Friday, January 29, 2010

What huge increase in gov't spending??

There's an uproar across the nation about a huge expansion of government and how we are becoming a Socialist nation. Yet, when you look at the facts--the numbers--you see that the level of gov't spending relative to GDP is only where it was back in 2002-2003. (See chart below.)

Spending as a percent of GDP has increased by a meager 1.0% in
the past nine years and about 1.4% since 2007!!
Source: Bureau of Economic Analysis

There was no outcry about becoming a Socialist state back then. Now, however, when we have 10% unemployment (17% when you count people who have stopped looking) we're freezing spending and embracing fiscal conservatism. This is going to be disastrous and it will be brought on by nothing more than propaganda and misinformation--a deliberate campaign by deficit terrorists who will be responsible for more hardship and suffering than anything brought about by our enemies abroad.


Tom Hickey said...

Look at who's raising the uproar. Did any of these same folks say anything when then Vice-President Cheney asserted authoritatively, "Deficits don't matter."

Do I detect some hypocrisy here?

Ironically, Cheney was right for reasons he most likely did not suspect. Deficits don't matter because the monetarily US government as the monopoly provider of a non-convertible currency of issue in a floating fx monetary regime is not financially constrained. Taxpayers do not fund government spending, when the government is the currency issuer under such a regime. Nor is government borrowing repaid by taxes.

Skeptics, please read Warren Mosler's 7 Deadly Innocent Frauds, which debunks the myths surrounding the analogy of the government and household budgeting being the same. They are not.

The government is the issuer of the currency that households, firms, and states in the US use, making them revenue constrained. As the currency issuer, the Federal government is not revenue constrained.

As long as spending power does not exceed the capacity of the economy to produce goods and services for sale, inflation will not result from currency issuance. On the other other hand, if the government fails to issue enough currency into the economy when spending power falters, then inventories build up, and businesses cut back, resulting in recession and rising unemployment. That's where the US still is now, so tightening is ill-advised.

What is needed is rebalancing spending power (nominal aggregate demand) and real output capacity as consumers pay down debt and increase their desire to save, businesses curtail investment because of fewer opportunities, and the trade account is in deficit as imports continue to exceed exports.

Anonymous said...

Very nice observation, Mike!

Klusplatz said...

It is you and your ilk--socialists--who have caused the pain and suffering in the economy.

mike norman said...