The Most Depressing Graph: Per Capita Federal Spending Rises Alarmingly: Update

There is no more saddening picture of the progress of government than this one (the second & third most depressing graphs are here):

The growth of Leviathan

The growth of Leviathan

This is the amount of money the federal government spent in the name of each citizen, adjusted for inflation so that everything is in constant dollars (the base year of 2008 matters not; 2013 is an official forecast, and therefore too low). There is no one picture which can capture the inexorable rise of Leviathan, but this one is satisfactory.

Each dollar spent is a dollar taken from a citizen or created from vapor, but each requires management and an apparatus for agreement, acquiescence, and distribution between citizens and government. If the federal government were as small now as it was in 1901, it would today spend $169 for each citizen; this would imply a budget of around $59 billion. Customs duties would have paid for half of that. There would be no need of income tax. It spends $11,630 now.

The government is sixty-six times larger now than in 1901. Sixty-six times more intrusive, sixty-six times more bureaucratic and Byzantine, sixty-six times more pervasive. The trend is accelerating. It increased fifty-percent over the last decade. It shows no sign of stopping.

The counterargument will be, “Sure, the government was small in 1901. That’s because X wasn’t around.” “X” will be substituted for the interlocutor’s favorite redistribution program, which he sees as absolutely necessary. Every redistribution program is claimed to be absolutely necessary by somebody, even the programs which haven’t yet been implemented. Threaten any and the redistribution program’s advocates start making sounds like Ned Beatty against a tree.

There are lessons in the curve’s shape. The two early peaks, for you graduates of public school, were the results of World War I and its exciting sequel. President Wilson’s (D) goading succeeded finally in bringing America into The Great War, but only at its finale, so spending was limited. However, F.D.R. (D) ensured full participation in WWII; spending ramped up to $8,246 per citizen in 1944. That’s $33,000 for a family of four. Recall these are modern-day dollars.

The victorious country recovered, and government shrank—but only for a moment. In 1948 it began its relentless rise, punctuated by the Korean (Harry Truman, D) and Vietnamese (Lyndon Johnson, D) interludes; however, it would not again reach WWII-levels until George H.W. Bush (R) in 1990 who brought us Iraq I.

Think about this. Under Bush Senior, it was as if the entire country were mobilized as it was in WWII, at least in the sense of government insinuating its tentacles into people’s lives—food and fuel rationing, “temporary” housing shortage measures, government spying on citizens and neighbors on each other. Big Brother had justifiable cause in the war: we were attacked. There was no external threat in Bush Senior’s time; instead, arguments for increase came from within, marshaled in the search for perfection and from the conviction that only America could and should police the world.

There was a minor respite at the end of Bill Clinton’s (D) second term and into Bush Junior’s (R) first, but then came another war. Actually two wars, which are still being fought. Nobody knows why. Finally, The One (D) slouched his way to D.C., and the spigots widened into cataracts. Once Obamacare hits fully, the curve will jump like a frightened cat to levels unknown.

Knowing this, the call is for still more spending, more programs, more regulation, more federal laws. The call comes from us citizens just as much as it does from government.

The capital “D”s and “R”s were included only to show that party affiliation means little when it comes to making war or in creating new ways to spend. The same would be true if we examined the effect of majorities in the Senate and House.

Herbert Stein said, “If something cannot go on forever, it will stop.” This curve cannot go on forever; thus, the spending must top out. The mistake will be thinking of this curve in terms of money as a physical object instead of as a proxy for the size of government. Money, being fictional, is itself only a proxy representing agreements between people—between citizens, betweens citizens and government employees, and between citizens and foreigners.

The money-trust proxy has broken many times in many places—money became worthless when governments overreached—so it is rational to assume it will break again. The trick is predicting when.

Update In a nice coincidence CNS News has this story (saw it on Drudge). I’m delighted their numbers match mine to within a couple hundred bucks in 2012 (they had $11,300, I $11,630).

To regular readers. My logo, as it were, is in the picture because I have noticed an increasing number of uncredited hot-linking of images produced here.

Update I’ll have the just-as-depressing GDP plots tomorrow (Tuesday). Too busy to do them today. And if I gave that much bad news two days in a row I’d worry about reader suicides.

Comments

The Most Depressing Graph: Per Capita Federal Spending Rises Alarmingly: Update — 92 Comments

  1. And the supposed Reagan respite never occurred, regardless the myth.

    Sounds like you have become a classical liberal (aka, small (l) libertian). Welcome!

  2. Pingback: Real, Per Capita, US Government Spending Since 1901 | Thinking Machine Blog

  3. I’d think that a graph of the ration of constant dollar per capita government spending to per capita constant dollar GDP would be more informative. I would hypothesize that infrastructure (in a very broad interpretation) is necessary for GDP growth and that infrastructure, being a public good, would be funded by the government.

  4. Argh. Obviously, I meant “ratio,” not “ration” in my previous comment. I wish your platform allowed editing of one’s comments (or that I did a more conscientious job of proofing mine). Being as “anal” as I am, I can’t allow such mistakes to pass uncorrected.

    Apologies…

  5. I recently heard a republican politician on a redio show explan that expecting the politicians to reduce the scope and cost of government is like expecting a hog to butcher itself. Never going to happen.

  6. Sheri,

    The faint line between 1975 and 2000 is midyear 1987. So the slight dip at the end of his second term does not return spending to the level of he start of his first term — not even close.

  7. “…making sounds like Ned Beatty against a tree.”
    You crack me up!
    I pictured Revun Al Sharpton when I read that.

  8. You forgot to correct for GDP output growth.

    Therefore, not even your graph is irrelevant, it is a complete and utter lie. Correct for that little thing, and you’ll see why.

  9. Luis,

    Wrong as always, brother. And watch who you’re calling a liar. It’s not gentlemanly.

    I’ll put up a GDP plot tomorrow or next day.

  10. Pingback: Rant of the Week: 2/24/13-3/2/13 | The Ethereal Voice

  11. It may not be gentlemanly, but I rarely mince my words. And this graph is preposterously lying. The main reason why is because what it mostly represents is how much the US wealth has grown.

    And so, of course the graph’s curve is increasing, because GDP growth isn’t linear, it is exponential. And of course you have a “6something” greater government today than before and no, it doesn’t have anything to do with program X or Y or Z, it has to do with everyone gotten richer, and that includes, gasp, public employees.

    Or do you think they should have been left earning the same amount of cash they were in the beggining of the century? I’m sure you do.

  12. Luis,

    Why should the government tax and spend more simply because its citizens grow wealthier?

    Even if you have a good theoretical case, you’re empirically wrong, unless you can, for instance, successfully argue that Social Security and Medicare don’t account for significant growth in the budget over this time frame.

    OK, I would agree that there are some increasing costs due to higher wages as standards of living improved, even if the number of employees per capita was constant. But you cannot be seriously arguing that this is the cause of the curve, can you?

