deficit spending

3 Numbers: Why a U.S. Economic Meltdown is Inevitable

by Michael Fumento on April 5, 2011

in Economy

Post image for 3 Numbers: Why a U.S. Economic Meltdown is Inevitable
  • Amount Democrats argue should be cut from current budget to raise debt ceiling: $33 billion.
  • Amount Republicans argue should be cut: $61 billion.
  • Monthly increase in publicly held U.S. debt during past year (March to March): $139 billion.

We are a spendaholic nation of people who feel entitled; we will not change. Time to reread The Grapes of Wrath — or read it for the first time.

A Potentially Bold Fiscal Policy Experiment in U.K.

by Alex Schibuola on October 15, 2010 · 1 comment

in International

The Wall Street Journal reports that the Conservative government of Prime Minister David Cameron plans to cut 192 independent government agencies in an effort to reign in government spending.

I believe this will be the first instance in a Great Depression-like scenario where the government of a developed nation will actually cut spending (if they follow through). Some like to say that federal spending was heavily cut in the U.S. during the early 1930s under the Hoover administration. This is false (it increased 10.8 percent in 1930, 3.4 percent in 1931, and 2.3 percent in 1932).

Assuming that the financial sector remains fairly stable in the U.K. (no explosive inflation or implosive deflation) this will be an interesting development to follow for two reasons:

We will get a better look at who was to blame for the Great Depression’s severity.

Was it the ignorant use of monetary policy or absence of proactive fiscal policy? If government spending declines don’t carry the UK into a massive depression, such an observation will take the earlier, more conservative fiscal policymakers of the 1930s off the list of culprits (except for the worldwide slice and dice of international trade and supporting nominal wage freezes). Such an outcome would also diminish the strength of future arguments for Keynesian-style government spending.

We will get to see which sector can better stimulate the economy: private enterprise or government.T

Conventional macroeconomic models suggest that cutting government spending is a bad idea. Doing so causes aggregate demand to fall and will put (more) deflationary pressure on prices and wages leading to lower output (and higher unemployment). It is argued that increasing government spending (holding taxes constant) will create a multiplier effect that increases subsequent output levels.

The crowding out theory holds that consumption and investment should increase one-for-one with the decrease in government deficit spending. If this holds, then the private sector will have more resources at its disposal and means private spending (personal consumption and business investment) will increase. What will be interesting to see is how strong the private sector multiplier is relative to the government expenditures multiplier.

Keep your eyes open on this development given its unprecedented importance.

Tax Freedom Day

by Ryan Young on April 9, 2010 · 1 comment

in Deregulate to Stimulate, Economy, Regulation

Today, April 9, is Tax Freedom Day. The good folks at the Tax Foundation calculated how much money local, state, and federal governments harvested last year from taxpayers ($3,469,000,000,000), and compared that to national income ($12,901,000,000,000). At 26.89 percent of national income, you basically work until April 9 just to pay off your taxes.

April 9 is the national average; different states have different tax burdens, so Tax Freedom Day actually varies from state to state. If you live in Alaska, you already celebrated Tax Freedom Day on March 26. But if you live in Connecticut, you have to keep the champagne on ice until April 27.

That isn’t the whole picture, though. The federal government spends far more than it taxes. $1,414,000,000,000 more, last year alone. The burden of federal deficit spending adds another 40 days. Not even counting state and local deficit spending, that puts us out to May 19 by my calculations (May 17 by the Tax Foundation’s).

Even that’s not all. The hidden tax of federal regulation cost businesses and consumers an additional $1,187,000,000,000 last year, according to Wayne Crews’ soon-to-be-released 2010 edition of Ten Thousand Commandments (previous editions are online here). None of that extra trillion-plus actually shows up in the federal budget. Regulation eats up an additional 9.2 percent of national income, or 8.3 percent of GDP. So you have to work an additional 34 days until you pay off the federal regulatory burden.

It’s tempting to brush off regulatory costs, since most of them are borne by businesses. But remember, businesses pass on their costs to consumers. You pay for the regulatory state. Its costs are real.

Adding together total taxes, plus federal deficit spending, plus federal regulations pushes us out to June 22 by calculations, or June 20 by the Tax Foundation’s.

And remember, that’s leaving out state and local deficit spending. Nor does it count state and local regulations. I don’t have the data handy for that. But if they add up to at least $460,000,000,000 then we’re past the half-way mark of the year. Just to pay for government.

