Government Spending

Because "America is Not Broke" Today, We Can Keep Spending Like There's No Tomorrow.

|

Yesterday, Matt Welch pointed to of the most recent statements by Wash Post fiscal denialists (E.J. Dionne and Ezra Klein), both of whom are taking a relaxed approach to continuing levels of spending predicated upon deficit spending by federal, state, and local governments.

Above is a chart from Heritage Foundation analyst Brian Riedl who, unlike many at that Bush-friendly-always-had-an-excuse-for-why-it-was-OK-when-a-Republican-ran-up-spending institution, generally never let political affiliations get in the way of basic math. What Riedl points out is not simply a small, persistent gap between revenues and outlays that we've come to expect from the feds. What he shows an Emeril Lagassian "Bam!" moment, where the problem gets kicked up a notch of three from a generally awful baseline. According to the president's own budget proposal, we're looking at "expanding the federal government by 3 percent of gross domestic product (GDP) over 2007 pre-recession levels."

That's bad enough, but it's really the revenue line that freaks my shit more. Obama is projecting an unsustainable level of revenue that still won't come close to matching outlays. Since 1950, total federal revenues have averaged 17.8 percent of GDP. There has been only one year when it exceeded 20 percent of GDP (and only two years when it reached 20 percent). Yet Obama says that's where we're headed. Here's the point: It ain't gonna happen and even if it does, it leaves us with a 3 percentage point spread between spending and revenue. This is where we enter the realm of true insanity, when folks making up totally fanciful estimations of future growth don't even have the courage of their delusions to balance their own fantasies! Truly, this is the end of American exceptionalism.

Here's another reason, by the way, to worry about how things may go haywire and in a big way: Interest rates are low and have been historically low for some time. When it comes to financing government debt, we're screwed if they stay where they are but we're massively screwed if they tick up to what private forecasters predict will happen or, saints preserve us, if they revert to something like what we saw in the 1990s and 1980s.

The above chart comes courtesy of Mercatus economist Veroniqe de Rugy, a Reason columnist, who writes:

If interest rates were modified to reflect the average rates in the 1980s, in 2021, our interest payments would nearly triple from CBO's projection of $749 billion to $2.0 trillion.  Accumulated interest payments over this period would double from their current projected level of  $5.7 trillion dollars to $11.0 trillion dollars. Needless to say, the impact of these increased interest costs on the deficit would be huge.

The only way to address the increasing costs of our debt is to address the driving forces behind it – legislated explosions in Social Security, Medicare, and Medicaid spending.

More on that here.

In the March 2011 issue of Reason, de Rugy and I suggested a way to balance the budget over the next decade, without cutting essential services or raising taxes. Read "The 19 Percent Solution."

Reason.tv recently asked the question, "Are We Broke Yet?":

NEXT: Set Tivos to Stun! Nick Gillespie on Red Eye, Fox & Friends, Freedom Watch!

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. President Obama and legislators in Washington do not understand that cutting the budget drastically is an urgent priority. I see no possibility of this changing and the only way that it will change is if people vote with their feet.

    Imagine living with a responsible government like Hong Kong in a Mediterranean climate like California. Unfortunately, no such Utopia exists; however, each individual chooses a life based on what he values most and the deficiencies he is willing to tolerate. I think the best choice is Santiago, Chile:
    http://brophyworld.com/move-to-santiago-chile/

  2. Sons of Hamilton! Of Madison! My brothers! I see in your eyes the same fear that would take the heart of me! A day may come when the printer of dollars fails, when we forsake our friends and break all bonds. But it is not this day. An hour of wolves and shattered rice bowls when the age of the Dollar comes crashing down! But it is not this day! This day we GORGE! By all that you hold dear on this good Earth, I bid you stand! Men of the Dollar! SPEND!

  3. Beware the Ides of March.

  4. Is there a recall mechanism for removing an incompetent president?

    1. I’d say something about John Wilkes Booth, but it’s too early to drink.

    2. Is there a recall mechanism for removing an incompetent president?

      Thankfully no.

  5. Nothing like a government spending thread on Fark to enrage me in the morning. Jesus.

    1. Nowadays, any non-food-related thread on Fark is a waste of time (unless you suffer from hypotension or just enjoy high blood pressure.)

  6. Did Reason fire its editors? At least 2 typos in this article’s first half.

    1. Summer interns haven’t started yet…

      1. sorry, the response we were looking for was “Fire them? That would imply they ever employed someone in that position in the first place.”

