Different interest groups don’t bargain over the budget, they just add to it

Source: Forbes
Source: Forbes

(Note that I am a little cautious of any graph labeled total gov’t spending, due to it being a pain in the butt to add up the budgets of every city, county, and other municipality in the entire country over many years, but I think the graph may be accurate.)

So this graph came from a Forbes article, “Lessons From the Decades Long Upward March of Government Spending,” which notes that:

For me, the most notable fact about this chart is that the growth of government spending has been remarkably steady. The trend over the last 83 years has been for government spending to rise by 0.24 percent of GDP per year, and the correlation is strong: a linear regression on this trend has an R-squared value of 0.72, meaning that time explains most of the movement in government spending.

In other words, mission creep. If you’re clever, you might start to wonder what will happen if this trend keeps going. If you’re really clever, you might figure out that in 1847, the US must have had negative government spending.

Or maybe there’s more than just mission creep going on.
Here’s a graph of federal spending vs. GDP since 1791:

outlays-GDP

Wow. Spending pre-WWI looks radically different than spending post-WWII, and I don’t think it’s just the difference between GNP and GDP.

The graph ends at 2011, but 2015’s total gov’t spending is estimated at 6.2 trillion dollars, or 35% of GDP. (Though I’m wondering if that shouldn’t be 39%; someone take a look and tell me why they aren’t adding the 3% for debt. For that matter, they don’t seem to have Social Security listed, and SS is like 24% of the budget so that’s kind of huge if they left it out.) Federal spending seems to be at 21 or 24% of GDP. Obviously these are all estimates.

Prior to WWI, non-wartime government spending was practically flat. Spending as percent of GDP did remain elevated after the Civil war and even after the small bump of the War of 1812, but in both cases it gradually fell back toward pre-war levels, perhaps as much due to gradual economic recovery/growth as budget cuts. Immediately after WWI, it looks like the same process has begun, but then it doesn’t.

Let’s explore some possible reasons why:

1. Cold War Spending

Maintaining a nuclear arsenal plus a lot of aircraft carriers, fighter jets, and tanks costs a lot more than just trusting your citizens to bring their own guns to the next skirmish.

(“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”)

Defense spending is about 13% of the Federal budget, and 5% of total GDP, which is a bigger % than the entire Federal budget for the entire 1800s except for the Civil War.

The Cold War acts a lot like previous wars, but takes a lot longer.

 

2. The Income Tax

While there were some, shall we say, mini-income taxes proposed or passed to fund wars in the 1800s, the system really got going with the passage of the 16th Amendment in 1913. Look back at the graph; other than the effects of wars ending, (including the Cold War,) spending as % of GDP has been steadily on the increase ever since.

Prior to 1913, the Federal government got most of its money from tariffs, customs, and certain sales taxes. The Income Tax obviously made it much, much easier to increase tax revenues, regardless of the reason. One may wonder about the wisdom behind such a move:

During the two decades following the expiration of the Civil War income tax, the Greenback movement, the Labor Reform Party, the Populist Party, the Democratic Party and many others called for a graduated income tax.[6]

The Socialist Labor Party advocated a graduated income tax in 1887.[7] The Populist Party “demand[ed] a graduated income tax” in its 1892 platform.[8] The Democratic Party, led by William Jennings Bryan, advocated the income tax law passed in 1894,[9] and proposed an income tax in its 1908 platform.[10]

“The federal income tax was strongly favored in the South, and it was moderately supported in the eastern North Central states, but it was strongly opposed in the Far West and the Northeastern States (with the exception of New Jersey).[14] The tax was derided as “un-Democratic, inquisitorial, and wrong in principle.”[15]” source: Wikipedia 

Looks like poor farmers and laborers wanted to increase taxes on the wealthy and get rid of taxes that fell on themselves. The government decided to go along with the scheme because hey, free money. So you I guess you have the socialists to thank for your nukes.

