Federal spending: it's all up!
Yesterday I posted a poll about federal spending. I asked whether components of federal spending such as defense, human and physical resources had gone up or down since 2000 as a percent of the total budget. That is, are those components now bigger or smaller parts of the budget than they were in 2000.
The answer is: they've all grown larger!
At first it may seem counter-intuitive for three major components of federal spending to go up in terms of overall spending until you realize that I played a bit of a trick. I did not mention debt service payments. Since debt has been going up it might seem that debt service payments would rise as well. However, two factors have come into play (or back into play if you will).
First, the economy is growing faster than debt. Second, interest rates are lower than they have been for the past three decades. Since the government uses a series of revolving credit instruments (think adjustable rate mortgages) the payments on debt can rise significantly when interest rates rise. This is precisely what happened in the late 1970s and continued into the 1990s as the federal government used long-term credit issues (such as 10, 20 and 30 year terms). We were stuck paying high interest rates for years after actual interest rates came down.
With low interest rates the share of debt service payments has gone from about 15% of the entire budget to 7% of the entire budget, which is in line with post-WWII trends. This of course means there is more money in the budget available for spending (as we have seen) or to reduce the deficit (which we haven't seen nearly enough of) or even pay down the debt (of which we have seen nearly none at all).
This is an important thing to remember when members of Congress claim that programs are being "cut" or "savaged" or "destroyed" or "endangered" or whatever scare terms are being bandied about. The fact is that revenues are pouring into the federal government and we have more than enough money to adequately fund appropriate spending with enough left over to eliminate the deficit as well as start paying down the debt.
The only thing stopping it is we, the people. Unless we make it crystal clear to our "representatives" in Congress that we want less spending, not more they will continue to demand more and more spending in the name of "the people of America".
So it is up to you and me to make a difference. If we remain silent on this issue we have no one to blame but ourselves when federal spending keeps growing beyond appropriate levels.
The figures for percent share of the budget since 2000 are:
2000 2001 2002 2003 2004 2005 Change since 2000
Defense 16.5 16.4 17.3 18.7 19.9 20.0 +3.5%
Human 62.4 64.1 65.5 65.6 64.8 64.2 +1.8%
Physical 4.7 5.2 5.2 5.4 5.1 5.3 +0.6%
Debt 12.5 11.1 8.5 7.1 7.0 7.4 -5.1%
Figures do not add up to 100 because there are other (tiny) components not listed. Source: Federal Budget, historical tables. http://www.gpoaccess.gov/usbudget/fy07/hist.html Figures for 2006 and beyond are still estimates and are not included.
No doubt each side will try to use these same figures to "prove" that the "other side" has seen increased spending since 2000 and then imply that as part of a zero-sum game, "our side" has thus seen reduced spending. Now you know the real story and can easily refute such allegations.
The other important point to remember that the keys to keeping ahead of our national debt are economic grown that is faster than growth in the debt and keeping interest rates low. As long as we achieve those two things our long-term economic outlook will remain bright.
The answer is: they've all grown larger!
At first it may seem counter-intuitive for three major components of federal spending to go up in terms of overall spending until you realize that I played a bit of a trick. I did not mention debt service payments. Since debt has been going up it might seem that debt service payments would rise as well. However, two factors have come into play (or back into play if you will).
First, the economy is growing faster than debt. Second, interest rates are lower than they have been for the past three decades. Since the government uses a series of revolving credit instruments (think adjustable rate mortgages) the payments on debt can rise significantly when interest rates rise. This is precisely what happened in the late 1970s and continued into the 1990s as the federal government used long-term credit issues (such as 10, 20 and 30 year terms). We were stuck paying high interest rates for years after actual interest rates came down.
With low interest rates the share of debt service payments has gone from about 15% of the entire budget to 7% of the entire budget, which is in line with post-WWII trends. This of course means there is more money in the budget available for spending (as we have seen) or to reduce the deficit (which we haven't seen nearly enough of) or even pay down the debt (of which we have seen nearly none at all).
This is an important thing to remember when members of Congress claim that programs are being "cut" or "savaged" or "destroyed" or "endangered" or whatever scare terms are being bandied about. The fact is that revenues are pouring into the federal government and we have more than enough money to adequately fund appropriate spending with enough left over to eliminate the deficit as well as start paying down the debt.
The only thing stopping it is we, the people. Unless we make it crystal clear to our "representatives" in Congress that we want less spending, not more they will continue to demand more and more spending in the name of "the people of America".
So it is up to you and me to make a difference. If we remain silent on this issue we have no one to blame but ourselves when federal spending keeps growing beyond appropriate levels.
The figures for percent share of the budget since 2000 are:
2000 2001 2002 2003 2004 2005 Change since 2000
Defense 16.5 16.4 17.3 18.7 19.9 20.0 +3.5%
Human 62.4 64.1 65.5 65.6 64.8 64.2 +1.8%
Physical 4.7 5.2 5.2 5.4 5.1 5.3 +0.6%
Debt 12.5 11.1 8.5 7.1 7.0 7.4 -5.1%
Figures do not add up to 100 because there are other (tiny) components not listed. Source: Federal Budget, historical tables. http://www.gpoaccess.gov/usbudget/fy07/hist.html Figures for 2006 and beyond are still estimates and are not included.
No doubt each side will try to use these same figures to "prove" that the "other side" has seen increased spending since 2000 and then imply that as part of a zero-sum game, "our side" has thus seen reduced spending. Now you know the real story and can easily refute such allegations.
The other important point to remember that the keys to keeping ahead of our national debt are economic grown that is faster than growth in the debt and keeping interest rates low. As long as we achieve those two things our long-term economic outlook will remain bright.