The following bar chart demonstrates the spending levels of the various federal agencies between 2006 and last year. Over that time, federal expenditures increased from $2.66 trillion to $3.72 trillion, an increase of over 40%. During this time period, prices rose by about 8% and population rose by about 3.5%, so in real per capita terms, over a mere 5 year period federal government spending per capita has increased by over 28%. This is larger than real median family income increased over the preceding 30 years.
Percent Changes on the Right, All Figures Nominal
The red bars indicate current spending levels while the green ones indicate past spending levels. Does anyone at all, in Congress, in the press, on the street, in the academy, ever look at this picture and ask where it all went? How can it be possible for spending to have increased by over 28% in real per capita terms, but now all kinds of federal agencies and programs are experiencing … a … crunch? You’d think you were being put on Candid Camera with this sort of rhetoric.
And consider this, even with the “grand budget deal” that would have spending slashed … slashed! by $2 trillion over 10 years, that means we’d be reducing spending from $3.7 trillion (using the latest year as an illustration) to a “mere” $3.5 trillion, still a mountain of spending beyond what prevailed a few years ago (about a 20% real increase per capita). If I asked you the following how would you answer: “your real per capita spending will increase by 20% over the next five years, would you characterize that as a crisis? Would your roof shingles begin to fall off? Would you have to do without heating your home? Would you have to stop purchasing things at Amazon? Of course not. Real per capita increases mean spending over and above what you are currently able to do.
How is it possible to be spending over a trillion dollars more today than five years ago and for anyone to be claiming we are in a crunch? Certainly with the lagging revenues we have a deficit issue, but I urge you to be aware of the rhetoric that makes a deficit problem appear to be like one where agencies cannot somehow afford to do the things they did just a couple of years ago.
And allow me to ask, can some “progressive” who wants even more spending and taxes please point out a year when spending levels were appropriate? And would you kindly do me the favor of comparing how the agencies performed and how our “vital” infrastructure was doing when spending was at those levels? And then can you again answer my question, what the heck has the government done with all of the new money that has been spent since that nirvana?
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Devastating Mike. I am going to spread this one around for sure.
I was especially surprised at the magnitude of the increases for agriculture and education, both departments that ought to be eliminated entirely. (The other night Brit Hume asked whether conservatives would want the checks to the meat inspectors delayed, and he said there might not be enough meat inspectors. Couldn’t the bloated agriculture departments of the states handle this?)
I am going to print the graph out and keep a copy of it in my pocket Constitution.
You really need to add a Facebook Share or Like button. I could/would then share your always insightful posts with my friends (all three of them ;)…but they do have friends, and they have friends….) who otherwise wouldn’t read economics blogs.
Right on, brudda.
jb, I would like your take on interest rates, giving you broad discretion.
I think that the only way the government can keep rates low for very long is to keep the value of its currency stable; otherwise, people will discount any action, whether it be Nero clipping edges of silver coins, or QE2, or the prospect of QE3.
Now, I know timing is both everything or not worth the trouble, even dangerous. Weimar Germany solved its debt problem, and so did Fidel Castro. However, in the ’70’s we experienced two great waves of inflation, which were recognized by the marketplace.
That was the time when money market funds were born.
Another question for jb, wintercow, and anybody who is interested:
During those days there was a multiplicity of ways to finance business, most notably through corporate bond offerings and public offerings of common stock, preferred stock, convertible preferred stock, convertible bonds of good companies. One could learn more about what was going on by reading tombstone ads than by “following” the price of the Dreyfus Fund.
Today, a few banks have swallowed all the brokers and nearly all the small banks. I bet that hardly any broker sitting in a branch office of Wells Fargo knows what an Equipment Trust Certificate is. My broker was confused when he showed me an NCNB note, and did not know that NCNB was the mother of his company which had swallowed three or four companies at which he has been employed, including two firms in the brokerage business.
I know it is an oversimplification, but often wars and other grand projects have been followed by great inflations, followed by fruitless efforts to make something out of nothing. In my lifetime, the GI’s came home and went to work. EJ Korvette’s, which would become KMart, was founded by eight Jewish Korean War veterans.
Note that the big increases are for agencies that regulate us the most, and who can calculate that cost? For every federal inspector reaching his grimy hands into our lives, there are papers to be shown, forms to be filled out, lawyers and accountants to be hired, backhoes to be rented, and hours stolen from us. Not only do they waste the money they get, they waste the money of their subjects.
One of our problems now is that the horses are already out of the barn when it comes to inflation. If we haven’t felt its full force yet, we will.
