Friday, January 4, 2013

The Spending and the Debt Continue

The Growth of Federal Spending
Like most other people who have family incomes below $450,000, I was happy that Congress avoided the looming large increase in my taxes, even though, like most other people, I will be paying more in payroll taxes in the coming year. Short-term self-interest aside, though, I’m not so pleased that the agreement did nothing to solve the underlying problems of the American economy. Congress had created the prospect of returning to higher tax rates and making sharp cuts in spending in order to force it to deal with the worsening problem of spending exceeding revenues in ever-increasing amounts. But it did not cut spending and the deficit continues to threaten the nation’s future. Soon, Congress will face the prospect of raising the debt ceiling in order to continue borrowing money to cover its obligations. If Washington does not commit itself to a plan to bring spending down, the nation will face a steadily worsening future. We should no longer see the cutting of entitlements as a matter of ideology or political preference, but as a matter of economic necessity.
One of the best sources of information on the debt issue is the website US Government Debt. The following chart, showing the increase in debt over recent years and projected debt in the near future is taken from there. While the recent recession has worsened the problem by limiting economic growth, I think it clearly has its roots in a much longer-term phenomenon: the steady growth of government spending.

As the next chart, taken from the same source, shows, government spending has increased dramatically over the past century. There were, of course, huge and understandable bumps during both of the World Wars, but it is notable that each war was followed by a level of spending higher than before the war and that this is especially true of the years that followed World War II.
Total Spe-x=Transfer to state and local; Total Spe-f=Federal Direct Spending; Total Spe-s=State direct spending; Total Spe-l=Local direct spending

Note from this last chart that not only has government spending grown overall, but most of the growth has come from the federal portion, which has replaced local sources as the primary public spender. The historian Paul Kennedy argued, in The Rise and Fall of the Great Powers (1987), that powerful nations tend to bring about their own decline by overextending themselves economically. Kennedy was thinking primarily about the overstretch of military activities, but I think the idea also applies to the domestic activities of states. As central governments extend themselves abroad, they also tend to reach into more areas of domestic life and to become over-committed to solving all problems at home through ever more expensive programs and elaborate bureaucracies. Beyond the obvious need to bring down spending, then, we might consider the need for a more thorough retrenchment to avoid the progress toward national decadence.

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