Even using the larger number of GDP ($14,253,000,000,000 in 2009), and leaving state and local deficit spending and regulation, we’re still talking 42.9 percent of the economy going to pay for government. That’s 157 days out of the year. You’re not free until June 6 even by that generous measure.

I’d argue that government has grown too big, but the data have already done that for me.

Deficit Rises $880 Billion to Record $1.3 Trillion, Due to Massive, Unprecedented Government Spending

by Hans Bader on August 8, 2009 · 9 comments

in Economy, Employment, Healthcare, Politics as Usual, Sanctimony, Stimulus to Nowhere, Trade

The federal budget deficit has already risen by $880 billion to an unprecedented $1.3 trillion. Most of the increase is attributable to recent increases in federal spending, including Obama’s $800 billion stimulus package, which the Congressional Budget Office says will actually shrink the economy in “the long run,” and which ended welfare reform, destroyed thousands of jobs in the export sector, and substituted welfare for productive investments.

Ironically, Obama had campaigned on a promise, since broken, to make a “net spending cut” in federal spending.

The increase in the deficit is driven largely by reckless federal spending, even though federal tax revenue fell at the fastest rate since 1932 thanks to the recession.

The Obama Administration wants to pile on even more federal spending, including a health-care “reform” proposal predicted to cost at least $1,000,000,000,000 ($1 trillion). In reality, Obamacare will likely cost far more than predicted, the way past health-care expansions always have.

One of Obama’s own advisers says the Obama Administration’s health-care plan will harm people with insurance while raising their taxes. CNN says Obamacare will take away 5 freedoms. It will also destroy many affordable health-care plans while breaking Obama’s campaign promises.

ObamaCare also contains affirmative action and subsidies for left-wing community organizers, and preferences for illegal aliens, who are exempt from its taxes and penalties, but may be able to access its benefits due to lack of meaningful eligibility verification safeguards.

Sen. Richard Shelby, LOL*

by Richard Morrison on March 9, 2009 · 1 comment

in Bailout Watch, Economy, Stimulus to Nowhere

We normally don’t spend much time praising elected officials here at OpenMarket, but I have to make an exception (this week, at least) for Sen. Richard Shelby of Alabama. Over the weekend he appeared on TV and trashed the seemingly endless series of financial services bailouts, making the case that if these companies are incapable of functioning without billions of taxpayer dollars, the government should simply let them go into bankruptcy:

“Close them down, get them out of business,” Shelby, the senior Republican on the Senate Banking Committee, said on the ABC television program This Week With George Stephanopoulos. “If they’re dead, they ought to be buried.”

Finally, a sensible response. To paraphrase a Fox News commenter from last week, how is it that Treasury officials and banking gurus keep telling us that companies like to AIG are “too big to fail”? If you can’t continue to exist without a continual cash lifeline from the U.S. Treasury, you’ve ALREADY failed. All that’s left is an empty husk being refilled with more and more deficit spending. For his honesty and disregard of the self-interested Wall Street types who simply want more government money, Sen. Shelby wins this week’s coveted *Least Objectionable Legislator award from OpenMarket.org. Keep up the good work, senator!

Thanks to our own Wayne Crews for creating the LOL Award. May it be more often deserved!

LibertyWeek 30: Whole Lott-a Love

by Richard Morrison on February 16, 2009

in CEI Projects, Podcast

Welcome to Episode 30 of everyone’s favorite podcast LibertyWeek, with your hosts Richard Morrison and Cord Blomquist and very special guest Jeremy Lott. We start with the end of the U.S. economy as we have known it: the $790 billion economic stimulus plan and its chilling consequences. We take note of Citigroup CEO Vikram Pandit’s pledge to work for $1 a year and celebrate some good news with Alabama’s plan to legalize beer with a higher alcohol content than most wines. We then enlist our listeners to defend against the War on St. Valentine’s Day and move on to Scandal Watch: Judd Gregg edition.

The highlight of our program comes with our interview with writer, raconteur and bon vivant around town Jeremy Lott. He talks about his book, The Warm Bucket Brigade: The Story of the American Vice Presidency, about Presidents’ Day and the best lunch to pack when hunting with Sarah Palin. Jeremy also takes on the much-anticipated Cool v. Drool Vice Presidential Snap Judgment Lightning Round. Finally we take some legal counsel with this week’s edition of Olympic News.