President Obama submitted the 2011 fiscal year budget.
If Congress passes it—and history shows that the approximate amount requested is usually granted—then this will be the highest the USA has ever spent, not just in real dollars, but inflation-adjusted per capita dollars.
The reason to adjust for inflation is obvious. But you don’t usually see the adjustment per citizen. In 1901, there were roughly 78 million citizens; by 2011 this will have increased to about 313 million.
Just because of population increase, ceteris paribus, we would expect total (inflation-adjusted) spending to increase by four times.
More people means more money must be spent to keep the same level of government services per person. On average, more people also means that there is more money that comes in to the government.
So an increase in population does not imply that per citizen spending should increase. If per citizen spending does increase, as you will soon see it has, something in the nature of the citizen-government relationship must have changed.
A plausible argument can be made that the state of the world is not the same now as it was at the dawn of the twentieth century, and that the observed increase in political and technological complexity would naturally mean that more per person should be spent now. These increases in complexity or necessity can also be, as in the case of wars, temporary.
However, a better argument is that an increase in government power and restrictiveness combined with the penchant of democracies to form cliques that wantonly vote themselves funds from the coffers will inexorably drive per citizen spending upwards until a crisis is met.
This picture shows the amount of spending (in 2008 dollars) per citizen from 1900 until 2011.
(Please do not hot link this image.)
The two jumps for both World Wars are obvious, as is the smaller departure for the Korean war, if you look closely. The New Deal is a bare blip. What surprises many people is the decrease during the Clinton years. The economy was booming, then; but, as we recall, a large portion of it was bubbling, waiting to pop.
And pop it did. The money really started flowing with Bush fils. Much of the increased spending is from to the two wars, but there were also generous increases in social spending. The large spike near the end is from the Bush-initiated Keynesian Prayer, a supplication with which Obama earnestly joined his voice.
Try to understand what these numbers mean. First, they are, near enough, in today’s dollars. So when we go back in time, we’re making the right comparisons.
Back in 1901, the federal government spent about $170 per citizen. Remember the inflation adjustment: the average person nowadays could easily pay this, even if that person was the sole earner in a family of four (a total family burden of $680).
Obama is proposing spending about $11,500 per citizen—72 times the 1901 rate. The burden on that family of four will now be $46,000!
Not un-coincidentally, that number is close to the USA median household income. That means if the average family of four were to send enough of what they made to our glorious leaders to pay their share, they would have just enough left over to pay their State the rest.
But the average family of four—those near the median income—actually end up giving very little to the feds. Just under 50%—that’s half of all of us!—pay little or nothing.
Pause there and repeat that tidbit to yourself. This fact will bring to mind the wisdom of Margret Thatcher, who said, “The problem with socialism is that eventually you run out of other people’s money.” When will we run out?
The estimate is that, soon after the end of Obama’s presidency, the size of our national debt plus the amount to be spent on the budget will equal the entire GDP. That means that if every man and of course every woman, plus every business, every corporation, were to, at the end of that year, send in every penny they took in—before expenses—the government could just pay its bills.
We would all of us have to work for one entire year and give all we make to the government, just to keep us going for that year and to pay off our debts to ourselves. But then would come the next year…
My friends, this is nuts.
I hope it is understood that the rate of increase in per citizen spending cannot continue to increase indefinitely. This is true even if you are as “progressive” as Noam Chomsky or the SEIU.
This is true even if you don’t want it to be—especially if you don’t want it to be.
The lesson here is from history — invest in assets that do well during inflation because that’s a tried & true way for governments to extricate themselves from massive debt (besides simply defaulting). And be prepared to shift your money into some generally accepted store of value that’s marketable worldwide.
Just curious — any idea how the graph would look if charted not in inflation-adjusted dollars but against median household cash income over time? That should cancel out changes in standard of living over time a bit more effectively than the levels of assumptions underlying inflation numbers.