Interestingly, William Jennings Bryan, one of the populist popularizers of the idea of the income tax as a means of freeing the people from the shackles of the gold standard, (“You shall not crucify mankind upon a cross of gold!“) was an anti-Darwinist who lobbied for (and got) state laws banning the teaching of evolution in public schools and represented the prosecution in the Scopes Trial in 1925. According to the Wikipedia, he opposed evolution not only on the regular religious grounds, but also because he feared its use as an weapon of war, ie the Social Darwinism being promoted by the Germans.

The US officially switched to fiat money in 1976, well into our long rise.

Anyway, here’s a graph showing the prominent role of income taxes in the Federal Budget:

Revenue pie

If the Federal government were still limited to customs and excise taxes, this would be a much smaller pie.

 

3. The Federal Reserve

Like the Income Tax, the Federal Reserve Bank of the US was founded in 1913–boy was Woodrow Wilson busy. It purpose was to stabilize the banking industry and prevent bank runs from wrecking the economy, and I believe it serves as one of the major lenders to the US government, letting them spend more than they take in.

I am basically  ambivalent on questions like, “Is the Fed a good thing?” or “Should we allow fractional reserve banking?” until I know more, but I am a little sympathetic toward the Fed just because QE is one of the few things anyone in government has actually done to try to fix the economy.

Here’s a graph for you, showing the growth of deficit spending:

federal-spending-percent-2

 

4. Suffrage

The percent of Americans who are legally allowed to vote and actually do so has increased from <5% in the late 1700s to almost 45% today. (Wikipedia)

U.S._Vote_for_President_as_Population_Share

Back in the 1700s/early 1800s, only free adult males who owned property were allowed to vote; the laws were set by state and so varied a bit–in some places property owning women could vote, for example; ethnicity was probably a concern here and there.

The first major expansion of the franchise occurred between 1792 and 1856, as the property requirements were repealed state-by-state. Looks like several states abolished theirs around 1820, including NY and AL. (Actually, looks like Alabama entered the Union around them with no property requirement to start with.)

I’m guessing the 1866 dip is due to disenfranchisement of Southerners due to the Civil War.

Racial restrictions on voting were removed in 1869. The black vote does not represent a very large expansion in suffrage just because black men were a relatively small % of the overall population at the time and the KKK and other groups were effectively preventing them, especially by the early 1900s, from voting.

The biggest single jump in the graph begins around 1920, when women were allowed to vote–an expansion that more than doubled the size of the voting population.

Since then, there have been a few small expansions–the elimination of poll taxes and other impediments to voting; the voting age switched from 21 to 18, etc.

Overall, I don’t think I’m going out on a limb to say that women seem to prefer spending on social welfare projects, and men prefer spending on armies.

You might think that different interest groups would argue over the budget until they come to a reasonable compromise, or that one year Democrats would pass all of their ideas, and then a Republican administration would come along, repeal it all, and pass their own agenda.

But this doesn’t happen; it’s been over 40 years since Roe vs. Wade, and Republicans still haven’t gotten rid of it.

Once one side passes a spending program, it’s virtually guaranteed to stay.

 

5. Modern Mass-Media

As I have discussed before, recent (ie, in the past 100 or so years) technological advances have created a completely novel memetic environment. For almost the entirety of human history, people got almost all of the information about the world around them from the people around them, principally their parents, grandparents, and tribal/village elders. Information passed vertically in this way I refer to as “meme mitochondria,” due to their similarity to the mitochondrial DNA passed down from mother to child.

Since the invention of the printing press, and increasingly since radio, TV, and the internet, people have gotten more and more of their information about the world from these sources. Information thus passed horizontally I call “meme viruses,” due to the similarity with the horizontal spread of conventional viruses. (I’d call them “viral memes,” but that name’s taken.)

I theorize that evolution selects for meme mitochondria that maximize the chances of their own reproduction, that is, since they are passed largely from parent to child, they are ideas that encourage high natality, personal survival, and loyalty to family and tribe. Meme mitochondria do not need to encourage any kind of loyalty to people outside one’s tribe or protect their lives in any way.