  13. Luis, the classic liberal, abuse and complain about what is clear before anyones eyes, and then complain some more whilst issuing abuse.

    GDP has nowt to do with it, governments have gone mad including my own (UK). And you get for it….well I get roads with potholes, an NHS which kills off old folk at an alarming rate, idiots teaching any children I have (I dont now)and lectures from the smug left about how great it will be if I give them even more.

    You are a fool

  14. Luis,

    Really nailed your colors to the mast, did we?

    GDP per capita, in constant dollars, is not exponential. Sorry. It’s linear.

    And government spending as a percentage of GDP, in constant dollars, is also increasing, more or less linearly.

    If I have time, I’ll do these plots today; more likely tomorrow.

  15. MattL, mostly, yes. And by “mostly”, I mean the good majority of the effect portrayed in that lying graph. If you correct by GDP, you’ll get a graph more like the first graph in this google image search (original is walled behind a stupid login):

    https://www.google.pt/search?q=government+spending+per+capita+gdp&hl=en&safe=off&source=lnms&tbm=isch&sa=X&ei=B1wrUffiJ8WJhQfihoCADQ&ved=0CAoQ_AUoAQ&biw=1280&bih=963#hl=en&safe=off&tbm=isch&sa=1&q=government+spending+per+capita+gdp&oq=government+spending+per+capita+gdp&gs_l=img.12…0.0.0.5772.0.0.0.0.0.0.0.0..0.0…0.0…1c..4.img.KxJjpG_dvjo&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.&bvm=bv.42768644,d.ZG4&fp=62d054cb6bb56000&biw=1280&bih=963

  16. Ok, that link is clearly bad. Just google “government spending per capita gdp” and see the first graph. Then blush. You too, mr Briggs.

    I’ll accept apologies.

  17. Luis,

    Well well, your first admission. Good for you, brother. You have just begun your first step on the (long, unfortunately) road to recovery.

  18. What. I have never said the government didn’t “grow”. It has, but not “alarmingly” nor “exponentially”. Funnily enough, if you check the graph (difficult with that resolution) you’ll see that the federal gov is not the culprit.

    But nevermind, you’ve made your wild plot so everything I say is just part of my “recovery”.

    Also funnily enough, you’ll see that if you graph things like that for the last 100 years you’ll always get a similar kind of hockey stick. It’s the kind of stuff that made McIntyre make his blog, so if I am in the “road to recovery”, you are probably in the “road to MannStickism”.

  19. Luis,

    You still haven’t answered why the government should grow so similarly to GDP. You offered up one reason (rising living standards / salaries) but given the massive increase in various spending programs, that cannot possibly be the main driver. Sure, divide spending by an exponentially growing number (GDP) and you remove the exponential. Doesn’t it bother you that the spending / GDP trend isn’t going down? Think about what its growth implies.

    As population grows, it is reasonable to have, e.g., more police or road spending. It may be nice (and easier to afford with a growing and productive population) having things like social savings nets, but that’s Briggs’ argument…new programs!

    I think that spending as a percentage of GDP is an important metric, but so is the per capita number, and they tell us different things. Ideally, government spending grows more slowly than GDP does. Sadly, we do the opposite.

    Here is a better image search link.

  20. I am not sure how one can compare objectively early 1900 and now. The additions of Social security, Medicare, and safety-net programs… and defense budget have obviously driven up government spending.

    What does it mean to say “a larger government”? In spending? In number of employees? In GDP?

    What I can conclude from the graph is that the spikes in spending seem to occur during recessions. Perhaps this is one of the reasons why some people think that government spending is one way out of recession.

    I also think it’d be useful to plot the spending in terms of % of GDP.

    Clinton-era was awesome, at least based on the performance of my investment and the fact he halted the increasing spending trend.

  21. The American government has also started spending on things that did not exist a 100 years ago. The Space program, Big Science, aircraft carriers, nuclear submarines, the Internet.

  22. Pingback: Monday Miscellany: WaPo admits bias against traditionalists; per capita spending graph; civil rights and gay marriage | thereformedmind

  23. Mattl, the federal government spending per gdp is the right metric to have.

    And if you look at the pictures you gave me, you’ll see that the fed gov has maintained a somewhat steady 20% rate of GDP for the past 50 years, with a slight bump these last years, in line with increased spending due to social security programs rescuing unemployed people and a GDP way lower than its potential gdp. (IOW, what happens during a recession / depression).

    A funny hidden truth: Federal spending was highest in Reagan years. Ahahahahaha! And it decreased during Clinton years, that liberal spending bastard.

    I haven’t the faintest idea on why gov spending should increase slower than GDP or how you reached that idea. It’s pure ideology on your part. Briggs and you say we should discard any program “X” because it is arbitrary, but obviously its exclusion from the conversation is also arbitrary.

  24. Luis, but surely if the government runs a large deficit and prints fiat money out of thin air to do this, there is still a huge problem. Also, your tendency to dismiss debate opponents as motivated purely by ideology does not make for a convincing argument.

  25. Sander van der Wal,

    Yes, defense spending is up from 100 years ago, but is currently well below cold war era spending and the trend for just defense spending is very different from the total spending trend.

    http://www.usgovernmentspending.com/downchart_gs.php?year=1800_2010&view=1&expand=&units=p&fy=fy11&chart=30-fed&bar=1&stack=1&size=l&title=&state=US&color=c&local=s

    http://www.usgovernmentspending.com/spending_chart_1800_2010USp_11s1li111lcn_F0f

    In fact, defense spending as a percentage of total federal spending is close to an all time low.

    http://www.usgovernmentspending.com/spending_chart_1800_2010USf_11s1li011lcn_30f

    Note: I am not arguing that we should be spending more on defense, just noting that growth in defense spending has a very different trend than total federal spending.

  26. Luis,

    If you have the faintest idea why spending should stay constant with exponentially growing GDP, please share! So far, you’re just begging the question. C’mon, join the discussion! I’m amazed that you think something as complex as the Federal budget can be boiled down to a single metric. It’s better than a P-value.

    The Clinton / Gingrich era was pretty good as far as government spending growth in the modern era. We should have arch superpower rivals fold every decade! And a President willing to triangulate to steal the thunder of the opposition instead of bitterly clinging to outdated economics and reactionary progressive tendencies don’t hurt, neither.

  27. Louis,

    The spending cuts of the Clinton era were the result of a deal cut between Clinton and a Congress with both houses under Republican control. Clinton had to fight the Democrats in Congress tooth and nail to get that deal passed.

    The true genius of President Clinton was that he managed to sell those cuts as his idea to the Democrat rank and file while fighting the Democrat establishment on that very issue.

  28. Can we agree that George W Bush was the most liberal president of the last 100 years, and perhaps William J Clinton was the most conservative.

    Perhaps profligate is a better word than liberal.

  29. No, Doug I cannot agree.

    I agree with Mattl’s question to Luis: Why should government spending stay constant with the GDP? It makes no sense.

