The Recession Spectator
The Receding Economy, Surging Spending
The federal government now consumes more than America produced just a generation ago.
America’s emerging policy issue is the federal budget deficit. According to the 7/2 released CNN/Opinion Research Corp. poll of 1,026 adults (conducted 6/26-28 with a 3.1% +/- margin of error), the federal budget deficit ranked second only to the economy as “the most important issue facing the U.S. today.” That’s ahead of health care, the wars in Iraq and Afghanistan, and energy policy.
The public’s concern is not surprising. While the U.S. economy has been shrinking, the U.S. government has been anything but. The recession’s effect on the federal spending and the deficit can be painted in a few bold strokes. Even using the Congressional Budget Office’s March estimates — which do not include the effect of recent spending legislation — it’s not a pretty picture.
Federal outlays, the true measure of the government’s size, are estimated by CBO to be $3.853 trillion this year. This is greater than the entire U.S. economy was in 1984. The federal government now consumes more than America produced just a generation ago.
Those federal outlays now account for 27.4 percent of all America produces today. Less than three-fourths — 72.6 percent — is left for all the nation’s other uses. This ratio of spending to the total economy is higher than at any point since WWII.
As a result of this spending, the deficit is 11.9 percent of the economy. The deficit too is higher than at any time since WWII and would pay for two-thirds of all America’s health care spending.
In nominal dollars, today’s deficit measures $1.667 trillion. This is far and away the largest nominal deficit in our nation’s history. That figure is 3.6 times greater than the previous record deficit of $459 billion, which was reached just last year. Total federal spending, did not reach the level of this year’s deficit until 1999.
In fact, today’s nominal deficit is greater than the previous five years’ deficits ($1.599 trillion from 2004 through 2008) put together! The previous eight years’ net deficit of $2.005 trillion is just a fifth greater than this year’s alone.
Looking at the deficit from the revenue angle: the federal government is estimated to collect $968 billion in federal income taxes this year. If income tax revenues were doubled — everyone paying twice as much — the 2009 deficit would be cut by just over a half. And the remaining $699 billion deficit would still be the biggest deficit in U.S. history.
The deficit is enormous because spending is even more so. The recession has fueled both and both have surged quickly: just two years ago, federal spending was $2.7 31 trillion and the deficit just $163 billion (a tenth of today’s estimate). When the recession ends, it will be interesting to see if federal spending and deficits recede as quickly as they arose.
About the Author
J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.
Letter to the Editor View all comments (60) | Leave a comment
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Louis Jenkins| 7.8.09 @ 9:47AM
Mr. Young, aside from pointing out the irresponsibility of our esteemed leaders, what is your point? Most of us realize that we're in a wagon hitched to a run away horse that's headed for a cliff. You've only put more dreadful figures to the catastrophy that is dead ahead. As a sign said at last weekend's Tea Party that I attended: The Taxes are Coming, The Taxes are Coming!
Bram| 7.8.09 @ 10:08AM
Louis - I guess the author is preaching to the choir but every Republican Congressional candidate should be screaming these figures next year. A major course correction in 2011 might avert a calamity.
Peter McGrath| 7.8.09 @ 10:10AM
The simple truth, lost on most of the half-wits who comprise the electorate, is that the economy is lagging precisely because of profligate spending and growth of government. The "stimulus," bail-outs, and government takeovers of whole industries (so far, banking, automotive, consumer lending) have collided with the reality of a shrinking, hobbled, private sector which bankrolls the whole enchilada.
Look at California for what to expect as far as the chaos. Taxes must inevitably rise, which will only put more people on the unemployment rolls. Not only taxes, but interest rates must rise as the Fed's borrowing and printing of currency will only serve to further devalue an already pathetic dollar. Inflation waits, patiently, for the tipping point when rate increases are insufficient to dampen the prayed-for recovery.
Such a "recovery" will be trumpeted by the media right around the time of the mid-terms as payrolls from government union jobs and temporary contracts begin to churn into the economy. Springing from government (which takes, but not does create, wealth), such a recovery will be illusory and short-lived as inflation sets in.
Yes, ladies and germs, our CMC (Chief Moral Coward), and his abjectly corrupt allies in Congress, are swinging a giant wrecking ball back and forth across the capitalist system.