Meme viruses, being spread horizontally, succeed by promoting the common good of the group, but do not need to promote the welfare of the individual, nor natality.

Modern mass communication technologies, therefore, have created a completely evolutionarily novel selective environment in which horizontal meme transmission has become dominant over vertical transmission for the first time in all of human history, which may in turn cause people to demand radically different things of their governments, like social welfare spending or legalized gay marriage.

 

6. Longer Life Expectancies

The single biggest expense in the government budget is old people:

total-spending-2015

At the state and local level, pensions become a big deal.

Here’s a different graph:

Source: Policy Basics "Where tax dollars go"
Source: Policy Basics “Where tax dollars go

Anyway, Social Security is the single largest item in the Federal budget at 24%, and pensions and Medicare add quite a bit more–overall, I wouldn’t be surprised if old people received a full half of government budget dollars.

“But wait,” I hear you saying, “Social Security is totally special and not a real government expenditure because I paid into it and therefore it’s something I’m entitled to but totally not an entitlement.”

Well, no. Not really. Sorry, but Social Security is a ponzi scheme. You don’t pay into it and then get your own money back out. The money you put in now goes to pay retirees right now. When you retire in the future, future workers will pay for you.

The whole system was thought up during a time of expanding population growth, when there were plenty of new workers around to pay for old workers to retire. As growth has tapered off, this system has become less viable.

There was actually a Supreme Court case in which the court decided that Social Security is not, in fact, an entitlement.

By the way, “not an entitlement” means “there is no guarantee you will get this because you are not entitled to it.” If the government decides that it just can’t afford to fund Social Security anymore, well, then you just won’t get Social Security anymore.

(Yes, I have had some very annoying discussions with people who complain about the evils of “entitlements” while defending their right to never, ever have their Social Security cheques cut.)

Medicine and hygiene being what they were back in the 1800s, there were just fewer old people around. Even if they’d had Social Security back then, it would have been a much smaller program.

 

Changes in the composition of the budget over the past 50 years:

4_things_to_look_for_in_obama_budget_wessel_figure-_2_investing

Of course, there was a war going on in 1964, but it still shows just how much Social Security and related programs have expanded over the decades.

I have a two more graphs that might be of interest:

percent-of-GDP-federal-spending

Grey bars mark recessions

u.S. Spending And Revenue In Relation To GDP

Interesting how local spending crashed between 1933 and 1945 as Federal spending took off.

 

I always look at people funny when they complain that proposed government program X or Y is socialist. “We’re already socialist,” I tell them. When government spending is 25% of the entire nation’s GDP (and I’m not sure if that even includes Social Security,) you are already living in a socialist country. If the theory that politics is really just people arguing over the budget is correct, then as the budget becomes an increasingly large percent of GDP, then I expect the political discourse to only become more heated and nastier as people’s entire livelihoods become increasingly dependent on whether or not they qualify for a government handout or program of some sort.

Finally, the Forbes article also notes:

Most importantly, trends on entitlements look a lot more unfavorable than they did in 1992. Baby boom retirements will continue to push Social Security spending upward, by about a percentage point of GDP over the next 25 years. Medicare costs actually aren’t growing as fast as they did in the early 1990s, but they are starting off a larger base, making medical inflation a more significant fiscal problem than it used to be.

I don’t think the upward trend can continue forever.

 

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15 thoughts on “Different interest groups don’t bargain over the budget, they just add to it

  1. Some things to consider about the Fed. While having a central bank isn’t necessarily a bad thing per se, (especially in situations like WWII where massive amounts of debt are needed), in practice almost every nation abuses it. It’s only because the Fed exists that such lavish government spending is possible. If you look at the fed funds rate, it’s declined steadily from the 1980s down to the 0% we’re at today. By lowering interest rates to near 0%, they’re encouraging profligate deficit spending, which has created the exponential increase in government debt we see today. This is money that is consumed by current generations but has to be paid back by future generations, a form of generational slavery if you will. That, or it will create a currency default like seen in Argentina and Zimbabwe in the 00s.

