The Tax and Spend Spectator

America’s Alternate Economic Reality

For those who increasingly see government as the engine of the economy, acceptance of the unthinkable has become routine.

By 4.24.12

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Despite enormous federal spending, deficits, and debt, many Americans remain relatively unconcerned. With evidence of uncontrolled debt's consequences so clear in Europe, how can so many so easily ignore it at home? The answer is that competing economic realities divide America, obscuring our fast-approaching tipping point.

Under the President's own budget and estimates, the deficit this year will be $1.327 trillion. If correct, this will be the fourth consecutive budget deficit over $1 trillion and the highest deficit since 2009. Prior to this, America had never had one deficit over $1 trillion.

This year's $1 trillion-plus deficit will amount to 8.5 percent of GDP. Excluding those of the previous three years, it will be the largest since WWII. Under the President's own assumptions, the deficit will not fall below 2.7 percent of GDP -- and not reaching that until 2018 -- in any year of the next decade. As recently as 2007, the deficit measured just 1.2 percent of GDP.

Under the President's own budget and own estimates, the size of government never drops below 22 percent of GDP -- meaning government will consume almost a quarter of all America produces for the foreseeable future. Excluding the previous three years, the budget's lowest level would be the government's highest in 20 years.

Finally, under the President's own budget and estimates, debt held by the public will reach $11.6 trillion this year -- double 2008's $5.8 trillion level.

Prior to the recession, such levels of spending, deficits, and debt were unthinkable. During the recession, they were seen as unavoidable. Now, many seem to believe them acceptable. How can so many not see spending and debt's danger? It is not unseen, but rather seen through an alternate economic reality.

In the real world, the private sector is the producer and government is the consumer. In the alternate economic reality now pervading much of America, the reverse is believed true. This alternate reality is increasingly accepted by the increasing numbers who are decreasingly dependent on the private sector and increasingly dependent on the government for their economic means. 

The engine of their economy is government. For them, government does not consume from them, it produces for them. According to Congress' official tax estimator, the Joint Committee on Taxation, in its 2/24 estimate of taxes paid for 2012, 52.9 percent of those filing taxes will pay just 6.8 percent of total taxes -- social insurance, excise, and income. Their share of income taxes -- due to refundable credits, which pay recipients in excess of their tax liability -- will be a negative 3.1 percent. 

We marvel at Greek rioting over reduced government benefits, even when bankruptcy is the alternative. But seen from an alternate economic reality, it is perversely understandable. They simply are fighting for the only economic reality they know. 

Assuredly, the cries of impending collapse have been made there -- as they have been made here -- for some time. Yet government's response -- both there and here -- has been to increase the size and scope of its extent and spending. As in the fairy tale, it is hard to believe the cries of "wolf," when the wolf neither appears nor is even regarded.

California offers a closer view of the same picture. Government's spending and extent creep inexorably until many no longer know anything else. What they then "know" -- their daily, lifetime experience -- is that the relevance in their lives is not economic theory, regardless of analytical soundness, but government. 

Its fullest manifestation becomes that of the Greek rioters. They become worse than the Luddites, who merely sought to stop progress, and instead seek to refute reality itself.

While government can enable people to perceive a "reverse economics," it cannot in fact reverse economics -- any more than Canute could command the tide recede. Economic reality can only be put off temporarily by ever-widening circles of subsidy: the government's redistribution of wealth through taxes, then redistribution through borrowing at home, and finally redistribution by borrowing abroad. 

With each widening circle, its cost escalates. Ultimately someone, if not everyone, balks -- producers' efficiency diminishes, creditors cease to lend. The nation goes from tipping point to tipping.

Until then though, the alternate economic reality creates an alternate perception. People see the same things, but interpret them entirely differently. So, here and now. Despite our horrific spending and the debt problems America faces, a large percentage of Americans do not fail to see, but their altered economic reality causes them to not see crisis, so long as government keeps spending.

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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.