Tuesday, October 13, 2015

US Governement: Liars and Thieves?

Mom, I need a bigger allowance. Honey, Pops and I gave you a bigger allowance last week because you said you had to pay off your debt to the cannabis store. I know Mom, but when I went to the store I saw some really cool edibles and now I owe them even more money.

Stupid, eh. But now replace the word Mom with tax-payer and the word Honey with the US Government. President Obama and his cast of stooges make no sense. If we go along with this nonsense then we deserve whatever happens to us in the future. 

Congress is going to give the President a short-term budget with higher military spending and he is going to veto the bill unless they also add more spending on domestic programs – and make all of it permanent. You’d think that we have a deficiency of government spending in this country.

Recall – we have a national debt that soared when the government “rescued” us in the wake of a world financial crisis. Former Fed Chair Bernanke is now making a pot of gold out of a book and book tour giving us his version of what happened when the Fed went arm in arm with our Government during those hairy days. At least someone is getting rich from all this craziness. But I digress. Our national debt (held by the public) went from about $5 trillion in 2007 to $9 trillion in 2010 and then kept on growing. It was almost $13 trillion in 2014. Nice going dudes – you almost tripled the national debt in a mere 7 years. We thought the increase was going to be temporary. Hmm. Read on.

Have you heard the US government moaning and worrying about all that debt? Have you heard the President pointing his finger at Congress demanding that they not imperil our fine land with debt, pointing out all the possible long-term unintended consequences of a major increase in debt? Did the Republican Party engineer a major austerity program? You might think we had such a thing when you hear about budget caps but nothing could be farther from the truth.

Like the kid on cannabis, we are spending more and more and we are getting deeper in debt. You think I am making up stories? Go to the CBO website and you will see that without any of the currently discussed spending additions being proposed, the debt will reach $16 trillion in 2019 and then $20 trillion in 2024. Watch the politicians in coming days…wringing their hands over the horrible austerity we Americans have had to endure. But austerity means falling debt so there is something wrong with this story. 

As you listen to them explain why we need more spending (and taxes) just look at the data below.

Total Federal government spending will increase by 5.3% per year for five years and then by 5.5% per year for the five years after that. Does this sound like an austere budget? Those increases are per year. Imagine if your wage went up 5-6% per year. Starting with $3.5 trillion in 2014 total spending will have risen to $5.7 trillion in 10 years. Poor Poor government. How can they possibly live on an increase of $2.2 trillion?

Point of emphasis – these numbers are estimated by the bipartisan CBO based on spending bills already passed – spending will grow faster if the Ds and Rs and O get together on a deal to spend even more.

Table. CBO Projections for Government Spending based on current budget law. Yearly amounts are in billions of dollars. Changes are percent change per year. 

                         2014   2019  2024  2014   2019
                                                          to        to
                                                       2019   2024
Mandatory       2,099  2,783  3,586    6.5      5.8
Discretionary   1,179  1,222  1,362    0.7      2.3
Net Interest         229     437     710  18.2     12.5
Total                 3,506  4,443  5,657    5.3      5.5

And by the way, your tax bill is not going to go down. This rapid spending has consequences for both higher tax revenues AND a larger debt. The government’s tax revenue will rise from about $3 trillion in 2014 to $4.8 trillion in 2024. In 2024 the government deficit is estimated to be almost $900 billion in that one year alone. Above I explained that the total debt will rise from $13 billion in 2014 to $20 trillion  in 2024. 

I am getting dizzy. Where is the JD when you need it?

Total spending is composed of mandatory, discretionary, and net interest. Mandatory spending is ongoing and determined by past laws. Social Security, Medicare, Medicaid, Obamacare subsidies, disability insurance are the main programs that fall into that category. Notice that Mandatory spending is the biggest part of spending at $2,1 trillion in 2014. It will increase by 6.5% per year for five years and then by 5.8% per year in the remainder of the decade. Does that sound like austerity to you?

Discretionary spending is a smaller component that includes a lot of other things including defense and many non-defense programs. After rising by less than 1% per year for five years it will then increase by 2.3% per year. Program recipients might complain about the rate of growth -- but even these programs are scheduled to grow if past legislation is extended to the future. 

Check out Net Interest which will grow by an average of about 15% per year for the next 10 years. Beginning at a humble $229 billion it will balloon to more than $700 billion in 2024 alone.

Don’t fall for those politicians who scare you by showing you real declines in some heart-rending discretionary programs. They control every line item in the budget. They have already signed off on $800 billion more annual spending on mandatory programs between 2014 and 2019. If they took even a meager $100 billion off that increase, they could add it to Discretionary programs that are most hurt. If they shifted that $100 billion then we would be spending $1322 billion in that category in 2019 and the growth rate in the first five years would jump from 0.7% per year to 2.4% per year.

The long and the short of it is that this government is spending too much of our money on government programs. While it cannot do much to reduce spending on interest, it can address all of our important needs without adding a dime to whatever is already in the pipeline. Don’t be fooled by these jackals. Ask them how a larger national debt is going to expand employment and help the average guy and gal. If they want to spend more on X, then they should spend less on Y. That's their job. We should tell them to do that. 


  1. Dear LSD. The internecine squabble/dysfunction among House Rs to find a Speaker exemplifies the solidarity of the U.S. spending problem. The Rs and govomit in general can’t get their respective acts together. Most on the hill agree the deficit/spending is a problem (Is it possible only most Rs agree but no Ds?) but no one except the 42 members of the Freedom Caucus seem to want to do what is needed to stop govomit profligacy. Neither Boehner nor McConnell had the balls to put legislation on Obummer’s bib that would force him to veto and therefore shut down the govomit. They said voters would blame Rs—and of course the drive-by media would gleefully agree. So, until a principled Speaker emerges and/or we get a R in the WH (and maintain majorities in both houses) the deficit/debt will remain.

    I remain committed to no compromise with Ds and if shutting down the govomit is the only weapon the Rs have (power of the purse) to force action on the deficit/debt issue then so be it. There is no other Constitutional/legal action—asking/letting the Judiciary to weigh in has not proven beneficial to Rs agenda. Let Obummer use his pen and phone; the Rs must use the power of the purse.

    If you mentioned this in your blog I missed it. Many folks—particularly libs/Regressives—complain about income inequality and the shrinking middle class. I haven’t heard anyone—R or D—explain that the debt is probably the biggest hindrance to reducing income inequality and strengthening the middle class. I see only two ways to reduce the debt: vibrant economic growth, which should both help reduce income inequality and bolster the middle class, and higher taxes, which would do the opposite. The best singular solution to the income/wealth gap and middle class dilemma is good-paying jobs.

    1. Thanks Tuna. For one thing, when I write a blog post each week I try to focus on a specific point. Second, the point usually fits in with my interests as a macroeconomist. Clearly the many effects of reducing debt are important and in my past posts I have discussed many of those. I agree that growth is the key to reducing inequalities. But in this one I was mostly looking at the reality of how much spending is already in the Federal government pipeline. As far as your point about shutting down government, unfortunately the apparatus in place in government does not give the Republicans or any subset of them enough power to ram through what they want. I seriously doubt that shutting down the government will help them get that necessary majority in the next election. But I am not a political scientist and am not confident in writing about such things.