Archive for April, 2011

Government Spending Is Out Of Control! We’re All DOOMED!!!…Or Are We?

These days, it’s very common to hear about how Obama and the Democrats are spending away our future, and especially how the country is “broke”. The federal budget has grown to over $3 trillion, and in the past few years the deficit has been more than $1 trillion.

Typically, I hate fear mongering. And I see a lot of it when conservatives rail again the Obama administration’s policies. To be clear, I do think that we should cut spending and lower taxes, but I do not fear that the government is somehow out of money.

The first reason is that the government has, in theory, an infinite supply of money. If it needs to, it can just print more. Now, printing money can be a very very bad thing as it leads to huge inflation. But, if it wanted to, it could simply print up $15 trillion and pay back all its debt-holders immediately, at the cost of devaluing the dollar to around what a nickel is worth today. The government would be completely debt free, although the rest of us would be screwed.

Imagine if you had a large debt, say $500,000, and you made nowhere near that much to pay it off in any reasonable amount of time. However, imagine you could also go up to an ATM and withdraw and unlimited amount of cash. Does a $500,000 debt even mean anything in that scenario? It doesn’t, really.

Another reason I’m not worried is that I did what a lot of scientists (and very few regular people) do: I looked at the data. I compiled three charts that compare the government’s annual deficit spending, its total spending, and its total debt, with the GDP of the nation, basically the total amount of money we spend as a nation, from 1929 to 2011. The colors indicate the political party currently in the White House, just for comparison. The first is deficit as a percentage of GDP:

The most noticeable feature is the huge spike on the left from 1942 to 1945, obviously caused by World War II. Since then, our deficits have been quite low, even dipping negative at times as the government runs a surplus for some years. There has, however, clearly been a recent trend upwards, with a second smaller spike occurring in 2009 with the beginning of the recent economic stimuli. So, yes, the deficits have rose, but it’s not an unprecedented rise.

But these are how much the government has gone over budget. What about it’s total spending? Surely there’s been a large increase recently:

Well actually, again, there is an increase, but it’s quite small. Again, note the huge spike from WWII. It’s important to remember that we experienced one of the largest and most prosperous periods right after that (the 1950s). If we recovered from that, surely we can recover from this.

But what about debt? That’s all we hear about, how much we owe to foreign nations and so on (really, much of the debt is owed internally, to state and local governments, and to individuals. Ever owned a U.S. Savings Bond? If so, then you owned part of the federal government’s debt.) Here’s how it measures up:

Ok, so there has been a relatively large increase over the past thirty years or so, but it’s still not unprecedented. We recovered after WWII, we can do it again. If you look closer, you can see that it was during the Republicans’ best friend Ronald Reagan’s term that increase seems to have started, even though Reagan was, ostensibly, all about minimizing government spending. What’s that quote? “Our government is too big, and it spends too much”. Really, Gip? We seem to have been doing pretty nicely for the few decades before that.

Even after Reagan and Bush Sr., the Clinton administration seems to have gotten things under control, but W. raised it again and Obama seems to be continuing the trend, but has promised to cut the budget after the economy has been sufficiently stimulated. I don’t know how well he’ll fare, but it is interesting to note that, if you didn’t know any better, you might be inclined to think that it’s the Republicans who like to run up debt and spend money, while it’s the Democrats who like to hold off and be fiscally responsible. Hmmm.

Well anyway, I hope that this at least shows that we’re not doomed. If anything it’s just business as usual.