And we mourn, not for the death of our American way of life, but for ... Michael Jackson (?!)
Jim Hingle| 7.8.09 @ 10:17AM
This is an excellent comparison of amounts and percentages and expected burdens placed upon US by a government out of control. Mr Young with his background in government finance has an excellent grasp of what these figures mean, but most Americans cannot fathom the reality and enormity of these numbers. When I talk to people, and ask them what they think these sort of statistics really mean, they indicate a vague understanding of the enormity of the situation at best. I direct them to a short powerpoint show that's making the rounds in e-mail lately. This .pps uses pictures of $100 dollar bills stacked on pallets to get across the truly gargantuan nature of what a trillion dollars really is. After seeing this presentation, people are usually dumbfounded when they start to understand and think about these truly titanic dollar figures. Informative sites like AS should get hold of such learning tools so that more Americans (most of whom are so pitifully ignorant on these subjects thanks to our schools and the pop culture) can begin to understand what a crime is being perpetrated on US.
Oldefarte| 7.8.09 @ 10:53AM
Great article/information, J.T.. The ONLY POSSIBLE method Obama/Democrats have for attempting a solution to this spending/deficit/debt problem is to RAISE TAXES on EVERY TAXPAYER; which is his/their next move and will be forthcoming shortly. I hope that all of these CHANGE worshipers of the Messiah are [or will be] mentally and financially prepared for same. As the old saying goes, NOTHING IN LIFE IS FREE, and Obama/Democrats will have to raise taxes accross the board from every source possible in order to keep foreign governments from dumping their holdings of Treasuries in panic over the possibility of same becoming worthless. Everyone should take notice that California's bonds were just downgraded yesterday to JUNK STATUS over their perilious financial budgetary situation; and the US's situation is not far behind California's. Governments are [and have been for my entire lifetime] simply SPENDING TOO MUCH MONEY and need to cut their budgets drastically. The governmental welfare situation has reached financially destructive levels, and this nation's indigent population's increasing demand for services needs to be curtailed drastically. We simply cannot continue to support and pay for by government these people to ignore the availability of free public education benefits and to thereafter have an average of 5 children out of wedlock that taxpayers [government] end up supporting. There is a limit in China of 2 children per couple, and America need to follw their example. America's ship is sinking!!!!!!!!!!!!!!
Appleby| 7.8.09 @ 11:01AM
Comes the Revolution!
dcd| 7.8.09 @ 11:40AM
Didn't see a whole lot of difference under the last administation. Don't expect to see a whole lot of difference under the next administration.
The repulicans put up a couple candidates for the last ticket (romney, giuliani) who may have tried to rein in spending, but only got excited about Palin cause she was so gosh darn folksy. Face it most of the party doesn't care about spending anymore than the democrats.
Robert Rosencrans| 7.8.09 @ 12:17PM
The federal government has turned into a spend fest. Those who speak out against it are looked at as if they were crazy.
Michael Tomlinson| 7.8.09 @ 12:27PM
Americans are getting exactly what they voted for. Hopefully, the greatest pain will be felt in the blue states that gave us the Obamanation -- thanks for all that audacious hope and change morons.
As for the recession ending it is doubtful we'll see that as long as Obama is President and Democrats control Congress.
Louis Jenkins| 7.8.09 @ 1:14PM
The truth is as plain as the nose on one's face. Yes, both parties have shown no discipline with government spending. Kinda like bringing your favorite elephant into the house, hanging curtains on it, and hoping the wife doesn't see it. There's a lot of folks who don't see the pachyderm, and there's a lot more ignoring it. The people who read and comment here know exactly what's going on. The way to Hell is paved with good intentions, but we can be sure that Obama's intentions aren't benign. Anyone getting hot yet?
Pingback| 7.8.09 @ 1:33PM
Got Tea? The failure of the Stimulus and the looming disasters of Cap and Trade and N links to this page. Here’s an excerpt:
Warrior | 7.8.09 @ 3:02PM
The writing for tax hikes is on the wall. Liberals will state the inherited recession and economy was worse that could have been anticipated. Thus the tax hikes are necessitated by negligence of the Bush administration. They will further state that Obama's bold moves have started the recovery, but we will need to trust our liberal leadership a little longer for a complete fix to take effect (non-stimulus II).
