Economy & Budget

Titanic Spending

Given their 2009 spending spree that has driven our national debt so high that our principal lender — Communist China — is advising austerity, it’s more than ironic that the Left is now whining about the $30 billion President Obama’s troop surge into Afghanistan will cost.  

Now they’re thinking about reducing the deficit?

I guess we should think — as liberals apparently do — that the Titanic sank because of a lack of buoyancy.  Of course, to the rest of the world, it sank due to water excesses in her recesses.  Yet, what other conclusion can we reach when we see the Left blaming the U.S.’s current historic deficits on a lack of revenues?  Of course to the rest of us, the problem is an excess of spending.

To understand how big federal spending and its resulting deficits are, we need look no further than the fiscal year just ended.  According to the nonpartisan Congressional Budget Office, last year’s federal deficit totaled $1.4 trillion dollars.  That’s a $950 billion increase over the previous year — a rough tripling of the deficit in one year.

Spending drove this deficit.  The government last fiscal year spent $3.5 trillion.  That’s an 18 percent increase over the previous year.  

The Left manages to overlook such numbers as they look over possible tax increases to “fix” the problem.  The rest of us however should not, so let’s put these incomprehensibly large figures into some kind of comprehensible context.

As a percentage of the nation’s GDP, the deficit measured 9.9 percent.  That means that the federal government borrowed the equivalent of one out of every ten dollars the nation produced — not simply spent mind you (we’ll get to that much bigger figure in a moment) but borrowed.  As CBO stated, that was “the highest shortfall — relative to the size of the economy — since 1945.”

As a share of the nation’s GDP, the federal government’s spending measured 24.7 percent.  As CBO states that’s “the highest level in over 50 years” — in fact, since 1946, when America was still winding down from wartime spending.  It means today’s federal government spent roughly one quarter of everything that the nation produced.  

Both are peacetime records.  Not since World War II, when America was fighting a global two-front war for its survival, has the federal government borrowed and spent so much of its economy.

Just under 50 percent of Washington’s spending is borrowed money.  The federal government did not spend $1.4 trillion in total — now just the deficit’s size — until 1993.  In 1983, the entire federal debt (held by the public) did not equal $1.4 trillion.

Where did all this spending and deficit come from?  Again, let’s consult CBO.  “Almost half of the spending increase — $245 billion — resulted from outlays for the Troubled Asset Relief Program (TARP) and net payments to Fannie Mae and Freddie Mac.”  The Stimulus Bill added another $200 billion. 

But more concerning than these, which are related to the recession and financial crisis, is the fact that "other federal spending was up by about 9 percent."  This in spite of the fact that interest payments on the government’s debt actually fell by $60 billion (despite its greater size) due to lower interest costs.  The point?  While the big ticket items garner the big attention, basic federal spending continues to increase underneath the recession-driven increases.

And if you thought things could not get worse, think again.  Guess what CBO estimated the current year’s deficit to be?  Their latest baseline deficit estimate is $1.381 trillion — roughly a repeat of this year’s.  But a repeat only if nothing else occurred — no new spending, no further economic downturn, nothing — then the nominal deficit would be the same again.

And to make matters “worst,” the first month of the current fiscal year shows spending running ahead of last year’s pace.  In its first FY 2010 monthly report, CBO stated:

“Excluding outlays for the TARP and adjusting for calendar-related timing shifts in spending, outlays rose by about 6 percent compared to outlays in October 2008…”  Assuming the economy does not grow by the same amount (unlikely), that means that the base government will again have grown relative to the economy.

And all this is taking place before the baby boomers are just beginning to reach full retirement age, with the resultant increased spending from higher entitlement costs — Social Security and Medicare — hitting the books.

Certainly the recession has driven spending fueling the deficit.  And the recession has also squashed revenues, greatly amplifying spending’s deficit effect.  Still we know that the recession will end and revenues will return eventually.  Can we be equally sure that spending will recede as well?  Are we not risking creating a higher structural deficit and a bigger government structure at the worst possible time?

What sunk the Titanic was not so much an iceberg as hubris.  Builders and crew alike presumed they had an unsinkable ship — a vessel not needing to conform to the laws of the sea prevailing on other craft.  The Left too has a similar budgetary belief.  They believe the government can spend and borrow and tax without having to conform to fiscal and economic reality.  They sail on without thought of an iceberg.  Only the rest of us see it.

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