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Response to E-mail: 'Brilliantly Explained', Is Government Spending Out of Control?

Dollar SignI received an e-mail the other day with the subject line, 'Brilliantly Explained'. I've put it below the fold if you want to read it in full, but the summary is that it compared U.S. tax revenue, the federal budget, new debt, the national debt, and recent budget cuts. It then trimmed a bunch of the zeroes to put it into a perspective easier for most people to grasp - arguing that the current situation is untenable, and that we should cut the budget further rather than raise the debt ceiling (I assume this e-mail began circulating some time ago).

I haven't bothered to fact check all the figures given in the e-mail. Rather, I decided to take a step back and look at the big picture. Is spending by the government out of control?

Here's an interesting link to a website that shows government spending as a percentage of GDP, from 1902 on up to today. Note that these numbers include direct federal spending, as well as state and local spending.

Here's a link to the official Office of Management and Budget site that details federal spending.

Federal spending has actually remained fairly constant at right around 20% of GDP since 1950.

From the mid '50s through the '60s, total government spending was fairly constant at just under 30% of GDP. It began creeping up until the '80s, when it leveled off at around 35%, and then just recently jumped up to a little over 40% of GDP in 2009, but has been slowly decreasing since. The highest spending ever as a percentage of GDP (both total & federal) was during WWII - up close to 50%, higher than today's spending. (I know I've mentioned this before, but a majority of economists argue that that type of government spending was a major contributor to getting us out of the Great Depression, and that similar short term spending now would help get us out of the current recession. - Wikipedia)

So, for the past 60 years, about a quarter of our nation's history, federal spending has been nearly constant, and total government spending has been between about 30% and 40% of GDP. Granted, it may be a little higher right now, but it doesn't seem unsustainable.

Here's an article from Wikipedia on government spending.

That Wikipedia article has similar graphs, but it also has government spending per capita for various nations. The U.S. is below the average for the World's 20 largest economies. So again, it doesn't appear that spending from the government in the U.S. is exorbitant.

Here are some other links I've included on this blog before dealing with tax rates, both the history of taxes in the U.S., and comparisons to other countries.

These show a history of tax rates decreasing since the 1960s, reaching an all-time low under Bush Jr., but being almost as low right now under Obama. The comparison to other countries shows that the tax burden in the U.S. is well below that of other prosperous democracies.

So, looking at the history of government spending, there's nothing about current levels too out of line with the past 6 decades worth of spending or with other countries, but taxes, a major source of government income, have been decreasing. Nobody particularly likes taxes, but it seems like if we want to enjoy the types of infrastructure and services the government's been providing ever since we've been old enough to remember, we're going to have to suck it up and pay our fair share. What would be irresponsible and out of line with traditional monetary policy would be to call for further tax cuts that cripple the government's ability to pay what have been normal expenses for the past half century*.

*Don't get me wrong. I think there's plenty of room for improvement in how government money is spent. My wife works on a military base, so believe me, I've heard plenty about how wasteful the government can be. My main point is to avoid hyperbole. Government spending is not drastically out of line with the past, and so doesn't require drastic cuts. Modest cuts along with more tax revenue would get the job done, and get us back into our nation's traditional position.

It's also worth pointing out that the jump to spending over 40% of GDP occurred under Bush's tenure with 2 wars and a severe economic recession. You'd fully expect government spending to increase under those conditions.

And as one final note to address the original e-mail, it should be obvious that the debt ceiling is set in absolute dollars, not as a percentage of GDP. Such an absolute debt ceiling is going to have to be raised periodically just to account for inflation if nothing else.

Here's the full text of the e-mail I received that prompted this entry.

This rather brilliantly cuts thru all the political doublespeak we get. It puts it into a much better perspective.

Lesson # 1:

* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts so far: $38.50

Got It ?????

OK now Lesson # 2: Here's another way to look at the Debt Ceiling:

Let's say, You come home from work and find there has been a sewer backup in your neighborhood....and your home has sewage all the way up to your ceilings.

What do you think you should do ......

Raise the ceilings...............,
or pump out the crap?

Your choice is coming Nov. 2012.

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