I heard it stated and must agree, the only difference between the countries and California's problems is that the US continues to print money while the state can't.
The only good thing about all this is that the current economy has served to slow illegal immigration. Of course, this will be legal immigration shortly when a bill is produced without being read and moved quickly to passage.
philhoey| 7.8.09 @ 3:54PM
I don't remember, while in ECON101 that money was free. Only Nikita Sergeyevich Khrushchev and Leonid Ilyich Brezhnev believed that. Hmmmm.
ds80| 7.8.09 @ 4:16PM
Louis Jenkins: "both parties have shown no discipline with government spending."
"both parties" ... but only in most recent history, where GW Bush led his party astray. Historical party fiscal principles are rather clear. Since 1901,
* when Republicans have controlled both houses of Congress: 28 surplus years, 14 deficit years
* when Democrats have controlled both houses of Congress: 46 deficit years, 8 surplus years
* when control of Congress has been mixed: 12 deficit years, and 2 surplus years
* when a Republican was Presidentthere: 26 surplus years, 34 deficit years
* when a Democrat was/is President: 10 surplus years, 40 deficit years
Want that in % ?
Republican Congress: 67% surplus
Democrat Congress: 85% deficit
ds80| 7.8.09 @ 4:17PM
... but I wholeheartedly agree: in 2010 it's time to throw them all out.
ds80| 7.8.09 @ 4:30PM
Louis Jenkins: "aside from pointing out the irresponsibility of our esteemed leaders, what is your point?"
It seems pretty obvious to me: debt got us into this mess, and Obama's solution is more debt. Gee, ya think maybe that's bad policy?
janet| 7.8.09 @ 4:31PM
I don't know who I'm more irritated with -- Obama and the Congressional Democrats for creating imminent disasters as a result of their liberal policies OR the Republican party leadership who remains silent. Like a previous blogger lamented, the government has taken over banking, the financial sector, auto companies, and is salivating over control of healthcare; is creating runaway deficits like never before as their solution to cure a housing and financial meltdown that THEY created by mandating faulty loans through Fannie Mae and Freddie Mac, and yet our pop culture is wailing over the death of Michael Jackson. Sorry, but our problem is not just the nimwits in Congress but a populace that only cares about pop culture idol worship. My last hope was always 2010 but I'm fast coming to the conclusion that the same idiots will be in voting booth.
Louis Jenkins| 7.8.09 @ 4:47PM
Janet- I've seen my own friends unwisely use their credit, and to their dismay wake up one day filing for bankruptcy. It is almost pandemic amongst the population. Borrowing without a thought on how to pay it back. No personal spending discipline. Yes, they're too busy watching the M. Jackson festival to realize they're getting deeper in the goo.
Wr Jonas | 7.8.09 @ 4:55PM
If I understand all of this turmoil and madness correctly the government now estimates the economy as 3.6 trillion dollars. Would it be safe to say that we have reached the financial twilight zone where the word dollar means nothing ? Those are just an accumulation of numbers in some computer banks somewhere that represents something in terms of input/output . There is nothing in existence that number represents. It is all imaginary and totally meaningless.
Does it represent tangible value , such as land , metals , lumber, haircuts or future earnings ? Well yes it does , a little bit, but the rest of it is just accounting and credit -debit management. Our currency is so close to Zimbabwes /Mugabe dollar that we should react with real alarm.
But if Congressional big wigs think another Stimulus package should be the ticket to straightening this mess out ;then I have a suggestion , Just transfer a million bucks to everyones account and let the spending begin. Then even the complete idiots among us should figure out very quickly that gas for example will soon be $37,000 per gallon. Oops, thats $37,ooo & 9/10 cent per gallon.
