A Look at Our Government’s Debt – Rising Because We Like to Spend

One of the great similarities of our economic downcycle and Japan’s two decade long journey to oblivion:  both are periods of economic stress caused by private sector deleveraging – in which the government mitigates the resulting pain by borrowing and spending.  Japan’s government has run up terminally large debts, on a gross basis equivalent aprox to 2x its GDP.  We’re on the same path.

The private sector has too much debt.  The process of working the debt down – by a combination of increased savings and defaults — reduces spending, causing a long, deep recession.  The government mitigates the pain by tax cuts and increased spending — generating massive deficits, which it borrows.  Private debt goes down, public debt goes up.  It’s like heroin — effective, but deadly if used too long.

Experts continue to proposed solutions, as they have for decades.  To no avail.  The public refuses to understand the problem, with no interest in any but delusional solutions. 

  1. Look at the numbers
  2. The public has its eyes closed, lost in dreams
  3. Another sensible proposal, fated to rot away ignored like all the others

(1)  Look at the numbers

In Q1 of 1994 government debt was 36.3% of total credit market debt, a long-term peak.

  • State/local debt was $1.15 trillion  (9.2%).
  • Federal debt was $3.39T  (27.1%)

In Q4 of 2007 government debt was 23.1% of total credit market debt, a long-term trough.

  • State/local debt was $2.19 trillion  (6.9%).
  • Federal debt was $5.12T  (16.2%)

Now, as of Q3 2009, government debt is 28.5% and rising fast — far faster than private debt is falling.

  • State/local debt was $2.30 trillion  (6.7%).
  • Federal debt was $7.54T  (21.9%)

(2)  The public has its eyes closed, lost in dreams

From the Mid-June 2009 Omnibus Survey, Pew Research Center for the People & the Press:

The only category getting even a 1/3 vote in favor of cutting expenditures:  Foreign Aid.   Of course, other surveys show that many Americans believe that the government spends vast amounts on foreign aid.

Category
Increase
Decrease
No Change
Unsure
Education
67
6
23
4
Veterans Benefits
63
2
29
6
Health care
61
10
24
6
Medicare
53
6
37
4
Combating Crime
45
10
39
6
Help Unemployed
44
15
36
6
Environmental Protection
43
16
34
6
Energy
41
15
35
9
Military Defense
40
18
37
5
Scientific Research
39
14
40
7
Agriculture
35
12
41
13
Anti-Terrorism Defense
35
17
41
7
Foreign Aid
26
34
33
7
State Department
9
28
50
12

This reflects most America’s ignorance about our spending on foreign aid.  From “A Study of U.S. Public Attitudes Foreign Aid and World Hunger“, Program on International Policy Attitudes (PIPA), 2 February 2001):

Just based on what you know, please tell me your hunch about what percentage of the federal budget goes to foreign aid. You can answer in fractions of percentage points as well as whole percentage points. — Average answer: 24%

What do you think would be an appropriate percentage of the federal budget to go to foreign aid, if any? — Average answer: 10.0%

Now, imagine that you found out that the US spends 1% of the federal budget on foreign aid. Would you feel that this is too little, too much or about right?

  • Way too little: 13%
  • A bit too little: 24%
  • About right: 44%
  • A bit too much: 8%

Survey results were weighted to the Bureau of the Census’s Current Population Study for education level and age.

(3)  Another sensible proposal, fated to rot away ignored like all the others

In the this report, the author calls on policy makers to stabilize the national debt through a six-step plan. Crafted over the past year by former heads of the CBO, OMB, GAO, and the congressional budget committees, the plan reflects a bipartisan approach to avoiding the tremendous global risks of America’s expanding debt, without destabilizing the economic recovery. Red Ink Rising is the first of two major reports to be released by the Commission.


Originally published at Fabius Maximus and reproduced here with the author’s permission.

2 Responses to "A Look at Our Government’s Debt – Rising Because We Like to Spend"

  1. villager   January 6, 2010 at 8:51 pm

    It is a strange article in that it only describes 2 entities: experts; and, the public. The public is chided for its ignorance. Yet, it is the politicians who refuse the experts. If the implication is that the politicians are representing the public then the assumption is false. The “Because we like to spend” probably describes the politicians. Spending is easier than cutting.The Pew Center Research data is probably more indicative of peoples’ priorities rather than a adversion to expenditure cuts.

  2. Guest   January 6, 2010 at 9:55 pm

    Cost of college and education in general are prime causes of the debt a close second is medical. I have noticed a big shift in wealth consumption industries like medical and education being sacred cows verses punishing the wealth producing part of the economy. I thought the article by Peterson-Pew Commission was weak.