  30. Sheri, Luis, Doug, MattL,

    Whether it should or shouldn’t, it doesn’t. See tomorrow’s post.

  31. Mr Briggs,

    There are a few error in your essay. 1) The war in Iraq is now ended so you are not 2 war at the moment. 2) That any government spending are an impediment to personal growth, when in reality they help personal growth.

    Government spending create jobs. This is easy to see by the fact that companies who saw their taxes reduces didn’t reinvest their monies in the economy, removing $3.2 trillions dollars from it. This $3.2 trillions would lower the unemployment in the US by several points.

    Many good and official data can be found here:

    http://www.bea.gov/national/index.htm

    Here you can find the GDP in current dollars and see how it closely follow the government spending. The addition of GDP changes in perscentage is exponential like Luis Diaz said, but the yearly comparison in perctage point of GDP is linear like you said.

    Folowing this, it is clear that government spending do help create whealth and jobs, when it spends its money inside the country.

    The last two war, and the outsourcing of jobs in third world countries created a large outflow of money outside the USA, which makes the situation worst in the US.

  32. Sylvain Allard,

    You have causality backwards. Federal revenues are largely controlled by GDP, so of course GDP will affect government spending.

    As to government spending creating jobs, the cost per job is almost always so high that the net economic impact is negative.

    For example, I don’t have a cite off the top of my head but I recall reading a review of the effectiveness of one of the federal green jobs programs. The amount of money the government was spending was somewhere near $5 Million for EACH $40-100K job created. We would be better off without jobs programs like that.

  33. Should Government spending increase with per capita GDP?

    If you take a single service that the government provides — say fire-fighting. Local Fire departments are a local government expense and forest fires are a federal government expense, but that distinction isn’t particularly relevant. It would be reasonable to say that the number of house fires is proportional to the number of houses. So the dollars spent on fire-fighting should increase as population increases. There is little reason to expect firefighter salaries to grow faster than other wages. So far, firefighting should be constant on a per capita constant dollars measure. But what about technology? As technology improves, building materials have better flame retardants and fire alarms get fire-fighters to the blaze sooner, requiring few men to put out the fire. Fewer fire-fighters should be able to cover the same area with the same level of coverage. But we don’t have few firefighters as a % of the population. We have more than ever.

    What happens? Fire fighters are called on increasing amounts of non-fire-fighting calls.

    We should expect the government to provide the same level of services for the same or slightly less money over time. For the same level of service, government spending per capita should slowly fall. But we don’t have the same level of service. Every year the government thinks of new things they could be doing for us.

  34. Matt,

    We are able to compare which direction the causality really is.

    Before WW1, the US government has never invested in the economy and the GDP growth was anemic and often negative. Once the government started spending more money the GDP started to grow exponentially. So government spending caused a rise in GDP.

  35. Sylvain,

    Your 1920s history of the US is as bad as any other history you’ve talked about. Look into the Coolidge approach vs the Wilson / Hoover / Roosevelt approach to growing an economy and get back to us. There are some valuable services that the government provides, and that facilitate a healthy economy, but not because of some magical multiplier.

    It’s true, that if you count government spending in GDP numbers, GDP goes up when the government spends more. But you’re ignoring the effects of the inefficiencies of what the government does vs what would have happened with that money if the government didn’t tax or borrow it. I’ve always been amazed at the feats of magical thinking required to believe that raising taxes is a sure fire way to grow the economy.

  36. MattL,

    The Coolidge economy led/was the cause of the 1929 crash. The growth wasn’t real it was a bubble that exploded in 1929. Just like t Bush economy cause the 2008 crash.

    Can I ask you, did you finish high school or did you get your degree in a cereal box?

  37. The 2008 crash was caused by the housing bubble (which anyone could have seen coming if they paid attention) and the banks and insurance messes. President’s do not regulate these industries.
    In order for government spending to increase without the current negative spending, the economy has to grow. If the government declares companies to be evil and not paying their fair share, that is not going to grow the economy, except somewhere else when the companies leave. In any case, the government has to appropriate someone else’s money and work in order to pay out benefits. It does NOTHING without taking from producers and redistributing the money. The government redistributes money, it does not make money. The government does not GROW the economy, it reaps whatever money it can from the private sector.

  38. Sylvain, you appear to be stuck on stupid and have fooled yourself. Answer one question – do you think government spending can create true wealth. Think hard.

  39. Hello Bob,

    If I’m stuck on stupid you are stuck in prehistorique economic argument and I don’t have to think very hard to show that government spending does create wealth.

    Let’s take the example of the space program which was said to have cost $25 billion over about 10 years which represented about 2.5% of GDP. This $25 billion created trillons of $ of wealth since then. No individual or entities are able to do this kind of research without government help.

    After the war you had the GI Bill which permitted to thousands of veteran the occasion to access universities. These scholar were part of many technological advances that happened in the 1950s-1960s-1970s.

    Whitout government spending thecnologie would be much farther back. Thousands of jobs would not exist, medical science would still struggle to cure disease that are now eridicated and life expectancy wouldn’t be near 80 years old.

    The laisser-faire economy has shone before 1929 that it was ineffective and that the government had to intervene in regulating and spending.

    2008 has shone the same thing. The lessons learned in the 1930s were forgotten and starting with Reaganomics regulations were abolished and lead directly to the crash. And now the GOP/Tea Party refuse to learn the mistake and repeat it preventing spending that would put people to work and instead are making any recovery impossible.

  40. “. . . however, it would not again reach WWII-levels until George H.W. Bush (R) in 1990 who brought us Iraq I.”

    I am personally not arguing for the “rightness” of either war in Iraq, but it is interesting that the spending per capita, while perhaps reaching WWII levels during Iraq I did so largely not because of Iraq. Indeed, on the graph it registers with only a minor bump, with nearly all of the increase coming prior to, and after, the time of Iraq I. So your point about timing may be correct, but the (unstated but loosely implied) causation is not.

  41. All,

    BTW, if you guys are correct then in 4 days should start to take of with all the spending cuts provided by the sequester.

  42. @Bob

    Another good example is the Internet. The US government paid for the development of the Internet, and it is one of the most succesful commercial technologies of the current era. Right now it is a big enabler of smartphones and tablets.

  43. How can government spending which is taxing or borrowing create wealth. One will always need to tax or borrow more than is spent to pay for the act of spending (All those government jobs). There is no such thing as governments creating welath, governments are a cost which may or may not be a good thing to spend money on.

    The prime lie of the left, governments do not ‘invest’, they cost.

  44. Sylvain,

    The lesson of the 1930s was that the government can take a bad economy and make it terrible. For a long, long time.

    Yes, research that the government did lead to some neat things, but that doesn’t mean it was the only or even the best way to make any of it happen. A lot of it was necessary, but what more could we have done if we hadn’t needed to fight the Cold War? Why do you think the government does a better job of spending your money than you do?