    QE is bad for everyone but the top 0.01%. By adding to the money supply, the purchasing power of everyone else is eroded and the savings from their labor falls over time. Even if it doesn’t result in hyperinflation or even modest inflation rates, it will result in massive asset price appreciation. The financial institutions with first access to cheap credit pile it into assets, driving up their price. In 2008 the appreciation became unsustainable, and asset and commodity prices tanked. In a normal market this would be good, allowing 99.9% of people more affordable housing, rental units, food, etc. But for the financial institutions that bet the farm on perpetually rising asset prices, they lost big. Instead of eating the losses and restructuring, they pressured the fed to be the buyer of last resort. The Fed then bought trillions in mortgage backed securities and kept interest rates at 0% to prop up asset prices. Rent and food is at all time highs and the cost of living for the majority of people is untenable, but at least banking heads can give themselves billions in bonuses.

    If you have a passing interest in economics, I’d recommend to stick with it. Once you get past the acronyms and esoteric language, it’s becomes easy to understand if you know your algebra. http://www.investopedia.com/university/ is a good resource, and allows searching for acronym definitions. There’s lots of good stuff on youtube from Peter Schiff and Kyle Bass.

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    • Interest I’ve got in plenty, but time is always in short supply.

      I agree that QE is–most likely–a bad idea for the country as a whole. My sympathy for the Fed is simply that it is attempting to do *something* about the economy, which is more than I can say for the vast majority of people in the gov’t. It’s like the difference between a small child who makes a mess and then walks away from it, vs. a small child who makes a mess and then tries to clean it up. Even if they actually make it worse and you have to shoo them away, they were at least trying.

      A lot of economic policies have been built on the idea of eternal growth and fail under contraction or even just normal homeostasis.

      Thanks for the recommendations.

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    • QE is bad for everyone but the top 0.01%. By adding to the money supply, the purchasing power of everyone else is eroded and the savings from their labor falls over time.

      but QE does not add to the money supply

      Rent is location sensitive. In some regions, rent is growing faster than others, but a major reason for rising rent has to do with regulation pertaining to home building, rising home prices, and increased home mortgage lending standards which makes home ownership more difficult.

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      • Central banks create money by buying securities, such as government bonds or mortgage backed securities, from banks, with electronic cash that did not exist before, increasing the total quantity of money in circulation. This is known as quantitative easing, or QE.

        I’m not disagreeing with your comments on rent, but you’re ignoring the 900lb gorilla in the room. Since the 2007 peak, home prices have nearly rebounded despite median wages and home ownership rates decreasing over the past decade. The home ownership rate is the lowest it’s been since the 1960s, and median asking rent for vacant units is at all time highs. It is clear that the majority of people have not benefited from this bubble. The Fed has artificially increased demand by buying trillions in mortgage backed securities, and banks have restricted supply by maintaining a large shadow inventory of houses off the market.

        Housing affordability for the majority of people is based on the monthly payment, which is tied to price and interest rate. The Fed has kept the interest rate at all time lows since 2008. By keeping the interest near all time lows, house prices are artificially high for a given monthly payment. This keeps the banks from suffering major losses on mortgage principal. This at the same time forces real estate buyers to ante up higher effective down payments, and lowers their effective tax write off. This is unsustainable and is causing major dislocations in the housing market. Mortgages are now being offered where houses have down payments as low as 3%, and most new construction is very high priced inventory built for foreign buyers. If the Fed had stayed out of the real estate market, housing prices would have dropped to a level where most people could afford to buy, and rents would be lower.