Thom| 7.8.09 @ 5:12PM
Don’t want to rain on anyone’s parade here but demographically speaking the bulk of the taxes are paid by white Republicans thus the bulk of the Democrat voters don’t care about income tax increases. This is easy to determine without a “government report” simply by looking at the demographic makeup of the Democrat Party vs. the demographic makeup of income and marginal tax rates. With 50% of the income tax burden being paid by the top 3% of people who file, 97% being paid by 50% of those that file just what relevance does tax rates increases have to the bulk of the people who vote Democrat which happens to be the ethnically and age identifiable groups that overwhelmingly voted for Obama and all his promises that they will never have to pay for (mostly). As long as there is no consequence for voting for something you don’t have to pay for this will continue. Add to this that “government employees” overwhelmingly voted for Obama (and are made up of those same ethnically identifiable groups who are disproportionately represented in Government) plus the primary purpose of the bailouts and trillion dollar pork bill is to “save” government and union jobs. So what if they raise marginal tax rates on the bulk of the 50% that pay 97% now? What’s going to happen they will change anything at the polls? A Minority is already paying the bulk of the taxes and that Minority isn’t going to out vote the ones not paying the freight. It will take a considerable wide scale consequence to change this behavior or an armed revolution. The people who won the last election aren’t paying the freight and they out number us just enough to keep it that way short of something really painful happening.
FeralCat| 7.8.09 @ 5:42PM
I'll soon take all my troubles over to Obama Rue
You know The One with the teleprompter and the never ending Hope and Change shtick
He's got a pad down on Pennsylvania avenue
He'll be passin' out little bottles of Obama Potion Number Nine
I'll tell him that I'm having trouble with my mortgage payments
It's gotten even worse in these last few weeks
He'll kiss me on the cheek and he'll made a magic sign
He'll say "What you need is Obama Potion Number Nine"
He'll turn around and gave me a wink
He'll say "I'm gonna have my Michelle make it up right here in the White House sink"
It'll smell like Chicago, it'll look like socialist printer's ink
I'll hold my nose, I'll close my eyes, I'll take a drink
I won't know if it is day or night
I'll start grabbin' all the trillions that are in sight
But when a wheel barrel full of it won't even buy a BigMac
It'll break my little bottle of Obama Potion Number Nine
Obama Potion Number Nine
Obama Potion Number Nine
Obama Potion Number Nine
Bob| 7.8.09 @ 5:52PM
I don't disagree that we are spending way too much and it is because of BOTH parties. However, your use of statistics is laughable. In 1988, at the end of the Reagan administration the budget was about $1.8 trillion. If we use the same time period of 25 years, you will find that in 1963, GDP was $630 billion. In other words, at the end of Reagan's term, spending was THREE TIMES the economic output!!!!
I'm not defending this profligate spending by Obama, or for that matter, Bush or Reagan. But let us use rational discourse and inflation adjusted trend data to make the point lest you sound like an unknowlegdeable ideologue.
The problem is need for politicians to spend money in order to get elected. It is also having to get donations in order to run their campaigns. Those donations result in tax breaks for donor companies and we all know that. You are not going to solve this spending problem for either party until we solve this underlying problem.
And by the way, you need to tell the truth. The bulk of the increases come from entitlements, not discretionary spending. However, I see nothing from any of you complainers talking about Medicare and Social Security reform. Until we attack those entitlements, you're just trying to use statistics to make dumb points. The only solution to those problems is rationing, age indexing, AND health care reform. But I'm sure you politicos will not address those issues because to do so will not get anyone elected.
THOSE ENTITLEMENT NEED TO BE REDUCED/REFORMED. Make no mistake about it.
Bob| 7.8.09 @ 6:05PM
Thom, your demographics are entirely wrong. Here is a large scale breakout which shows exactly the reverse that you believe:
http://en.wikipedia.org/wiki/Red_states_and_blue_states
It's a chart about halfway down the article. Better luck next time....
JimE| 7.8.09 @ 7:21PM
Bob,
You are a useful idiot.
Bob| 7.8.09 @ 8:19PM
JimE -- Thank you for your moronic input. Did you learn that at social conservative school??? You are certainly a prime example of that non-thinking educational institution.
Now, please tell me that you have something to post that is on topic.
ds80| 7.8.09 @ 10:31PM
Bob: "your use of statistics is laughable"
Only if you care to dismiss facts. You mention "spending by Reagan" ... who had a Democrat House for all 8 years. And a Senate majority of at most EIGHT, for 6 years.
My point remains: history reveals party fiscal principles - which GW Bush and his Republican Congress clearly did not adhere to. And we have Obama and his Democrat Congress spending at five times the deficit of Bush - in keeping with historical Democrat fiscal principles.
Pingback| 7.9.09 @ 6:41AM
The American Spectator : The Receding Economy, Surging Spending links to this page. Here’s an excerpt:
YAnya | 7.10.09 @ 3:13AM
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