  7. Where is Tony to tell us that all is well and we can balance the budget by searching under our sofa cushions?

    1. He has a meeting with his accountant – trying to hide a portion of his income from some rapacious government that he lives under.

      1. Tony doesn’t have income, just donations stuffed in his asscrack on their way out.

    2. Not our sofa cushions; Bill Gates’ and Donald Trump’s sofa cushions.

    3. The rich! Corporations! Trains!

      1. And Roads!!!!

  8. Remember the S&L crisis? Lend long, fund short? Thats what the Fed’s have been doing beginning in the mid 90s and hitting crazy levels after 2001. Instead of locking up as much money as they could in 30s they’ve been funding primarily in the short end. Save today, pay tomorrow!

    1. “”Remember the S&L crisis?””

      What is it with the Bush family and bank bailouts?

  9. Why do none of these charts ever include the 1940s, where we might find an apt comparison for recent economic circumstances?

    1. A world war following a significant economic contraction (far larger than the 2007-08 one)? I must have missed the Times headline this morning.

      1. I think conservatives and reason just don’t like to remind people how Hooverian their policy prescriptions are.

        1. Are you saying that Hoover was president in the 1940s?

          1. No, and actually the comparison is unfair to Hoover.

        2. Hoover, as in Hoover Dam? That Hoover? He was a dyed-in-the-wool progressive.

          Fail.

        3. Didn’t Hoover try to save the banks? Yes, Yes he did.

          1. And raised taxes.

            1. And never once vacuumed my rug.

    2. I’m calling Spoof Tony on this one. Subtle, asking for the HURR DURR HURR 40’s, but I think too subtle for real Tony.

    3. BTW, well done, spoof Tony! That was VERY subtle….9.9/10

    4. you mean one showing that prior to and after the war, that even FDR’s New Deal was spending and taxing much less then what we do currently?

      http://www.econlib.org/library…..sgraph.jpg

      1. Yeah but you’re ignoring the war, where outlays approached 50% of GDP. The point of including this range in such a chart would be to demonstrate that we have gone way further in spending and recovered brilliantly. Rather than just show post-1960 and try to scare people into accepting policies that are proven to be counterproductive.

        1. I see what you’re driving at. The Japanese EQ/Tsunami taking the place of WW IIs impact on Asia. Now we just have to figure out how to destroy Europe and we’re all set for a ride to eleventy!!!

    5. Yeah, sorry but there is absolutely no way the dire situation of late 1930’s to early 1940’s is even remotely comparable.

      D-

      1. Okay but more data won’t hurt anyone. We’ve gone through the deepest recession since then, so don’t you think it might be instructive to include that period?

        1. Not really, no. The ’40s through the ’60s were in no way comparable to the current period, what with the war, the post-war boom, and all that.

          Although I would be curious to see the ’70s. If any period is likely to be comparable, it would be that one. I suspect it will make the chart even uglier, though.

          1. Economically speaking the war was just a massive spending program, to which most economists attribute the recovery from the GD.

            1. Tony|3.15.11 @ 11:04AM|#
              “….most economists attribute the recovery from the GD.”

              Yeah, the ones without evidence.

            2. Changing spending levels alone might not do it without the aggregate worldwide changes in supply and demand that accompanied them. So all we need is another world war that kills 60 million people, and 4 years of rationed consumer goods.

            3. Can the last one to realize that we are never paying back our debt and, therefore, the dollar is dead man walking (though it will be a moderately long walk) please shut off the lights? Theoretically it could be paid off but the public isn’t going to accept pain if one of the two major parties screams at the very sight of the small needle, let alone the pain from the needed big needle.

  10. Why is it assumed that a 20-23% tax burden is unsustainable?

    1. Hell, why not 50-60%?

    2. Because it hasn’t happened, even during periods of high marginal rates. People adapt.

  11. “Emeril Lagassian “Bam!” moment”

    Worst metaphor ever.

  12. Why is it assumed that a 20-23% tax burden is unsustainable?

    Two reasons:

    (1) Don’t forget to add in state and local taxes. That runs the total tax burden higher.

    (2) Historically, federal receipts have never exceeded that level for any length of time. The real question is “Why would anyone think a 20-23% federal tax burden is sustainable?”

