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…and Bad News

Significant threats to Americans' overall well-being remain.

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When it comes to individual liberty, the United States has become a much better place in the 50 years since Reason magazine was born. Transformative technological advances have given Americans from all walks of life the opportunity to enjoy comforts and conveniences that only a particularly prescient futurist could have predicted. Women and minorities are unquestionably better off than they were in 1968, thanks to a largely successful though admittedly unfinished fight against discrimination. But while our ability to live as we please has been enhanced, the massive growth in the size and scope of the federal government remains a large—and growing—threat to Americans' overall well-being.

Joanna Andreasson

In 1968, total inflation-adjusted federal spending was $1.2 trillion (in 2018 dollars), or 19.8 percent of the gross domestic product (GDP). This fiscal year, the federal government will spend an estimated $4.2 trillion, or 20.8 percent of our total economic output. More disturbingly, because the government spent more money than it collected in 45 of the past 50 years, federal debt held by the public has jumped from an inflation-adjusted $2 trillion (or 32.2 percent of GDP) in 1968 to an estimated $15.8 trillion (or 78.8 percent of GDP) this year. In the past decade alone, the average annual budget deficit has been almost $900 billion.

Over the decades, lawmakers from both parties have consistently found new excuses to expand the federal government's portfolio and, consequently, the country's debt. Republicans have, on occasion, talked about cutting spending, but they have virtually never followed through. And while politicians of all stripes love to make vacuous promises to eliminate "waste, fraud, and abuse," they rarely grapple with the inconvenient reality that inefficiency is inherent to government—or that merely tweaking how the money is spent cannot possibly solve the problem of how much money is spent.

One of the great myths in Washington is that policy makers have to choose between guns (military spending) and butter (domestic spending). The reality is that policy makers have chosen guns and butter, and lots of both.

Let's start with the butter.

This year, spending on health, income security, and retirement programs—the three largest being Social Security, Medicare, and Medicaid—will reach an estimated $2.7 trillion, accounting for 64 percent of total federal spending. In 1968, the same collection of programs accounted for an inflation-adjusted $257 billion, or just one-quarter of the budget.

In his 2017 book The High Cost of Good Intentions (Stanford University Press), Hoover Institution economist John Cogan recounts with great detail how so-called entitlement programs have existed in one form or another since the start of the republic. It was the "Great Society" domestic interventions of the 1960s, however, that fueled the ever-expanding modern American welfare state.

Designed to redistribute wealth from one class of Americans to another—young to old, wealthy to poor, healthy to less healthy—the footprint of these programs has grown as policy makers have inevitably moved to increase the number of people eligible for benefits and the amounts that they receive. This explains why per-capita entitlement spending has risen nearly twice as fast as per-capita income over the last five decades. While welfare benefits accounted for less than 8 percent of Americans' personal income at the end of the 1960s, that number reached 21 percent in 2015—and that doesn't include Social Security and Medicare.

As for the guns, military spending will end up around $650 billion in 2018, not including the approximately $300 billion in defense-related spending for veterans, homeland security, international affairs, and the associated interest on our debt. Although military spending has receded a bit from earlier in the decade, it's still considerably more than it was during Ronald Reagan's Cold War–era military spending binge, even after adjusting for inflation. Moreover, the recent dip was only temporary: The Trump administration and Republican-controlled Congress wasted no time in making good on their promise to hand the Pentagon a blank check by busting the budget caps that were put in place in 2011 to restrain both military and domestic spending.

Milton Friedman once said that the size of government is measured not by the taxes people pay but by how much the government spends. By that standard alone, our government is almost incomprehensibly massive. But it's actually worse than it seems: Cronyism and corruption have flourished as countless special-interest groups have coalesced around the Beltway spending spigot. Doing something about the problem is hardly a fair fight given that the benefits of government programs are concentrated on a politically favored few while the costs are dispersed across millions of unwitting taxpayers.

Shortly after this magazine's creation, the era of the corporate bailout got underway with a taxpayer gift from Congress to defense contractor Lockheed Aircraft in the form of $250 million in emergency loan guarantees. It was the first time the federal government ever came to the rescue of a single firm. Eventually the handouts became bailouts, culminating in the passage in 2008 of the Troubled Asset Relief Program aimed at propping up beleaguered financial institutions in the wake of the housing crisis. Ten years later—an anniversary of a dubious sort—taxpayers remain exposed to the risks created by trillions of dollars in explicit and implicit government guarantees.

It's impossible to predict what state the country will be in when Reason celebrates its 100th anniversary. What I do know is that the federal government's spending and debt problems are set to get considerably worse as an aging population demands more and more giveaways from the government and the pool of worker-taxpayers remains flat. Throw in the seemingly indefatigable military-industrial complex and the reasons for pessimism only grow. But if there is a silver lining, it's that this magazine (and the other outlets and organizations fighting the good fight on government spending) will not go quietly into the night.