I spend a lot of my time fretting about how federal spending is going to become an ever-larger (and unsustainable) burden in the future.
And I periodically will write about how I wish we still had the very small federal government envisioned by the Founding Fathers (and which largely existed up until the 1920s).
But I haven’t spent that much time looking at how we got to where we are today, other than in 2015 when I cited a very interesting report from the Joint Economic Committee that provided decade-by-decade data on changes in the burden of federal spending.
But I had a chance to touch on this issue in a recent interview when asked to comment on the unfortunate milestone of a $4 trillion federal budget.
Building on that discussion, here are three charts, based on numbers from table 1.3 of OMB’s historical budget data, showing what has happened to federal outlays.
This first graph shows changes in nominal spending over time. As I pointed out in the interview, it took 200 years before the crowd in Washington got spending up to $1 trillion.
But in the past three decades, it has skyrocketed to $4 trillion.
But nominal spending numbers are not the most useful data when looking at long-run changes.
After all, we’ve had lots of inflation. Simply stated, dollars today are worth a lot less than dollars in the past.
So this second chart shows inflation-adjusted federal outlays. As you can see, we have a graph that doesn’t look quite the same. It’s much easier to see the budgetary impact of World War II, for instance, and post-war spending growth isn’t quite as dramatic.
Though it’s still significant. As I noted in the interview, the burden of inflation-adjusted federal spending has doubled since 1985.
But even inflation-adjusted data doesn’t tell the real story.
The most important numbers, at least from an economic perspective, are the ones that measure the burden of federal spending relative to the size of the private economy.
And that’s what I show in this final chart measuring federal spending as a share of economic output (gross domestic product).
Now it’s very easy to see that World War II involved a massive one-time fiscal cost. But the most important data is what happened after the war. The burden of federal outlays initially dropped to 12 percent of GDP. That’s higher than it was before the war, but at least in retrospect not a bad place to be.
Unfortunately, there’s been a gradual expansion in the economic burden of the federal budget ever since.
Though if you pay close attention to the numbers, there are some interesting secondary stories. You’ll notice that the negative upward trend was reversed during the Reagan years and we continued to make progress during the Clinton years.
Unfortunately, policy then moved in the wrong direction under Bush and Obama.
Which brings me back to where I started. As bad as the numbers are today, they are likely to get worse in the future because of demographic change and poorly designed entitlement programs. So unless we have genuine entitlement reform, we will become a failed welfare state.
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Dan, do you read and reply to substantive comments here? I’ve tried with your Facebook feed, but no luck.
Entitlements-or money seized at gunpoint from unwilling donors-will never stop. Social security yields 2%, if you get a chance to spent it. And as the Supreme Court has stated on several occasions the US government is not legally bound to pay these benefits should it choose not to.
Considering these monies are doubled taxed and yield an immense windfall to our “politicians” they will never end the program but would rather reform it. IE means test it, increase the retirement age-anything but allow you to opt out.
Now why would you opt out? Because even a dullard can buy an SP 500 fund and get a a 100% return in ten years compared to the 20% return from social security. Even for the less risk adverse something really risky like Pepsi should yield 15%-20% annually. Let’s not mention Apple, Amazon, Netflix, Johnson Controls or Celgene.
Where else can the government fleece so many helpless sheep. So let’s be clear what entitlement means, according to the government its money seized from the unwilling, with no guarantees, which can be eliminated at any time, for whatever reason seems reasonable to Obama, Waters, Schumer, or Pelosi.
So tell me again why investing in lottery tickets or with a Nigerian prince is worse than investing with the USG?