Stuckness: Federal Spending
Federal Spending Overview
Let’s turn to another set of numbers – to the money America spends through its federal budget for a whole range of functions and purposes. What might we learn?
In the graph below, I have taken a complex table from the Office of Management and Budget and distilled from it six major categories of spending. I suggest we start with the bottom wedge and work upward. (Note: If you let your cursor hover over each of the wedges, their titles will appear.)
The first wedge reflects spending for Defense and for Veterans.
The next wedge reflects spending for the Social Security and Disability programs. The third layer reflects the Medicare budget and related medical budgets.
The fourth wedge represents support services for the poor, referred to in the federal budget as “Income Security.”
The fifth wedge, “All Other Programs,” in some ways is the most interesting. If I think about the Federal Government in broad terms, what comes to mind are its cabinet and sub-cabinet functions - State, Treasury, Justice, Transportation, Education, National Science Foundation, the Weather Service, the Patent Office, Housing and Urban Development, Energy, Interior, Labor, Commerce, and so on. The fifth wedge wraps all these disparate functions together under a single heading: “All Other Programs.”
The sixth (and top) wedge represents interest paid on the national debt.
When I look at how all this has changed over time, three major themes catch my eye.
First of all, Defense spending has shrunk, in relative terms. It isn’t nearly as sizeable today as it was in the early years of the Cold War. It used to absorb ten percent of GDP; today it represents a shade less than five percent of GDP.
Second, what one might call “social spending” has exploded. When I first put this chart together, I was startled, frankly, by the magnitude of this growth. In 1962, Social Security, Medicare, and Income Security represented about four percent of GDP. Today, half a century later, their relative size has more than tripled, to thirteen percent of GDP. Together, these three broad themes dominate federal spending.
Third, what’s called “All Other Programs” has been squeezed. We have gone through periods when our federal budget committed five percent of GDP to such priorities as Transportation and Education and so on. Today the budget barely musters two percent of GDP to cover this same collection of activities. What one might think of as “The Federal Government” – in the sense of transportation and housing and the department of interior and so on – accounts today for barely a tenth of the federal budget.
Let’s reflect for a moment on how America’s Stuckness is likely to impact these spending patterns.
If we don’t get medical stuckness under control, a doubling in the number of elders will intensify the demand for Medicare spending.
An answer for Social Security is essential as well. Current demographic trends in combination with current benefit formulas call for it to expand by about a third over the next generation.
What about poverty rates and “Income Security” spending? Should the squeeze on the those at the bottom persist indefinitely, poverty for millions of Americans will persist as well. This will intensify the demand for federal spending on behalf of the poor.
Speaker Paul Ryan promises his supporters a government that “cuts spending” and “cuts taxes.” Why? Because Ryan wants the American economy to operate as an Enrichment Economy, not as a Prosperity Economy.
It doesn't really matter to him that the nation's retiree population will double in size in coming decades. Nor does it matter to him that the Bottom 70% have been stuck in neutral for the past thirty-five years. So what if Social Security benefits have to be cut, sharply, in order for Ryan to consolidate the power of the Enrichment Elites? So what if millions of elderly Americans will have to be thrown overboard so that Medicare can be made more "affordable"?
The reality is that America simply cannot cater to its economic Elites and get itself unstuck at the same time. It will make far more sense for America to undo the operating system that supports Enrichment Economics and replace it with an operating system that supports Prosperity Economics. Make that change, and America will find ways to get itself unstuck.
Forego that change, permit the nation's leaders to worship permanently at the altar of Enrichment Economics, and America will never get itself unstuck.