Inching Closer to a Homeless USA?

Cartoon by Jim Gibson

Now that we avoided one cliff in October we now have a little time to avoid another one in early 2014. Predictably what gets done will be decided by real and imagined descriptions of past and future government spending growth. During the last standoff we heard about the sequester and how it limited government growth. Some Democrats use that fact today to strengthen their case for more future spending and higher taxes. 

But the government’s own forecasts belie that interpretation of austerity and show a real cause for alarm coming from future federal spending. Lawrence Summers recently argued in the Wall Street Journal that national debt is a secondary issue but I argue here that a continuing debt explosion threatens to make us all homeless.

I wrote on October 8 about the national debt and how the CBO believes that under current budget law the US net debt will hover around 70% through 2023 – staying well above the pre-recession rate and historical norm of about 36% of GDP. The implication is that even with the spending constraint implied by the Budget control Act of 2011 and the sequester, we cannot make even a tiny dent in the swollen national debt. Guest Blogger Jerry Lynch followed up on October 13 with a similar story citing the gross national debt staying at about 100% of GDP. It is one thing for debt to rise temporarily in an emergency like the world recession of 2008/2009 but it is another thing to let it remain so high for another 15 years or so!

Today’s posting reinforces this discussion of debt by focusing on government expenditures. I do that because of the many distortions we are hearing from politicians who do not want face up to tough spending challenges. Some are pointing to the fact that the US government deficit and federal government expenditures fell in 2012 and 2013 and conclude that we have taken care of the government’s financial problems and can now get on with more spending and higher taxes. But just like the debt figures already cited, the spending data show that we are on our way to financial disaster. Okay – so you lost 2 pounds on your new popcorn diet – but if you are 100 pounds overweight this is no time to celebrate with an upside-down pineapple cake with Jack Daniels flavored icing.

It is true that government spending declined during fiscal year 2012 by $61 billion dollars and by $82 billion in fiscal year 2013. That’s a two-year total decline of $143 billion. But that is a small part of a bigger story.  Between 2007 and 2011 – government spending rose by a total of $870 billion dollars. In those four years, government spending rose from $2.7 trillion to about $3.6 trillion. That’s an increase of about 30%. If we account for the spending reductions in 2012 and 2013, we are left with an increase of government spending from 2007 to 2013 of $727 billion – meaning that since 2007 government grew by about 27%.With or without the recent reductions we are nowhere near to anything one might call restraint or austerity.  

Now let’s look at the future. Whatever gains might have been started in 2012 and 2013 they are over, finished. The CBO budget scenarios assume the continuation of the budget caps and so called restraint from the Act of 2011 – but notice they do little to overcome inertial government growth. The CBO estimates that with restraint, government spending will grow by $147 billion in 2014 alone. That is, in just one year the federal government will make up for all reductions in 2012 and 2013. The yearly increases following this $147 billion increase will be (again assuming spending caps in place):

           

            2015  $175 billion

            2016  $261 billion

            2017  $223 billion

Some 10 years after the US recession began and almost eight years after it ended, government spending will have gone from $2.7 trillion in 2007 to $4.3 trillion in 2017. Government spending will have increased by about $1.5 trillion or by 56%.

Governments swear to us that crisis spending is always temporary to get permission to go deep into debt. As soon as someone suggests that the bloat be reduced, they immediate call these requests unreasonable or worse.

Debt problems are real. They won’t go away by raising taxes. The more taxes we raise the more these fiends will spend. The really sad thing is that government has the capacity to do a lot of good. But doing this good becomes harder and harder when the country goes further and further into debt. We put ourselves in the worst jeopardy by not getting the financial crisis under control. What happens if we have another recession? What happens if terrorism requires more military and security spending? What happens if the Fed tapers and interest expense doubles or triples? What happens if Larry needs more JD?

Many people become homeless because they get themselves into debt and then an emergency strikes. What happens when a country goes into debt and suffers a similar crisis? The answer is not good. Don’t listen to Washington crying. Something has to be done about government spending. Even if the progress is gradual – something must be done. For every year we remain with high debt, the more we weaken our economy and open it up to risk of crisis. That is no way to run a country.