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      • It’s true that savings should be invested in order to combat inflation, but we’re in an exceedingly difficult investment climate right now. High yield savings accounts yield 1% annually at best, and 10 year treasuries yield 2% and are in bubble territory valuation wise. You can invest in stocks, but they’re very volatile right now. Price to earnings ratios are getting higher, and they’d be even higher if it weren’t for billions spent in stock buybacks. A small percentage of market cap growth has gone to productive investment in capital expenditures. If you buy stocks now, most likely you’re going to suffer a big loss which you won’t recoup over the next 5 years. You can invest in emerging market stocks with a higher yield, but you’ll be taking on even more risk.

        These paltry investment returns are occurring while inflation is well above the 1-2% the fed claims. Official inflation calculations have failed to keep pace with actual price growth in food, especially meats, and rental units. Their calculation for CPI under-weights the median expenditure on housing costs, and uses owner’s equivalent rent, which is based on pure speculation as opposed to actual rental data which is readily available.

        This also assumes that people have savings to invest. The savings rate has been stuck at all time lows for years now, and most people are getting by paycheck to paycheck. Decreases in real median wages coupled with increases in housing, medical, and food costs have made saving even more difficult for most people.

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      • I agree that proper savings are difficult. Long story short, some kind of proper, safe savings vehicle–one that merely matches inflation–ought to be easily available for those who wish to save for retirement. I don’t know enough details to say anything intelligent beyond that; I leave the economic wrangling to those who care to do it. 🙂

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  2. The FED such a fine institution. A private company. Let me see we gave them the right to create all our money, charge interest on the created money supply and all our gold (largest supply on the planet) and they gave us…what? Nothing.

    With our current brain addled system of money creation all money is created through debt. If we had no debt then we would have no money. I know you think I’m lying as nothing so important could be done so stupidly but it’s true. This is of course a feature for those private banks that control the creation a debt (money). A little thought and you would see if every dollar created by the FED MUST be created with debt then over time the creator of the debt (money) would own everything. As is happening.

    Ron Paul got a limited audit of the FED after the bail out. Turns out they gave $16 Trillion to the banks and some newer estimates from minute eyeballing of documents says $29 Trillion. With $16 Trillion we could have just given every family of four a house at 1% interest( or even 0%) and completely solved the housing crisis not to mention pushing the most non-deflationary trend possible. The banks could have just written off their loans as they make the money mostly from thin air anyways. Unfortunately now we don’t have houses, we are $16 Trillion poorer and I would bet anything the banks used this money to buy practically the whole economy.

    There have been times when we didn’t do this. Ben Franklin’s free money based on land in Pennsylvania, Lincoln’s greenbacks and Kennedy’s silver certificates. Of course the King of England made Penn’s money illegal, Lincoln was shot by a Jew and Kennedy was shot by…well the guy who shot Oswald was Jewish.

    The The Bank of North Dakota is a State owned bank. We should do the same for the FED and put all the money creation profit in our pockets. We could print our own money to pay the majority of the US Gov. operating cost.

    http://www.motherjones.com/mojo/2009/03/how-nation%E2%80%99s-only-state-owned-bank-became-envy-wall-street

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  3. Federal spending in peacetime averaged 3% of GDP when women couldn’t vote. In the states that let women vote *before* the 19th Amendment was ratified, the spending ramp-up also began sooner.

    That’s the smoking gun, people. Men naturally want to be free; women naturally want to be owned and protected. In the eyes of a single woman with an Elizabeth Warren sticker on her car, government is the father she never knew and the husband she’ll never have.

    Would EvolutionistX be willing to give up the right to vote on the condition that three liberal women in her precinct also be disenfranchised? What do conservative women gain from voting, other than making liberal victories slightly less lopsided?

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    • Leaving aside the fact that I don’t really identify with liberals or conservatives, there is an obvious advantage to taking a deal that disadvantages one’s enemies over oneself, if my side can afford to do so.

      Nevertheless, I confess a certain reluctance to just write off my own gender. I fully admit that this may be simple self-interested bias, but there it is.

      Like

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