    1. Why should anyone listen to libertarians on tax policy? They only have one: always cut.

      1. Tony|3.15.11 @ 10:59AM|#
        “Why should anyone listen to libertarians on tax policy? They only have one: always cut.”

        Always a pleasure to see you answer your own question.

        1. That’s “never raise”, Tony; “always cut” is just YOUR take on it.

          1. Either way is insanity.

            1. I love that you want the people who already pay most of the taxes to pay even more. And just out of curiosity, what level of income is your cutoff to be considered rich?

              1. Well, government revenues are at 60-year lows. Tax rates are at historic lows too. If you can’t entertain the idea of raising taxes, then you don’t really care about government debt.

                Are we talking with respect to tax policy? I would be fine with leaving all current rates in place for people under $250,000. If you’re asking what do *I* consider rich, well it’s all relative.

                1. Tony|3.15.11 @ 11:37AM|#

                  If you can’t entertain the idea of raising taxes reducing spending, then you don’t really care about government debt. FIFY

                  I would argue that if you want to raise marginal rates to 1999 levels, then we should also cut spending to 1999 levels. I know it was like 12 years ago, but I don’t remember old people being thrown out in the street to die or schools imploding and kids running roughshod all over the place.

                2. Tax rates are at historic lows too.

                  Well, only if 1916 counts as pre-historic.

            2. Tony|3.15.11 @ 11:28AM|#
              “Either way is insanity.”

              Because, well, an economic ignoramus *SAYS* so!

    2. You’re right about the need to consider state and local taxes, but taking that into consideration proves that much of the country — those with low state and local taxes — certainly can “sustain” a higher tax burden, similar to the people who live in the higher-tax jurisdictions.

      1. Fuck you. I took a pay cut last year so no, I can’t sustain a higher tax burden.

        1. Half my income goes to taxes. I consider that far too high.

          You want a 21.5% across the board flat tax, including EVERYONE up and down the income scale, and for corporations? And no property taxes, state income taxes, sales taxes, phone taxes, airline taxes, hotel taxes, etc.? Sign me up.

          1. Half my income goes to taxes.

            Really? Which bracket are you in?

            1. Tony|3.15.11 @ 12:01PM|#
              “Really? Which bracket are you in?”

              You idiot!
              That sort of sleazy cherry-picking probably works with your brain-dead buddies, but not here.

            2. So what is your comprehensive tax burden? Most people have no idea and don’t even understand the concept. There’s tax built into the price of gas? There’s tax built into the price of untouched by state sales tax food?

          2. Is that with state and property and such?

        2. Thanks for the substantive response.

          1. You want substantive? I make 2800 after taxes, ss, and medicare. This covers all of my bills plus food and gas and that is it (with food and gas prices going up, it won’t even do that). My wife works two jobs so we can afford to treat ourselves with health insurance and a night out once a month.

            We live in Texas and as far as I know our state and local taxes are relatively low (no state income tax to boot).

            1. I’m not going to try to argue your particular circumstances. But just because you, specifically, don’t see how you can pay more in taxes doesn’t prove Gillespie’s argument that a federal tax rate of 20-23% is “unsustainable” in general.

              Moreover, I don’t believe that anyone is currently proposing that you, at your income level, pay any more in taxes. Rather, the argument is that people making about 4-5 times what you do should have their marginal tax rate increased.

              1. Oh, so only my boss should pay more taxes, cause that won’t end badly for me at all.

                And Gillespie’s argument is the numerical fact that for the last 70 years the government hasn’t been able to pull in more than 20-23% no matter what the tax rates are.

                1. Okay, but tax rates, especially at higher income brackets, have been generally declining since 1960, when Gillespie’s chart begins. Therefore, the fact that federal tax revenue hasn’t gotten above 20% of GDP doesn’t really prove that anything over 20% is “unsustainable,” which is his argument. It’s certainly possible that if we’d kept the tax rates where they were under, say, Reagan, the tax revenues would have been more than 20% of GDP.

      2. jonny scrum-half|3.15.11 @ 11:24AM|#
        “…those with low state and local taxes — certainly can “sustain” a higher tax burden, similar to the people who live in the higher-tax jurisdictions….

        Glad you volunteered. You can pay my taxes, since you’re so generous.

        1. You sure jump quickly to conclusions. I don’t like taxes, and I’d cut a hell of a lot of spending in order to reduce them, starting with the military. I’m not stating, or even suggesting, that people should pay more taxes. I’m just questioning Gillespie’s unsupported assertion that federal tax rates of between 20-23% are “unsustainable.” Maybe there’s evidence of that, but simply stating that the average rate has been less than that for the past 60 years doesn’t cut it.

