Macro government economy

The specter of austerity motivates some healthy bean counting and renegotiation of who gets what. But it would be unhealthy to overlook or not strive for economic growth to carry future load.

The US has the potential to let taxes come from growth of economy rather than extracting ever more from a stagnant situation. This may require immigration reform and light taxation of entrepreneurs, which is not an easy sell.

I worry peripheral Europe is giving up on growth, and heading for the austerity bunker. Structural reforms (labor, etc) could pay their way, but they prefer egalitarian stagnation. Oh, I guess Ireland is clinging on to it's extremely low corporate tax rate, maybe even a bit too low.

Some history buffs may be able to connect the dots earlier. I believe the IMF imposition of (over?) austerity for the 1997 Asian economic crises was a contributor to today's woes. Asia vowed never again to be subject to that, so saved earned foreign exchange in excess - thus flooding the US/west with cheap lent money which bubbled up assets like houses and commodities.

Further back hundreds of years, I think England found the key to wealth over it's more populous neighbors in the form of taxation that wasn't burdensome to individuals but went up with (and promoted) growth of the economy. That was how it became a naval global superpower - not from force, but from economic enablement. And the ex colonies that followed suit were also big economic successes, but now seem more interested in beggar-thy-neighbor.

601087&sid=avbyTYnDtr7g&pos=8 The above article shows a sentiment to take from others and leave one's own government benefits untouched. I honestly hate to post it, but the last line of your comment is the same notion: "Beggar thy neighbor" or "Me first and let someone else pay for it." Social security has been talked about as a looming problem, but it is almost trivial compared to medicare/ medicaid which is over eight times bigger.

A growing economy is definitely a plus, but I wonder if that alone will be enough. The current deficit will come down as the $700 billion bailout is recovered, but again, I wonder if that will be enough.

Has anyone looked up projections that are real? I.e. Social security and medicare deficits? If economic growth goes to the 3-4% favorable estimates, when will that bring a current budget surplus?

I can tell there's a ton of interest in this, but I think an overview is useful to personal financial planning. This page has a chart showing the budget as a % of GDP from 1900 to the present.

There were large deficits in the 1920's until about 1928 - 1932, which curiously were budget surplus years. Then the huge deficits of WWII years jumps out immediately. Since then, deficits have been below 5% until recently, and are now just above 10%. My guess is the government is running deficits to avoid outright depression of the 1930's, a preemptive move.

The next chart shows Federal debt as % of GDP (1900-2010).

The next page I found is interesting.

A friend thinks we should cut defense spending, but that is just 14% of the budget. The chart shows 17% is health, 12% is welfare, and 25% is "other". "Other?"

Does anyone have access to charts showing categories of givernment spending from 1900 - 2010?

Interesting information. Thanks for the links.

There is a more detailed chart of federal spending at

The one you posted does not break the budget down into categories that allow one to see what is discretionary and what is mandatory. For example, interest on the debt, which is about 5%, is apparently included in the "other" category.

A focus on economic growth (eg. small biz?) would increase revenues and decrease the large unemployment and welfare component. Immigration reform could lessen the proportion of age related expenditures due to more young contributors. Throw in reform of fake SocSec disabilities, which currently is an industry with lawyers advertising to help defraud.

I hear you. But on a long-term picture clearly expenditures have been growing more quickly than GDP (and I believe it is mostly transfer payments). How many years would GDP have to grow at 3-5% to generate enough additional revenue and enough expense reduction, combined, to generate a budget surplus and significantly reduce the national debt? (It's not a hard question - just massive numbers. The Wiki charts are a lot more detailed than I'd seen before, and cover just one year.)

What happened in Greece, (where I think some 35% of the population was on government payroll), is IMO the country hit the production limit, first, then the financing limit second, and finally had to bring it to very jerky stop. Their government cannot deliver more than the population can produce, but the population apparently doesn't believe that, and protested loudly.

It is all discretionary. Nothing is mandatory.

Some things are classified as mandatory when discussing the federal budget. Interest on the debt, social security, medicare, pension payments, etc. Technically congress has the ability to stop any of these expenditures but practically they do not. What do you think would happen if interest payments on treasury securities were stopped?

Revenue: Greece has massive tax evasion, but I guess that is sort of a fixed percentage problem and you are showing inexorable trends. I hear it has a lot of productive capital is chronically idle due to dysfunctional court system - contested inheritances tie up transfer of property for decades.

Expenditures Something more relevant to the US is demographics, which affects social security pyramid scheme dynamics along with health, etc. Greeks are getting elderly

(Ididn't realize Canada was so much worse than the US here, in spite ofthem "selling" residential visas and all). Immigration policy plays into this some way I can't quantify. Greece has massive illegal immigration into a black economy - not sure if they draw gov't benefits. The US has somewhat the same, but the trend seems to be to give them more benefits (health plan?) and tax them. But immigration reform could bring in more high skilled and high tax paying folks. Now the legal immigrants tend to be family repatriation types - often the elderly ready to tap health expenditures, etc.

my point, quite obviously, is that PRACTICALLY the congress and the president need to get their act together and deal with the so-called "Mandates", rather than just ringing their hands and calling them "mandates".

I think interest payments are the closest thing we have to mandatory payments.

Your dry humor is appreciated. On more than only immigration, CA is an interesting case study. CA's 15% income tax, despite some of the most expensive cities in the world, doesn't seem to solve its Budget Problem (deserves caps). One cannot live above the production level (production possibility frontier).

Growth can always overcome, such as if we imported loads of skilled workers and revamped education to benefit students rather than teachers. Revenue could soar with productivity and number of workers. But I guess you are talking about how practical expectations can't save us.

You might like to peruse a chapter on the civil war by James Mcpherson called something like "the balance sheet of the war". It was in both a textbook and regular book of his, and contrasted the way the Union and Confederacy financed the war.

I about fell off my chair at the dire effects of seemingly minor flaws in the Confederacy approach for revenue, and the genius and foresight of the Union. It was like a timebomb that would ruin the south, if the north didn't shoot itself in the foot with bad generalship beforehand. I'll have to check again for parallels to today's approach.

I think you are referring to the textbook "Ordeal By Fire: The Civil War and Reconstruction", which is expensive and non-searchable at Amazon.com.

Can you be more specific as to what those flaws were?

-- Ron

I'm looking at the similarly named textbook version of that book. The finance portion of it compares revenue by taxation vs loans vs printing money. The south did 5% vs 35% vs 60% and the north 21% vs

66% vs 13%. The south had lousy enforcement of taxation and easy counterfeiting, which helped boost inflation to 9000% vs the 80% inflation in the north (only 25% higher than wage inflation).

There are compounding factors, such as a lot of concessions for farmers to pay taxes in kind (crops) or create bonds to be paid in crops. With inflation warping incentives, this especially led to a series of dysfunctional consequences that just keep you shaking your head (crops end up rotting in warehouses, etc). All this under an inflation hawk treasury guy.

Contrast this to the north coming up with the groundwork of modern national banking, currency, and gov't bond issuance. Not an easy accomplishment since they came from a crude base crippled by earlier Jacksonian populism and had an iffy treasury guy.

As for lessons, maybe it is about not polluting your plan with a lot of soft hearted loopholes, something my state is always doing. Besides all the breaks for the farmers (core of the southern economy), for example they riddled the military draft with exemptions. All kinds of professions and gov't workers were exempt and those populations multiplied. In the rest of the balance sheet chapter, they discuss things like that (and how draft problems didn't hurt so bad because of surprising factors, blah blah)