Also, I’d suggest that looking at it in terms of median household income may also allow some inferences as to the role of government as a driver of the economy. My thought is that money pays someone, ultimately, for doing something — the money I spend pays people to produce and provide the goods and services I want, so the money the government spends pays people to provides the goods and services it wants.
There is a balance out there, somewhere, between the value to the general public of government-directed economic activity (roads, schools, defense, etc.), and the cost in terms of others goods and services people would have bought (and sold) with that same money if it had not been spent by the government.
Finding the balance, though, is hard if we don’t have a good sense of what we’re looking at. Not to complain in the slightst about your measure (we Army types always have to look up at the Air Force!), just a suggestion to adjust the perspective slightly and see whether it helps…
Roy,
Not a bad idea. Do you know where to find (yearly) reliable median household cash income from 1901? If we can find it, I’ll do it.
While the new deal might seem like just a blip on the chart, it would be interesting to see if there is a change in direction that coincides. Was spending per capita before the deal on a relatively flat trajectory that suddenly changes to an increasing path, ignoring war spikes? To find out perhaps a longer time frame is necessary and perhaps a change in scale.
A change in direction would indicate a change more significant than the immediate spending increase suggests.
Another fun activity is to do this and compare it to other countries. It’s really great watching the Japanese debt go from “OECD average to “Makin’ Italy look fiscally responsible 101.”
Some other metrics: the 2010 deficit is more than 10% of the Gross Domestic Product (GDP), the highest in history except for war years. The Federal debt is now 94% of the GDP. See http://www.usgovernmentspending.com/
I would express this data as a % of GDP — about 27% in 2009. Add in state and local to get the picture of total government spending – annnother 13%.
In the 19th and 1st half of the 20th century, state and local was greater than federal spending.
Mike D,
And don’t forget that federal debt does not include $6T for FNM and FRE.
Nor does it include any unfunded social security liability. But as discussed in this space some weeks ago, there is no legal obligation to make good on social security.
Doug M. — and let’s not forget the unfunded state employee retirement system liabilities.
California, for all of its bullsh!t, has largely funded its pension system. Public employee retirement health benefits are still a problem.
I don’t know the status of other states.
There is no doubt that government spending is a driver of the economy, but it doesn’t take much research to become uncomfortable about the value of that spending. A case in point is the stimulus money that appears to be pouring into our college. There is currently a grant of $113,000 to prepare an on-line “wind energy” course for delivery. The course design portion of this is $50,000. This is is about ten times what this product ought to cost. Our administrators know this, of course, and they discussed at a meeting how to divert the surplus to another project. Will this other project make sense? Not if our administrators are proposing it.
Government could pay people to line up all the little rocks on the ground from biggest to smallest if that is a service they value, but it won’t do anything for the long term good of the economy.
This video perfectly expresses the mindset of our “betters-of-the-beltway” who by their very nature are much better equipped to formulate economic decisions for us using our [and not their own] monies. Obama be praised! I think we shall probably see Randolph the Accountant coming to our rescue any year now. Obama be praised!
I just did a quick Google for average household income and didn’t get the whole span but most of it is here: http://www.visualizingeconomics.com/2008/05/04/average-income-in-the-united-states-1913-2006/
The man behind that graph (EMMANUEL SAEZ Professor of Economics) and his data can be reached via: http://elsa.berkeley.edu/~saez/
Detail info for lots of things from 1967 forward here:
http://www.census.gov/hhes/www/income/histinc/inchhdet.html
“My friends, this is nuts”
amen
Late to the game but…
“The estimate is that, soon after the end of Obama’s presidency, the size of our national debt plus the amount to be spent on the budget will equal the entire GDP. That means that if every man and of course every woman, plus every business, every corporation, were to, at the end of that year, send in every penny they took in—before expenses—the government could just pay its bills. ”
GDP is a yearly number and the national debt is a 1 time thing. That’s pretty misleading.
Most families’ mortgage far exceeds their annual yearly household income.
Worrying about the debt is far less important that addressing the deficit, which is currently fueled by 2 wars.
Interesting (intentional?) how gov. spending per capita is nearly identical to the standard deduction of $11400.