          What’s really unsustainable is the difference between spending and taxes. That difference needs to be eliminated, preferably by spending cuts but more realistically by a combination of cuts with some additional taxes. (I personally have long favored increasing the federal gas tax).

          1. jonny scrum-half|3.15.11 @ 12:38PM|#
            “You sure jump quickly to conclusions. […] (I personally have long favored increasing the federal gas tax).

            Thanks for proving me right.

            1. Re-looking at your initial post, I’m not sure what “point” you think that I proved. I’m guessing that you think that I’m advocating higher taxes, but a gas tax can be used to lower income taxes.

              If you’re just arguing that any taxation is bad, that’s fine, but it really isn’t helpful in the real world. If we have a government that does things (and I believe that it tries to do way too many things), we’re going to have to pay for it somehow.

              1. jonny scrum-half|3.15.11 @ 4:50PM|#
                “Re-looking at your initial post, I’m not sure what “point” you think that I proved. I’m guessing that you think that I’m advocating higher taxes,”

                Well, how about:
                “those with low state and local taxes — certainly can “sustain” a higher tax burden,”
                Or:
                “I personally have long favored increasing the federal gas tax”
                Seems I’m not the only one to draw the obvious conclusion.

                Oh, and:
                “a gas tax can be used to lower income taxes.”
                Sure it can. Well maybe it could. Or maybe (unicorns).

      3. Here you go scrumy:

        Gifts to the United States
        U.S. Department of the Treasury
        Credit Accounting Branch
        3700 East-West Highway, Room 622D
        Hyattsville, MD 20782

        Give until it feels good.

  13. I’m not broke, I have plenty of room before I hit my credit card limit. Then when I do, I’ll ask the credit card company to raise my limit.

    Only faux financial advisers in government/elected officials would think the above makes sense.

    1. and Tony.

  14. “The only way to address the increasing costs of our debt is to address the driving forces behind it ? legislated explosions in Social Security, Medicare, and Medicaid spending.”

    We. Are. Fucked.

    1. Yeah, if I was to try to describe our current fiscal policy, I would say its a bug flying the wrong way around a NASCAR track.

  15. A lot of Federal spending is predicated upon the idea of the “money multiplier” – and it WAS a good theory and policy. a borrowed money got you enough to pay the money back plus some.

    http://research.stlouisfed.org/fred2/series/MULT

    But as can be seen now, when you borrow (as a government, an individual, or a society)and you lose money, it don’t work no more.

    1. That’s not necessarily what the multiplier effect was talking about. Richard Kahn, a student of Keynes, hypothesized that for every dollar spent by the government it generated around four dollars of private spending (this ratio varies depending on what Keynesian you’re talking to). The implication of this is that deficit spending is inconsequential because you’ll more than make up your investment from the magically-generated private spending.

      I have yet to see any Keynesian explain where, exactly, one dollar spent by the government becomes four dollars without resorting to macroeconomic equations based on assumptions that have no basis in reality.

  16. Yesterday, Matt Welch pointed to of the most recent statements by Wash Post fiscal denialists (E.J. Dionne and Ezra Klein), both of whom are taking a relaxed approach to continuing levels of spending predicated upon deficit spending by federal, state, and local governments.

    You listen to NPR too, I see.

  17. Well, government revenues are at 60-year lows.

    Well, this is a lie, whether viewed in dollar terms or GDP terms.

    In dollar terms, the feds will extract more than they did in every year except 2006 – 2008.

    In GDP terms, the burden was lower in 1950, and I’m sure in every year prior to WWII.

  18. Correction, the GDP burden is as low is its been in the last 50 years.

    But that’s what you get when you have progressive taxation and a recession hits. Sucks, don’t it?

  19. I like how in the revenue/spending projections graph revenues, for no reason what so ever, suddenly reverse the downward trend at the end of 2011 rise steeply.

    It reminds me of how global warming projections work.

  20. I’m waiting for Ice Trey to link to a worthless site explaining that the US can pay 6 months of Medicare and S/S by selling Yellowstone park.

  21. Anyone who claims that America isn’t broke is wishing instead of looking at the numbers.

    http://www.rationalpublicradio…..f-gdp.html

Please to post comments

Comments are closed.