    As for sequestration, I can’t see how cutting $85B from a planned $3.8T (that’s a little more than 2%) is going to lead to cataclysm (probably the same way that fractions of a percent of CO2 are dooming us, but I digress) or utopia. Mostly, it’s another chance for politicians to try to scare us into giving them more power. Which the electorate seems only too happy to do.

  45. Pingback: The Second & Third Most Depressing Graphs | William M. Briggs

  46. MattL: Yes, $44 billion. My question in all of this is “If $44B is going to cut all those programs and jobs, then what did the government do with the rest of the $3.8 trillion?” So far it seems virtually everything in government outside of defense and social security/medicare welfare programs are covered by the $44B. Roads, TSA, teachers, head start, etc, etc including programs we thought the state paid for.

    Sylvain: Do you know why drugs are cheap in Canada? Because they are expensive here–the USA does over 90% of new drug development and its citizen pay for that BECAUSE we do not have government cost controls. If we add cost controls, you can forget new drugs, costly treatments, etc, etc. That’s what free market gives you. Socialism gives the the same old same old. (Spin-offs from NASA were all in the private sector and the private sector is now working on getting itself into space. We would have gotten to the moon with or without the government, it just maybe would have taken longer. Then there’s the guy who made the high altitude parachute jump–by private contributions. He didn’t need NASA. NASA right now is over their heads in propaganda about global warming. We should have shut them down long ago.)

  47. Sylvain Allard,

    “BTW, if you guys are correct then in 4 days should start to take of with all the spending cuts provided by the sequester.”

    Utter nonsense. The sequester is literally a drop in the bucket, it doesn’t cut nearly deep enough for a significant impact.

  48. @Andy,

    The national highway system was not an investment, all the funding research in space and aeronautic which permitted to company like Boeing, IBM, Intel, etc. to really develop a technological advantage for the USA. The Appolo program was 2.5% of GDP in the 1960s. This is almost half of the entire defense budget at present. This is how governement spending created the US wealth and economy. It create wealth because it spends the money that they tax, they mostly don’t let it sit in the bank like what the $3.2T of tax savings that companies and richs have placed to the bank, since 2003, instead of investing in in the economy.

    @Sheri,

    I don’t know where you got the idea that drug are cheap in Canada other than the fact that we have universal insurrance for it. We pay this with our own taxes, not yours. We invest a lot of money in pharmaceutical research ourselves.

    You are right having no government control do rise cost, but not in the way you think. On healthcare only, our cost is about half has much as the US because the government is not a for profit organisation. All our citizens are covered by health insurrance and are treated regardless of their income. In the US, before Obamacare, when a person got sick, insurrance companies could find a series of loophole to deny care and even cancel the insurrance contract. There was also a cap where if an individual reach the limit he was unable to receive any care. You a heart defect at birth and reach you cap to bad you are on your own.

    The only healtcare the government provides in the US is the emergency care which is the costliest; and since uninsurred people can’t afford to go to the hospital, they only go as the last result and cost a lot of money, more money than if you had government run healthcare.

    Private spin-off of NASA are now appearing because of the work NASA did. NO NASA = NO private spin-off.

  49. @Matt

    Like I said, if you are right then not a single job should be lost when the sequester pass, and job shoul even be created.

    MattL,

    ‘The lesson of the 1930s was that the government can take a bad economy and make it terrible. For a long, long time.’

    Herbert Hoover was a strong believer of 1800s liberal economics and did absolutely nothing for 3 years, before he started to think about doing something. (Exactly what the Reps did after 2010 and then lost the last election). The New Deal which looked huge at the time was highly unsufficcient and would have needed to be much bigger, but it did help the economy.

    ‘Why do you think the government does a better job of spending your money than you do?’

    The majority of people in the US spends their entire paycheck on basic necessities (housing, foods, transportation, clothings), some workers don’t even have enough that they need food stamps.

    The problem is at the top. Like I said before the Bush tax cut gave more money to the rich which, instead of investing it back in the economy(like the GOP promised), put it in the bank and removed it from the economy.

    Apple made billions in the last 10 years yet were unable to cut a little in their profit to make their phone in the US and create US jobs. Googles is sitting with about $60 billion dollars at the bank.
    Example like that show that government spending is required because the private only invest if they think they will get more. The government spends/invest to profit the entire society instead of the individual, meaning that the richest might do a little less well but the poorest will do a little better. This is not so true since Reagan. The rich are doind hundreds of time better while more and more people are getting poorer. The middle class saw a decrease in its purchasing power since the 1980s. Salary have not risen to cover the cost of inflation.

    Like I said before, in the other tread, spending is not the problem. It doesn’t mean that it couldn’t be done better. Smart spending keeps the money inside the country so that companies can export outside which bring money in.

    Lately the US favor the outsourcing of jobs, which leads to money going out, and give tax credit and subsidies to people who don’t need it. The oil industry receives billions in subsidies even though they show record profit. Bain Capital outsourced jobs during the eletion even though the plant had made millions in profit (http://bainport.com/).

  50. Sylvain Allard,

    At best your examples show that SOME government spending creates wealth, not that all of it does.

    Defense/early NASA research spending is distinguishable from most other government driven research because the research they do is for their own benefit/use and that any tech produced that had valuable civilian applications was purely coincidental.

    About the only area of federally funded research not run by the Defense department that has produced any real value is in the area of medicine and even there, the ratio of projects that produce value to projects that are pure money pits is very low.

    If your ideas about government spending driving GDP growth had any validity it should be impossible for government spending to increase relative to GDP as any increase in government spending should cause a corresponding increase in GDP keeping the ratio constant. This is empirically not the case.

    “Private spin-off of NASA are now appearing because of the work NASA did.”

    This is false. Most of the private space efforts currently under way are not spin-offs from NASA but are deliberately starting from scratch and ignoring most of what came out of NASA except as a negative example of how NOT to do it in a cost effective manner.

  51. Sylvain,

    I do not know where you “learned” about Herbert Hoover, but I would be very upset if I spent any time or money acquiring such “knowledge”:

    Although Hoover changed his appeals after 1932, Rex Tugwell, one of FDR’s brain trust, wrote: “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs Hoover started.” Although his measures were incipient, Hoover set the stage for government intervention in many aspects of society; conservation, race relations, agriculture, labor relations.

    Ronald Reagan warned us about you, “Well, the trouble with our liberal friends is not that they’re ignorant; it’s just that they know so much that isn’t so.”

  52. MattL,

    I wrote: «Herbert Hoover was a strong believer of 1800s liberal economics and did absolutely nothing for 3 years, before he started to think about doing something.»

    The important point is the ’3 years’. Hoover was president from 1929 to early 1933.

    1929 + 3 = 1932 the same year your quote mention. The year in which Herbert Hoover understood the flaws and failling of the liberal economic system.