Any attempt to stall inflation invariably produces over-reaction in the marketplace. When Nixon imposed wage and price controls, I was teaching school at my alma mater, and everyone there sought virtue in submitting to a three percent increase. Ignorant academics though we were, we thought that discipline would tame inflation, but over at the farm we saw its effects in shortages of things that were never in short supply.
I may have told this story here before, but back in July of 1974, I needed baler twine for straw that I was going to bale that afternoon, so I took the pickup over to Clover Leaf Mill and told the owner, “I need three bags of calf grower, two bags of milksaver and ten bundles of baler twine.” I was hot and sweaty, and I needed the baler twine urgently, as a thunder storm was forecast in the afternoon.
He looked at me like I was a spaceman and said, “We don’t have any baler twine, Rod.”
“Well, does Agway Dublin have any?” I asked, not relishing the idea of driving to Dublin.
“No,” he said, “There is no baler twine to be had anywhere on the east coast.” I have to pay better attention to the farm reports, I thought.
Fortunately, we had friends in Buckingham who had stockpiled more than a year’s supply of baler twine, and they agreed to meet me in Dublin to sell me ten bales at their cost, which was $20 per bale, eight dollars more than the controlled price of $12 per bale. They told me that for the rest of what I might need for the harvest season, I should go out to the Green Dragon in New Holland, where it was available on the black market for $40 a bale. (The Green Dragon was an auction sale barn where, it was rumored, you could buy anything, including tactical nuclear weapons.) That was my first lesson on what happens under price controls.
The second lesson occurred that same week when the hydraulic cylinder on my baler sprung a leak and needed a new seal inside. Not only were the seals unavailable, but hydraulic cylinders were not for sale at the John Deere dealer. I did find one small cylinder that was good enough for the baler at the Allis-Chalmers dealer, but I paid $78 in 1074 dollars for it. They were bandits, but they had me over the proverbial barrel. (Barrels were probably unavailable, too.)
When price controls were lifted, everything was plentiful for a while, but Jimmy Carter came along and kicked government spending up several notches and caused $600 billion deficits to be predicted “for as far as the eye can see.” Carter also put controls on the price of “old oil” and “new oil” and thereby caused confusion in the booming oil markets. It was not long before Agway told me they had no regular gas or diesel fuel to deliver to the farm. I had to take the tractors up to the gas station to fill them up, and I even used some home heating oil in my diesel tractor. While the Club of Rome advised everyone that we would run out of oil by 1984 (when Teddy Kennedy would be president, we thought), and advised us all to wear cardigan sweaters to keep warm in the winter (that worked in Plains, Georgia, but not in Rochester, NY). It turned out (we learned fairly recently) that the United States has hundreds of years of fossil fuel resources. The Club of Rome might still be a club, but they only serve lunch Mondays through Fridays. Dues are $50 a year.
Another lesson I learned from those years was that prices can swing farther than what’s warranted by inflation itself. Shortages, caused by uncertainty or the high cost of materials, can drive up prices way beyond their rational level, especially if people fear the government will intervene in markets. I would not put it past Obama to take an errant lesson from Nixon and impose price controls of his own. He likes to do things like that, sort of like King Canute commanding the tide to stop.
Holy crap. It’s even worse than I thought, and I’m pretty far to the right.
There is a category on the table abbreviated “OPM.” “Other People’s Money”?
Today on Fox News Sunday, it was revealed that in the Cut, Cap and Balance Bill there is only $110 billion of real cuts for next year. I take it, then, that the deficit will be trimmed only a little and will still be in the $1.5 trillion range, give or take a tenth of a trillion, or $110 billion. I guess I am not insane if I start to hoard cartons of cigarettes to use as currency. And ammo. You could sell ammo by the round or the clip, depending on what you are bartering for.
And of course the Democrats oppose even these tiny cuts. No mention of what could be accomplished by cutting out high speed rail, for example.
My problem is forecasting just when the US will default. I am busy buying up as much gold/silver/platinum as I can afford in the hope that my savings will be protected when the balloon goes up.
The US will not default. All of its debt is denominated in dollars, which the government can create legally.
The best way for any country to repudiate its debt is to devalue its money, paying creditors with paper that fetches less. We have gone through that several times in my life.
Whether it is a good time to buy precious metals is a different question, apart from the question of whether the present price of gold is a good indicator of inflation. In retrospect, we all wish we had bought gold twelve years ago as Gordon Liddy did, but then he got and gets paid extra every time he appears on Fox.
But I do think it sensible to take a portion of one’s money and invest it in a good company that sells something tangible, as a hedge against the inflation that impends over us all.
Regardless of what happens in the next few months, or next week, two trillion or so is already baked in the cake. The only way out is a prosperous economy.