Second in a series of three excerpts As the debt ceiling debate continues, it is important to remember that on President George W. Bush’s watch, federal outlays increased an eye-popping 60 percent in real 2010 dollars. Where did that money go?
To wars in Afghanistan and Iraq, obviously, but also to a seemingly endless stream of domestic programs that drove us closer to the poorhouse. There was No Child Left Behind, the creation of the Department of Homeland Security and Transportation Security Administration, and the Medicare Part D prescription drug benefit.
Later came 2008’s failed $100 billion stimulus package. Then the Troubled Asset Relief Program and the first wave of auto company bailouts.
For his part, President Obama hit the ground running, immediately passing a Godzilla-sized stimulus package that manifestly failed even at disbursing funds quickly and efficiently.
When it comes to overall spending, Obama is looking to beat Bush’s record. During fiscal 2010, the government spent around $3.6 trillion, or 25 percent of gross domestic product, while collecting $2.1 trillion in tax revenue, or 14.5 percent of GDP. The resulting deficit was $1.5 trillion.
The total debt held by the public — the sum of all accumulated annual deficits and interest payments — reached over 63 percent of GDP. You have to go back to 1946, in the immediate aftermath of World War II, to find spending that equaled as large a percentage of GDP.
Because the U.S. economy is more than twice as large as anybody else’s, we’ve got more wiggle room than Greece, say, or even China. But at some point even the most optimistic buyer of U.S. debt will close his wallet.
At the heart of the federal deficit is the same simple message that confounds politicians: The federal government spends more than it takes in. It’s not complicated really, but the message never quite seems to sink in with Republicans and Democrats who reside in Washington.
What part of “we are out of money” don’t they understand?
Since 1950, total federal revenue from all sources has averaged right around 18 percent of GDP. In some years, government receipts have been bigger — even reaching a bit over 20 percent of GDP once under President Clinton — and many years they’ve been a bit lower. But the variance hasn’t been all that great; it’s pretty much 18 to 19 percent.
If history is any guide and if the federal government wants to balance its books, it’s got to spend no more than around 19 percent of GDP. So what would it take for the federal government to restrain spending to just 19 percent of GDP in 2020?
According to the Congressional Budget Offices’ alternative-scenario projections, it would mean coming up with a budget equal to $3.7 trillion in today’s dollars, rather than an anticipated $5 trillion if spending stays on autopilot. How do you trim $1.3 trillion over a decade or so?
Cut $130 billion out of projected spending (including projected increases) every year for the next decade. It’s the only way to actually keep the federal government solvent until we get around to fully revising outdated entitlement programs that are set to beggar us more than any stock market collapse ever did.
And to put that 19 percent spending figure in perspective: spending in Clinton’s final budget amounted to just a hair over 18 percent of GDP. Nobody back then was surviving on cat food. If anything, the future looked wonderfully, if a bit naively, bright.
Nick Gillespie is editor in chief of Reason.com. Matt Welch is editor in chief of Reason magazine. They are co-authors of the new book “The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong with America,” from which this column is excerpted.