    The graph from your link shows that there were no recoveries before the government started to spend/invest in the economy. That the recovery was not as fast as wished was consequential to lack of spending. Meaning that they had the good idea, but they just didn’t went far enough with it.

    Maybe I don’t express myself as clearly as I’d like in my second language I think my arguments prove my points.

  53. Matt,

    «If your ideas about government spending driving GDP growth had any validity it should be impossible for government spending to increase relative to GDP as any increase in government spending should cause a corresponding increase in GDP keeping the ratio constant. This is empirically not the case.»

    For your argument to be correct you have to expect that all investment/spending yeild the same return. This is not realistic. Like for any individual some investment will hold better return in the short term and some in the long term. There are also some that won’t return any, just like any investment anyone has on the stock market.

    So no the amount of investment/spending will not be always stable in % of gdp.

    For Example, under Obama the number of jobs in the governement has decreased by about 600,000, exept for short spike for the 2010 census. Does these loss of jobs helped reduce government spending? Not really since these people (teacher, firefighter, policeman, etc) were for the most part qualified to receive unemployement benefit which only displaced the column from which the spending came from not really the ammount since the unemployment check covers most of the net salary. These 600k people were removed from the active economy. They could not go and borrow to by a new car, furniture, take vacation or renovate their house. They went into austerity in their spending, bought less gift for christmas. So this was not a smart move and added at least 1 point on the unemployment benefit. This is how the sequester will contract the economy even more and will at least cause 0.5% in unployment.

  54. No Sylvian, they were all costs. Unless you understand this you are lost. They cost money to do them and they cost because you are not doing something else with that money.

    What did you not get is the question, the people who cost money to employ did not do something else, the money spent managing your grand plans was not spent elsewhere, the tax people paid was not spent by those people.

    Costs all around. The basic flaw in your argument, it’s a typical flaw in those of the left to get a simple thing wrong at the beginning and gets lots wrong later on. And they never admit it.

    Oh and why do you think you get to tell others, the people who earned the money how it should be spent?

  55. Andy,

    Are employees a cost or an invesment for companies?

    Answer: They are invesment.

    Their is an old saying that state «It takes money to make money». This has always been true and will always be true.

    1-)When you have millions of people living on basic necessities, they don’t buy cars, furniture, ect. The first spending is home, food and clothing. when people have more they will by cars, go on vacation which requires bus, trains, airplanes, hotels,restaurants, etc. The share of money pay on basic necessity is ever higher because people get poorer. They cut their cell phone usage, they don’t go to movies has often or see sports event etc.

    The government has to step in and redistribute part of the money that concentrate in few hands in the many.

    $1M = 33 people working and making 33k working and paying tax. 33k is not rich but one you have millions of people making that ammount of money they will spend all of it. They will buy millions of cars, thousands of houses that we’ll need renovation. They will have enough to go to restaurants, movies, sports events, vacations. All this create more wealth. Mass of people spending money mean requires the building of hotels, cars, roads and infrastructure, etc.

    At the momment all income (including millionnaires) considered the average salary is $36K. The median must be around $20K. $20K for one person is barely enough for basic living.

    2-Any company doing any product makes profit from their employees. If they don’t they fire them. It was how it worked before the 1930s. You had a few years of growth followed by a recession/depression. Their were always so much people searching for work that wages were very low, working condition unsafe, and growth very weak because most employee could barely afford basic living conditions. While work kept them alive a little bit longer their work were killing them later.

    Money was highly concentrated in very few hands which couldn’t buy enough things and services to have any impact on the economy. The Rockefeller, Carnegie, and other did spend some in charity but it was very localise and insuficient. In the 1930s it became evident that cities were unable to help the poor, the state tried to help, but the poorest of them could do very little. Only the federal government could bring in and invest the amount of money required to jumpstart the economy. Under Roosevelt, the amount was much to low and the economy grew very slowly.

    In the last 30 years the money has been concentrating at the top. Billionnaires cannot buy or build enough houses or buy other materialistic things fast enough. At some point they stop spending and only accumulate. Any dollars they accumlate is not spent and removed from the economy. In the last 10 years it has $3.2T that has been removed from the economy. This would be enough to reduce the unemployement by at least 3 to 4 points.

  56. Sylvain: “before Obamacare, when a person got sick, insurrance companies could find a series of loophole to deny care and even cancel the insurrance contract.”
    First, Obamacare is not yet implemented fully. The pre-existing condition clause may not matter because the fund for this government provided insuranceis nearly out of money now and not issuing new policies. I have had pre-existing conditions since I was 15 and have never been cancelled by an insurance company. I have had insurance during 99% of that time. It can be done, obviously.

    Why is it fair to take money away from people who earned it? If I decide you have too much and I want more, why can I not come over to your house and take what I want like the IRS does? Actually, why can’t we just take things from people who have too much? Why involve the government at all? We can just make a rule no one can ever have more than $500,000 and anyone with more than that loses it all to be divided among those who don’t have $500,000. The answer is obvious–no one is going to make over $500,000 because there’s no incentive. Why bother? Then there are no rich capitalists to prop up the mooching socialists. Socialism only works with capitalists supporting it. Even communist China figured that out.

  57. Sylvain,

    The problem isn’t the language you use. It’s that you don’t even have a basic grasp of the facts, let alone arguments. It’s more productive arguing with my 6 year old, who is as certain of his knowledge as you are, and nearly as mistaken.

  58. MattL,

    The fact about Herbert Hoover is that he sat on his ass for 3 years because he hold dear to his liberal economic belief. In 1932, he after recognizing that his belief were wrong he started something that Roosevelt continued after is election.

    The graph on the link you provided is clear that there were no recovery before the government intervene.

    I find it kind of funny how I’m the one who is mistaken while never providing strong argument of your own.

  59. MattL,

    I’m reading the book «The peril of prosperity» by W.E. Leuchtemburg (the same author reference by your earlier post about Hoover). for my US history class.

    P.184-185 are very interesting and pertinent to our discussion

    A few quotes:

    «(in the 1920S)The contruction of roads and highways poured fresh public funds into the economy. While Secretary (of treasury) Mellon (under Harding, Coolidge, and Hoover) cut back federal expenditures, state and local governements stepped up spending at a rate that more than offset the Mellon program of deflation. Construction for highways and buildings employe more men and spent more money than any single private industry.»

    Farther he writes:

    «Road building gave the auto industry a larger government subsidy than railroads received in their entire history.»

    p.185

    «Without the new automobile industry, the prosperity of the Roaring Twenties would scarcely have been possible;…»

  60. Sorry Sylvain, but Hoover always considered himself a Progressive reformer. I’m not sure why I need any other arguments here than the obvious truth. The fact is that Hoover and Coolidge were very much at odds. It was Coolidge who was the classical liberal. I wouldn’t say that Hoover was as crazy a progressive as Wilson or FDR, but only historical revisionism could paint Hoover as a laissez-faire small government type. This interpretation seems important to modern progressives and FDR worshipers, but that doesn’t make it anything but laughably false.

