Category Archives: Government spending

Life before the social welfare state

In 1779, before the advent of the welfare state or even a federal government in the US, when taxes were virtually non-existent, François de Barbé-Marbois wrote: “Begging is unknown in America. There are, in almost all towns, hostels which take in old people or those who are unable to work. As for the unemployed, there are other institutions where care is taken that they lack neither work nor food.” Barbé-Marbois, Our Revolutionary Forefathers 71

The status quo results in socialism

Is America heading toward socialism? Is President Obama taking us there? Will the tea party save us?

I think the first question that must be asked is: What will happen if American does nothing? Forget about all the proposals for new government spending. Forget about tax policy for a second. What will happen if America simply maintains the status quo, without growing or reducing the size of government?

According to the Congressional Budget Office’s 2011 Long-Term Budget Outlook, the federal government will consume 34.1 to 75.9 percent of GDP in 2085. The lower number is called “The Extended-Baseline Scenario” while the higher number is “The Alternative Fiscal Scenario,” which includes the extension of the tax cuts set to expire, rising debt levels, and “spiraling interest payments.”

Add in current state and local spending, subtracting out governmental transfers, (that assumes state and local government do not grow, as they have done for the last 100 years) government at all levels will consume 49.7  to 91.5 percent of GDP in 2085.

Even with the CBO’s optimistic forecast, government will account for half of all economic activity. Currently, government accounts for about 40.9 percent of our economy. But the pessimistic outlook from the CBO has the government controlling nearly all of the economy. We will be fully socialist!

Unfortunately, I lean toward the more pessimistic outlook. And I’m not alone. The CBO writes:

Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course.

Looking at the accompanying spreadsheet, the CBO has unemployment falling to an average of 8.4% next year, then falling to 7.6% in 2013, 6.8% in 2014, 5.9% in 2015, 5.3% in 2016, 5.2% in 2019, 5.1% in 2026, and 5.0% in 2030 where it stays forever. Oh really? They really expect unemployment to average 5.0% from 2016 to 2085? Has the United States or any country ever had sustained low unemployment uninterrupted by recession for 70 consecutive years? I don’t think so!

Certainly, the Baseline Scenario is too optimistic. This means that even with no new government programs, government will account for well over half of all economic activity by 2085. In this Alternative Scenario, the CBO estimates that government at all level would consume nearly all of economic output.

Socialism is in our future if we do not change. Doing nothing–merely blocking new government programs–is not enough. We must undo the damage that has already been done and fix the government programs that are already eating up a growing percentage of our national production.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.

Repeating history: The future of Greece, Europe, and the United States.

I’m rereading The Path to Tyranny to prepare it for a second printing and came across this section about Germany in the late 1920s and early 1930s (before the Nazis took over) very relevant for today:

The country’s economic problems worsened and the government approached bankruptcy. To reduce the budget deficit, the government raised unemployment insurance premiums, increased duties on wheat and barley, reduced pension and unemployment benefits, and cut the salaries of civil servants. The Social Democratic Party’s popularity declined even more when these measures pushed up unemployment even further and weakened the already fragile banking system. The government was trapped in a no-win situation. It cut back on spending to avoid bankruptcy, but this increased hardship on the people and reduced the government’s popularity. On the other hand, the government could have continued providing welfare to the people, but this would likely have forced Germany to default on its debt, which would have resulted in massive inflation and a flight of capital out of the country. The German government’s large deficits, which were the result of the economic depression combined with Germany’s already semi-socialist economy, forced Germany to decide between two equally bad choices. The resulting economic and political crisis was inevitable, regardless of what the government chose to do.

Are we in the same no-win situation today? If governments cut back on spending, this reverse-stimulus will hurt the economy and the removal of economic support will certainly increase the pain for many poor people. However, if the government continues with its deficit spending, bankruptcy will eventually occur, first in Greece which already has debt to GDP of 173%, but eventually in most if not all Western countries.

Liberals trying to convince you there is a free lunch in government.

Over at Marketwatch, Rex Nutting lists “The 10 best things government has done for us“:

  1. Protecting our freedoms
  2. Giving away the land
  3. Educating everybody
  4. Helping us retire with dignity
  5. Improving public health
  6. Building our transportation networks
  7. Investing in communications
  8. Building our energy supply
  9. Inventing the future
  10. Defeating totalitarianism

Yet, Nutting writes that “everyone knows that the government can do a lot to create the right conditions for prosperity” and “Our democratic government — along with you, me and our ancestors — created the conditions that have allowed private citizens and companies to build a great nation.” But many of these are simply government handouts–redistribution of wealth–not the creation of conditions.

Did we really want the government to give away land? (I write about this very issue in Angry Mobs and Founding Fathers.) Funny, now the government takes land away from private individuals instead of giving it to them.

And why should the government invest in the future, building our energy supply, invest in communications, build our transportation networks (I also write about this  in Angry Mobs and Founding Fathers), etc.? Aren’t those the domain of private enterprise?

But why shouldn’t the government provide these free goods and services to us? Yes, I said FREE! Because the author, Rex Nutting, not once mentions taxes. He fails to mention that the resources used by the government to do these things took resources away from the private economy, which would have made use of them to provide the same or different goods and services to us.

Thus, Mr. Nutting provides us with just half the picture, and a distorted half at that.

Paul Ryan’s plan doesn’t go far enough

In a Wall Street Journal op-ed, Paul Ryan explains his budget proposal and includes this great chart:

Part of Ryan’s plan is to reduce government spending to the “long-term average” of about 19-20 percent of GDP. By what twisted logic does it make sense to leave government spending at 19-20 percent of GDP? Even Bill Clinton spent less than that.

Spending at these “average” levels is what got us into this mess. We should return to the level of federal government spending that existed prior to the progressive takeover of government, when the federal government spent about 2 to 4 percent of GDP during peacetime, more during depressions and wars. Maybe 2 to 4 percent is too low in these “modern” times. Personally, I think the federal government should spend about 5 percent of GDP. Three percent of which would be for defense and two percent for all other functions of the federal government, which are not that many according to the Constitution.

Where’s my magnifying glass? I’m trying to find the budget cuts.

The Washington Times reports:

The federal government posted its largest monthly deficit in history in February at $223 billion, according to preliminary numbers the Congressional Budget Office released Monday morning.

That figure tops last February’s record of $220.9 billion, and marks the 29th straight month the government has run in the red — a modern record. The last time the federal government posted even a monthly surplus was September 2008, just before the financial collapse.

Last month’s federal deficit is nearly four times as large as the spending cuts House Republicans have passed in their spending bill, and is more than 30 times the size of Senate Democrats’ opening bid of $6 billion.

Actually, those figures overstate the cuts because it is comparing a yearly cut to a monthly deficit. In reality, the annual deficit of about $1.6 trillion is 26 times as large as the Republican budget cuts and 267 times the size of the Democrats’ proposed cuts.

I’m glad to see Washington is taking this problem seriously…

Obama to spend, I mean invest, $53B on high-speed rail

President Barack Obama apparently has not heard that the United States has a huge budget deficit, an even bigger public debt, and a monstrous unfunded liability. He’s still spending like a drunken… I mean he’s still ‘investing’ like a reckless politician:

President Barack Obama is calling for a six-year, $53 billion spending plan for high-speed rail, as he seeks to use infrastructure spending to jump-start job creation.

Not only has our President not heard about our financial problems, he obviously has not heard that trains are not worth the cost.