994.

    The euro broke to $1.4123, its highest level since January. The Canadian dollar traded below parity for the first time since April, while the Australian dollar hit 99.93 U.S. cents, its highest point since it was floated in 1983. The dollar dropped to an all-time low against the Swiss franc at 0.9464 franc.”

    http://online.wsj.com/article/…..TopStories

    You don’t even have to read between the lines here…

    The dollar is falling/has fallen to new lows because, despite our financial irresponsibility to date, everyone expects a new round of stimulus.

    And why that’s stupid isn’t about politics or ideology anymore–it’s about completely ignoring what the currency markets are telling us about our fiscal policy.

    Our money isn’t worth as much as it used to be, and that trend isn’t about to reverse itself anytime soon. Plain and simple.

    Television news won’t start talking about our currency falling so badly unless there’s one giant spike downward on one day–and that may yet happen. But the currency dying the death of a thousand cuts, predictably, day by day? That’s not newsworthy, you won’t see people talking about it on the news.

    And I’m sure most people have no idea how poorly our currency has fared over the last year. It’s probably the biggest under-reported story out there right now.

    1. Oh I think people know. And it is one of the reasons why voters are so angry at Washington. And you don’t have to wonder why it is such an under reported story. We effectively have a state run media in this country. Why on earth would a state run media tell such a story?

      1. I think they know about the budget mess.

        Not sure they know what’s happening and what’s already happened to their currency.

        Inflation hasn’t kicked them in the teeth yet, and for all I know, it isn’t about to. …but there are some leading indicators that are already reorienting themselves–and more people should know about that.

        Our currency’s getting pretty beat up because of our fiscal policy, though. And that isn’t anybody’s ideological opinion anymore–that’s a fact. More people should know about that too.

        1. Agreed.

          However, I predict that the response will be that it is the fault of “currency speculators” and “doomsayers”.

          Given previous history, I think most of the public will buy that explanation.

  5. The bump in Medicaid also makes sense. Lots more people with lost jobs (and the insurance that came with it) means lots more people that qualify and need it.

    Unemployment and Medicaid are $200B of the $650B increase. Sadly, nothing can be done about the $150B in old person welfare*. However, even those categories account for less than half the increase in spending. We need some austerity measures to keep thing in line.

    * Actually it can, but neither side is willing to take the electoral hit, so let’s pretend we can’t for now.

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