    I suppose that if I said that government was totally useless and was always a negative factor in every aspect of life, you might have some points against me. As it stands, that’s just your straw man.

  61. William – I admire the work that went into your per capita federal spending graph. I was in the process of doing something very similar and you saved me the effort. However, I wanted to take it a step further and plot inflation adjusted per capita non-defense discretionary spending only. That is – total per capita spending less spending for defense, social security, medicare and medicaid. Do you have the necessary data already in the que to easily produce such a graph? If so, I’d really appreciate getting it from you. Thanks. Jerry

  62. MattL,

    I was able to discuss Hoover with my teacher today. It seems that you are a little bit confused about the man.

    To be clear Hoover did have a progressive stance around the war and before the 20s. But what is important is the action he as taken when he was president.

    As president he was anything but progressive:

    Here you have a series of veto taken agains measure that would have been progressive:

    http://www.presidency.ucsb.edu/ws/index.php

    168 – Veto of the Spanish War Veterans’ Pension Bill.
    May 28, 1930

    206 – Veto of the World War Veterans’ Bill.
    June 26, 1930

    72 – Veto of Legislation To Confer Certain Benefits on Civilian Employees of the Quartermaster Corps.

    78 – Veto of the Emergency Adjusted Compensation Bill.
    February 26, 1931

    88 – Veto of the Muscle Shoals Resolution.
    March 3, 1931

    138 – Veto of a Bill Relating to Veterans’ Pensions.
    April 27, 1932

    152 – Veto of a Bill To Confer Certain Benefits on Civilian Employees of the Quartermaster Corps.
    May 9, 1932

    155 – Veto of a Bill To Amend the Tariff Act of 1930.
    May 11, 1932

    213 – Veto of a Bill Relating to Rate of Wages for Laborers and Mechanics Employed by Contractors and Subcontractors on Public Buildings.
    July 1, 1932

    221 – Veto of the Emergency Relief and Construction Bill.
    July 11, 1932

    456 – Veto of a Bill To Supply Deficiency and Supplemental Appropriations.
    January 24, 1933

    I’ve only fast read the reason’s for the Vetoes but there is some evolution in them since in the last one (456) he recognize the need for government spending.

    Hoover had the same secretary of treasure than Coolidge and Harding, Andrew Mellon who was a multimillionaire financier and aluminum magnate.

    This is his first SOTU a few weeks the economic crash:

    There is no progressivism in there no desire to help anyone either, only to reduce tax and spending.

  63. From the 1930 SOTU:

    »GENERAL

    It is my belief that after the passing of this depression, when we can examine it in retrospect, we shall need to consider a number of other questions as to what action may be taken by the Government to remove Possible governmental influences which make for instability and to better organize mitigation of the effect of depression. It is as yet too soon to constructively formulate such measures.

    There are many administrative subjects, such as departmental reorganization, extension of the civil service, readjustment of the postal rates, etc., which at some appropriate time require the attention of the Congress.»

  64. Sylvain,

    Yes, and even FDR tried to avoid too much deficit spending, and he thought the trouble would pass, as did most. It’s true that Hoover didn’t go in for much craziness early on, but to claim he wasn’t a progressive is to ignore everything he did before he became president, including work he did for Wilson and his role in birthing railway unions.

    But if you want to claim that the Depression was the start of economic recovery instead of a prolonging of the problems…OK.

  65. MattL,

    We are comparing oranges and apple. That Hoover was or wasn’t a progressive in his personal life, don’t matter much to what he did and wanted to do as president.

    As president he adopted not a single action that could have been considered progressive before the end of 1931 and 1932.

    Woodrow Wilson who is considered a progressive president was very conservative in his personal life, with strong religious and family value.

    You are talking about what Hoover did in is life while I consider what he did as president which is nothing and even vetoed bill that could have been considered progressive.

    Yesterday, I mentioned how local and state government subsidized the auto industry in building roads and structures. This investment vanished with the crash and state and local gov. went into crisis management and were unable to help their unemployed.

    The recovery process from the depression started once there were gov intervention which Hoover refused to do for 3 years.

    The depression was in 29 and recovery would have happened much earlier if the gov had intervene.

    In 2008, the stimulus was just enough to stop the hemoragy but not enough to stimulate it.

    If you are right, the economy should gain job with the passing of the sequester, if I am unemployment will go back up by at least 0.5%.

  66. Sylvain,

    I’m really looking forward to hearing how the Smoot-Hawley Tariff Act was a triumph of laissez-faire and did not help turn a recession into the Great Depression.

    Note that Hoover signed that into law in 1930.

    Again, I reject your strawman that any and all government spending is bad. A big problem with government spending is that we cannot stop things that obviously are not needed, like NPR/PBS subsidies. Or things that empirically do not work, like Head Start. When private investment goes into things that do not work, it stops, because people do not want to spend their money on things that do not work. When the government spends money, past expenditures are treated like proof that the spending was a good thing.

    People who thought like you do all “knew” that when government spending ramped down after WWII, the economy would tank if the government didn’t find new ways to keep the spigot going. But guess what? They were totally wrong. And fortunately, a lot of the craziness of the New Deal had gone away, and so the economy boomed.

  67. Hi Sylvain,

    You say above “Herbert Hoover was a strong believer of 1800s liberal economics and did absolutely nothing for 3 years, before he started to think about doing something” and the “fact about Herbert Hoover is that he sat on his ass for 3 years because he hold dear to his liberal economic belief”.

    Your view is rather common but it’s totally wrong, as you would know if you spent some time to investigate the facts. Did you know that federal spending under Hoover rose by 39 per cent
    from $3.3bn in 1930 to more than $4.6bn in 1933, with no declines along the way? That was the fastest rate of increase in government spending aside from wartime. The deficit rose to $2.6bn for 1933 (the largest ever in peacetime, 4.5 per cent of gross domestic product) while revenues stagnated due to the depression. To make matters worse, he then proposed and signed into law the largest tax increase in American history to date. Income tax rates at the lower levels were more than doubled, and the top marginal rate was increased from 25 per cent to 63 per cent. Corporate taxes were raised by 15 per cent. All of this was naturally devastating to the economy.

    Did you know that the Democratic platform for the election of 1932 contained a commitment to reduce federal spending by 25% and that Roosevelt campaigned in favor of that platform? Of course he reversed himself once he was elected, but he did balance the budget in 1938.

    Hoover’s and Roosevelt’s policies lengthened the depression.

  68. MattL,

    You realize that Smoot-Hawley Tariff Act was an example of protectionnism which is not an example of pregressivism.

    And of course, it was not a good thing but it was an idea that was popular at that time to believe in protecting ones own market. It is still a popular belief today. In the last stimulus there were protectionist features forcing the beneficiairies of the stimulus to buy American. Do you think American companies reduced or augmented their price? Do you think it helped competitiveness?

