Macro government economy

This is economic reality, not political side-taking. My crystal ball says there's going to be a lot of budget cutting in years to come.
With some widely publicized EU countries as visible test cases, this channeling of dollars from the payers, through the government, then back to the payers is what makes government grow bigger (I'm seeing the light), and it is what creates the outraged squealing sounds when the budget ax falls. People who paid taxes want their money back.
Has government promised to pay back more that can be produced in the economy? Does the citizenry expect to get more back than each paid in? Is this the paradox Congress and voters are facing? How can it be resolved?
Reply to
dapperdobbs
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.
Reply to
dumbstruck
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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?
Reply to
dapperdobbs
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.
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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).
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The next page I found is interesting.
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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?
Reply to
dapperdobbs
Interesting information. Thanks for the links.
There is a more detailed chart of federal spending at
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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.
Reply to
Bill
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.
Reply to
dumbstruck
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.
Reply to
dapperdobbs
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?
Reply to
Bill
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
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(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.
Reply to
dumbstruck

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.
Reply to
Pico Rico
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).
Reply to
dapperdobbs
Found something - a PDF file that I'm not sure about how to link to. Below is the link to a Google search, and the pdf file is entitled "Budget of the United States Government - Historical Tables"
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link below may give the pdf file directly. If not, I guess it canbe truncated to the site.
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I haven't read this all, due to and on account of me being a bit ambivalent over reading very long documents that cover the entire history of the budget, with header-notes, section notes, and no doubt footnotes, going all the way back to the first 60 years as a nation during which time "... cumulative surpluses and deficits yielded a net surplus of $70 million."
However, this document is very well-written, beginning with definitions of arcane budgetary terminology, and has interesting data. Apparently (as I suspected) recent years 1950-1976 have seen the category of "programmatic mandatory spending" (largely social security and medicare) double as a percent of GDP to 10.6%. Unemployment was 1.1% of that in 1976, a recession year. Since 1975, it hasn't gotten any better.
There may be estimates of projected funding deficits to programmatic mandatory spending but it looks like that category may programmatically sink the nation - not to mention States that are biting the bullet, perforce.
This is serious stuff guys. Just glancing over the data it doesn't appear we can grow our way out of it. The nation has grown itself out of wars, because those end.
Reply to
dapperdobbs
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.
Reply to
dumbstruck
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
Reply to
Ron Peterson
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)
Reply to
dumbstruck

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