Sunday, May 5, 2013

BIG SPENDING POLITICOS-70

In these troubling financial times will the American public become increasingly aware of the unprecedented (with the possible exception of WWII where the survival of the nation was at stake) expansion and expense of the federal government? According to Republicans, they are the party of smaller, more efficient government with concomitant lower federal taxes and lower expenditures while the Democrats are the party of big, expensive government and high taxes. Does that scenario stand up to scrutiny? I tell you what – let’s do something novel and exegetically look at some pertinent data then attempt to arrive at a conclusion. D’accord? As I have shown previously in a blog essay (THE USA SPENDING & DEBT PROBLEM), here are the increases of the national debt during the terms of recent presidents: Ronald Reagan $1 ¾ trillion in 8 years G.H.W. Bush $1.5 trillion in 4 years Bill Clinton $1.5 trillion in 8 years G.W. Bush $4.9 trillion in 8 years Barack Obama $6.0 trillion in 4 years For a historical perspective let’s look at the national debt over the centuries. In analyzing this type of data over a long time span the logical and legitimate method is by using inflation adjusted dollars. Here then are some inflation adjusted (2012 dollars) figures down through the centuries and decades. I will follow up with an analytical commentary: YEAR DEBT YEAR DEBT 1791 $1.8 billion 1940 $704 billion 1801 $1.5 billion 1946 $3.2 trillion 1811 $842 million 1949 $2.4 trillion 1821 $1.8 billion 1957 $2.2 trillion 1831 $1.0 billion 1975 $2.3 trillion 1835 $0.0* 1980 $2.5 trillion 1843 $1.0 billion** 1986 $4.4 trillion 1851 $2.0 billion 1987 $4.8 trillion 1861 $2.4 billion 1990 $5.7 trillion 1866 $40 billion 2000 $7.6 trillion 1888 $41 billion 2003 $8.5 trillion 1900 $58 billion 2009 $12.7 trillion 1919 $365 billion 2010 $14.3 trillion 1930 $222 billion 2013 $16.8 trillion *President Andrew Jackson paid off the debt – the only time in USA history where the country had no debt. ** At the end of the financial Panic of 1837 – 1843 the national debt had increased to the 1831 level. Everyone can draw their own conclusions concerning these numbers, however I will mention a few factors I find significant: (1.) When considering the absolute size of the debt through time it has to be remembered that the economy of the country grew tremendously. Therefore the sustainability of the debt has to be considered in light of the ratio of the debt to the gross domestic product (GDP) of the country at the time. Nevertheless, there has been a real increase in the debt over the centuries. (2.) Even a casual reading of the numbers reveals that only in the last four decades or so has there been a monotonic increase in the debt. (3.) The periods of war (1861-1866 Civil War; 1900-1919 WWI; 1940-1946 WWII) reflect a sharp increase in the debt as the federal government borrowed and spent money to carry on its wars. The Great Depression also saw a large increase in the national debt, going from $222 billion in 1930 to $704 billion in 1940. In the 47 years following the end of the Civil War there were 36 years of surpluses and 11 years of deficits. During this period 55% of the national debt was paid off. As a rough proxy for the GDP, the USA population over the years is as follows: 1791 (4 million); 1860 (31 ½) million; 1915 (100 million); 1940 (132 million); 1968 (200 million); 2006 (300 million); and today circa 315 million. Using the past population of the country as a ratio to the current population and multiplying this ratio to the debt at that time gives an idea of the comparative debt then to now. E.g., in 1791 the population was 4 million, so multiplying the 1791 debt ($1.8 billion) by the ration of 315 million (current population) over 4 million gives an adjusted 1791 debt of $142 billion. This is a far cry from our current national debt of $16.8 trillion. In truth, using population as a measure for the country’s GDP is an imprecise method for comparing the size of the debt relative to its productivity at various times in the history of the country. The increase in the country’s GDP owing to its increased mechanization in the gathering of resources, production of goods and services, and distribution of its products will clearly outstrip the mere in crease in the population of the country. Yet recovering valid GDP data beyond more recent times is also problematic. Perhaps one can say, without being overly precise, that by any measure, the debt to GDP ration has increased over time; especially in the last four decades or so. For the first time in the history of our country, federal spending exceeded $1 trillion in fiscal year 1987 ($1.004 T). The president at that time was Ronald Reagan – who, if I am not mistaken, was a Republican. For the first time in history, federal spending exceeded $2 trillion in fiscal year 2003 ($2.011 T). The president at that time was G.H.W. Bush – who, if I am not mistaken, was a Republican. For the first time in history, federal spending exceeded $3 trillion in fiscal year 2007 ($3.107 T). The president at that time was G.W. Bush – who, if I am not mistaken, was a Republican. The increase in federal spending from 1987 to early 2013 is astronomical. Barack Obama is on tract to break this Republican trend by being the first (Democrat) president to preside over federal spending exceeding $4 trillion. And given the size of the national debt increase during his administration, his is by far the biggest spending federal government in history. Democrats have lived up to their reputation as high tax and spend politicos and Republicans have shown that they are not pikers when it comes to spending the people’s money either. Currently the federal budget is approx. $3.8 trillion. From $1 trillion in 1987 to almost $4 trillion in 2013, even though not corrected for inflation, this is such an explosive expansion in federal government spending that everyone from left wing Democrats to right wing Republicans should not only be alarmed, but be prepared to vote for politicians who will promise and then act on reversing this ruinous trend. Think about it: What are the odds that corrective action will be taken? I am not sanguine that it will happen before the country undergoes a severe financial depression with serious social unrest. Can anyone envision Democrats and Republicans stopping to blame the other party for the country’s troubles long enough to agree on a solution that will save the country any time soon? Based on recent history it is beyond my imagination.

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