    «Again, I reject your strawman that any and all government spending is bad. A big problem with government spending is that we cannot stop things that obviously are not needed, like NPR/PBS subsidies. »

    I will take it, that you meant good and not bad. And no, not all government spending is good. There are good government spending and bad government spending. There is also good time to spend and bad time to spend. And just like any stock wallet some spending will bring better return than other.

    Good spending include infrastructure. Something that has not happened in the last 4-5 years. Obama proposed a high speed train which Canada would have agreed to. This would have brought good return.

    The Keystone pipeline for which Reps pretend would create millions of jobs is an interesting case. While it is true that it would create many jobs while building it, one it is done it would inevitably reduce the number of jobs since very few people would be needed to maintain it and it would reduce the number of jobs in the railway and trucking industries, which is how the current crude is transported at the moment. Also the oil industries which has made record profit in the last few years have 6 to 12 refinaries in the last few years, putting a strain on the availability of refined product and an increase at the pump. They didn’t closed these refineries because they were not profitable. When Shell claused in Montreal they had made over $10 million of profit but they calculated that they would make more money if they closed it than keeping it open, and no government incentive was able to keep it open. 250 peoples lst high paying jobs and increased the cost of government that years by requiring unemployment aid, and paying less income taxes.

    If Shell had built something else somewhere else in Canada it wouldln’t have been has bad but instead the money was removed from the economy. They even refused and attempt at by people and government to buy the place asking a ridiculous amount of money for it.

    Stories like that have happened to millions of people in the US, who saw theirprofitable manufacture close to the benefit of asia because there the salary are cheaper. Company CEO only care about their own welfare so they don’t take decision that are good for the country but for themselves.

    This is such an example in the US.

    http://bainport.com/

    We also lost an Electrolux manufacture after Memphis offered them a multimillion $ package. They closed a plant with jobs paid about $20/hour not the best not the worst, and went to memphis where jobs were about $10-$12/hours.

    While congress refuse to use founds for infrastructures, they bought 300 new tanks for a few billion $ which will go join 3000 others sitting in the Nevada desert. Tanks are very expensive but don’t create/maintain a lot of jobs.

    After WWII the government was still spending a lot more money than before the war. Sure the bump of fighting the war disappeared but they were still spending about twice the amount spent before the war. And there was the GI bill to put veterans through school.

  69. Hi Sylvain,

    Sure. Hoover spending and deficit from the White House Office of Management and Budget (OMB): see Table 1.1 at http://www.whitehouse.gov/omb/budget/Historicals

    For the 1932 tax act see the Wikipedia overview at http://en.wikipedia.org/wiki/Revenue_Act_of_1932 and the text of the law at http://constitution.org/uslaw/sal/047_itax.pdf .

    On the 1932 Democratic platform see the text at http://libraries.uky.edu/libpage.php?lweb_id=791&llib_id=13 and note the 100% endorsement by Roosevelt on the cover.

    They advocate policies I could support; “We advocate an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance, to accomplish a savings of not less than twenty-five percent in the cost of the federal goverment…”. If only you could believe lying politicians.

  70. Goeff,

    http://www.usgovernmentspending.com/spending_chart_1925_1940USk_09s1li011lcn_F0t

    Here is what can be found from this site and it is very interesting:

    The total spending (federal, state, local)

    Year GDP-US $ billion nominal Population-US million Total Spending-total $ billion nominal
    1928 97.365 119.557 11.44 i
    1929 103.6 121.366 11.68 i
    1930 91.2 123.203 11.92 i
    1931 76.5 124.071 12.17 i
    1932 58.7 124.945 12.44 a
    1933 56.4 125.825 12.62 i

    Legend:
    i – interpolated between actual reported values
    a – actual reported

    Year GDP-US $ million nominal Population-US million Total Spending-fed $ million nominal Total Spending-state $ million nominal Total Spending-local $ million nominal
    1925 90575 114.290 3623 i 1292 i 5570 i
    1926 96949 116.019 3578 i 1369 i 5952 i
    1927 95544 117.775 3533 a 1451 a 6359 a
    1928 97365 119.557 3669 i 1551 i 6362 i
    1929 103600 121.366 3810 i 1659 i 6365 i
    1930 91200 123.203 3956 i 1774 i 6369 i
    1931 76500 124.071 4108 i 1897 i 6372 i
    1932 58700 124.945 4266 a 2028 a 6375 a
    1933 56400 125.825 5104 i 2086 i 6037 i
    1934 66000 126.712 5941 a 2143 a 5699 a
    1935 73300 127.605 7553 i 2294 i 5878 i
    1936 83800 128.504 9165 a 2445 a 6056 a
    1937 91900 129.410 8807 i 2764 i 6481 i
    1938 86100 130.321 8449 a 3082 a 6906 a
    1939 92200 131.240 9255 i 3319 i 7296 i
    1940 101400 132.165 10061 a 3555 a 7685 a

    Legend:
    i – interpolated between actual reported values
    a – actual reported

    Year GDP-US $ million nominal Spending-fed $ million nominal Total Spending-state $ million nominal Total Spending-local $ million nominal
    1927 95544 3533 a 1451 a 6359 a
    1928 97365 3669 i 1551 i 6362 i
    1929 103600 3810 i 1659 i 6365 i
    1930 91200 3956 i 1774 i 6369 i
    1931 76500 4108 i 1897 i 6372 i
    1932 58700 4266 a 2028 a 6375 a
    1933 56400 5104 i 2086 i 6037 i

    As you can see spending under Hoover rose by $1.148 from 1930 to 1933 but about 75% ($838m)of this increase happened in 1933 while it increased of about $100m for the year 1930 ($156m), 1931 (52M) and 1932 ($158m). This is very close of the 136m increases seen between 1927-1928 under prsident Coolidge.

    1933 saw a sharp increase in spending which again confirms that Hoover had changed in mind after he had sit on his ass for 3 years. From the chart seen on a link provided by MattL we can see that the started back when the government started to spend money in the economy. I really can’t see how you guys can denie this.

  71. Maybe disappeared into the spam filter – try again.
    Hi Sylvain, Sure.

    For the Hoover and spending data see the White House Office of Management at Budget (OMB) historical figures Table 1.1 at http://www.whitehouse.gov/omb/budget/Historicals

    For the Hoover tax, see the Wikipedia description at http://en.wikipedia.org/wiki/Revenue_Act_of_1932 and the actual text at http://constitution.org/uslaw/sal/047_itax.pdf

    For the Democratic Party platform of 1932 see http://libraries.uky.edu/libpage.php?lweb_id=791&llib_id=13 .

    Note the 100% endorsement of the platform by Roosevelt on the cover. The pledge is “We advocate an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments on bureaus, and eliminating extravagance, to accomplish a saving of not less than twenty-five percent in the cost of federal goverment…”. It’s a platform I could endorse (as a start).

  72. Geoff,

    If you look at my previous post you will see some Data I found wich was close enough to yours.

    75% of the increase between 1930-33 happened in 1933 where Hoover’s increases in spending was minimal about $300 million in 3 years. Similar to Coolidge spending increase for his last year in office.

    Spending didn’t changed much but the deficit grew a lot during those years.

    Do you think spending has risen or dropped in the last 4 years?

  73. Sylvain,

    You’re confusing authorization with outlays (I’m pretty sure the system wasn’t meant to be understood). The actual amount of spending (in the sense that normal people understand the word “spending”) that the CBO expects to be “cut” is:

    Why Does CBO Expect the Sequestration to Reduce Outlays by Just $42 Billion in Fiscal Year 2013 Even Though the Automatic Budget Cuts Total $85 Billion This Year?

    The $85 billion represents the reduction in budgetary resources available to government agencies this year as a result of the sequestration. But not all of that money would have been spent in this fiscal year in the absence of the sequestration: Some would have been used to enter into contracts to buy goods or services to be provided and paid for next year or in subsequent years. Acquiring major weapons systems and completing large construction projects, for example, can take several years. The $42 billion figure is CBO’s estimate of the reduction in cash disbursements in fiscal year 2013; much of the remaining outlay reductions from the 2013 sequestration will occur in fiscal year 2014, though some will occur later.

    Apparently, even $44B was optimistic. :-(

  74. MattL,

    I’m not sure that it make much difference that some of the disbursment would have happened in 2014 instead of 2013. The amount will simply reduce later years investment by higher amount.

    I mean if you were to lease a car at $5,000 a year for 5 years, but decide that you don’t have enough money for the payement. I agree that most of the saving would happen after this fiscal year. But for the economy the loss is immediately of 25k since you didn’t buy the car. Of course, not buying the car doesn’t give you $25k in your pocket but the saving still is of $25k.

  75. Sylvain,

    I’m amazed that you can’t even understand the difference between money spent now vs money spent in the future. This is truly a new low.

    I cannot see that the economy “lost” $25K in your example. The company doesn’t get any payment for future years (or even future months!). Their cash flow will reflect that, and so will their other accounting statements. You may be discounting future expected stuff, but the amount I pay this year is the amount I pay this year. If they give me a few months to start paying, then I avoided those payments this year, and my finances will reflect that.

    Also, there is no need to tax or borrow money right now that won’t be spent until later. It’s a plan, not a payment. I’m not saying the $85B figure isn’t important, but it isn’t what people think it is.

  76. MattL,

    I’ve been leasing Honda cars since 1999. When I lease a car that cost about $25k, the dealer get paid by Honda $25K immediately. I will repay that $25k within the next five to Honda finance which is a different entity than Honda motor. To pay the $25K to the dealer Honda finance will either use capital that Honda motor invested in Honda finance or will borrow it from another bank.

    If I don’t buy the car the dealer doesn’t receive the $25k this 25k is an immediate loss for the dealer and the economy, while for me the saving is only $5k, the real GDP loss is $25.

    While congress refused any spending for road and infrastructure. They requested that the government buy 300 new tanks for about $4B dollars. 300 tanks that the pentagon neither need nor want:

    http://www.businessinsider.com/congress-forcing-the-army-to-make-tanks-2012-10

    300 tanks that will go rejoin the other 3000 now in the Nevada desert.

    The same $4B spent on road and infrastructure would redistribute the money more evenly accross the 50 states, creating jobs that would stimulate business all over the country, intead of going in the pocket of a single employer, with I imagine a very good margin of profit.

  77. Sylvain,

    OK, I will admit to never having leased a car. But that situation is different than Federal Authorizations vs Outlays, because you’re talking about actual money changing hands between Honda and the dealer. When Congress makes Authorizations, no such transaction happens.

    The bottom line is that for FY 2013, the US Federal Government would spend $42B less under sequestration than they would without it. The other $43B was planned to happen in a future year. Those cuts may or may not actually happen, but they don’t affect what was actually spent in FY 2013.

    Using the $85B figure is just dishonest (assuming you know the difference between outlays and authorizations, which Congress and the Administration certainly do) when talking about what we’re cutting, unless you include the actual time frame. I hate that we talk about 10 year deficit reduction totals, because the only thing the current Congress can affect is the next year. And most of the cuts come in the distant future, AKA never.

  78. MattL,

    This is what I wrote earlier:

    «I’m not sure that it make much difference that some of the disbursment would have happened in 2014 instead of 2013. The amount will simply reduce later years investment by higher amount.»

    Yes, not all the cuts took effect immediately on march 1st 2013. And nowhere did I say that it would create armageddon but that in the short term it should increase unemployment by at least 0.5, and bring it back to over 8%.

    Some of the cut have very little impact like medicare giving less money to health care provider which will reduce their margin of profit.

    But cut that cause lost of employment like TSA and some defense cut will effect negatively the economy.

    One might wonder if the ordering of tanks was not just made to be cut in the sequester. This would be a good way to show that you cut spending without cutting it, i.e. making fasle expense and then cut it. The same way companies say that they predict $100M, and when at the end of the year only made $50M they claim to have lost $50M and cut in job and salaries.

    If the USA want to get out of this stalling economy, they need to invest in infrastructure that would make transport more effecient and less expensive. Make sure that the money is not saved at the bank by few very profitable companies like Apple, Google, Oil industries, etc.

  79. MattL,

    I’ve been making some comparison between canada and the US. Canada by the «Tea party» definition would be considerer at least a socialist state if not a communist one.

    If governement doesn’t create wealth than Canada who spends a lot more per capita than the USA should be doing a lot worst than the USA.

    First a comparison of the median income/household:

    http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm

    http://www.davemanuel.com/median-household-income.php

    In Canada the median income is $69,860, Québec $65,900 and the USA $50,831. Canadian and US dollars have been at par for the last few years.

    Although we pay more taxes in Canada, we also have more service, particularly health care. Something that the current government is starting to eat at though.

    Here we can find the average net household income per capita (though I’m not sure for which year):

    http://www.oecdbetterlifeindex.org/topics/income/

    Canada $27,138 USD USA $37,708 USD

    The median income in the US is much lower than in Canada meaning a greater disparity between the richer and the poorer. A weaker middle class that contributes less to the economy. That buy less cars, houses, etc.

    The disposable income is higher on average in the US, though I’m not sure if it is true of the median disposable household income. But Candian don’t have to pay any of there disposable income on health care other than teeth or eye glasses. We pay a lot less for Universities (between $2,300 to $5,000per/year) and little for primary and highschool We also, at least in Québec pay much less for electricity, houses are less expensive, but gas is more expensive.

    So even if the US has the advantage of a higher population density which create scaled economic benifits the standard of living seems to be lower in the US than in Canada.

    BTW, spending per capita in Québec is at 35%/GDP or about $14,000 per person. Adding federal spending greater than $6,000 per person for a total greater than $20K