01/25/10 New York, New York The recession and attendant financial shock appear to be easing as I write this. But in Washington, financial imprudence is part of the fabric of government. You can see that in a single document that gets updated every year: the US budget. In putting together the budget, the president and Congress set our national priorities and allocate resources among them. The results have been pretty consistent. Over the forty years ending in 2008, revenues have averaged about 18.3 percent of our economy and spending has averaged over 20.6 percent, resulting in an average deficit of about 2.4 percent.
But that gap began to widen under Bush 43, who cut taxes while starting two wars, bolstering homeland security, adding an expensive prescription drug benefit to Medicare, and increasing other spending. In 2007, the federal deficit stood at $161 billion, or 1.2 percent of our economy. In 2008 it was $455 billion, or 3.2 percent. In 2009, figuring in the billions spent to pull our economy out of recession and on various bailout efforts, the deficit rocketed to about $1.42 trillion, 9.9 percent of our economy.
In Washington, they speak of our “fiscal exposure” – the sum of all the benefits, programs, debt payments, and other expenses that will cost us big bucks in the future whether or not we want to cut spending. The term I’ve used for all of that is our “federal financial hole.” In the first eight years of this century it has grown from $20.4 trillion to $56.4 trillion – a 176 percent increase.
Maybe you have a few bills – mortgage payment, auto loan, cable TV, phone – deducted automatically from your checking account. How would you feel if those expenses had risen 176 percent in eight years while your income remained steady?
The hole is getting deeper because we are doing little to bring our income into line with our spending. And until now I haven’t even talked about the interest payments on our federal debt. Suppose our government fails to increase federal revenues above the current rate. Based on the GAO’s latest long-range alternative budget simulation, within about twelve years, our interest payments will become the largest single expenditure in the federal budget. By 2040, all of our federal tax revenues will add up to enough to cover only our two biggest expenses: interest on our debt and Medicare and Medicaid. Everything else – Social Security, defense, education, road building, you name it – will fail to be funded.
As you know, benefits payments are the biggest chunk of the government’s massive obligation. Since the 1960s, the growth of these mandatory payments has overtaken what we spend on defense as a share of our national output – and what we spend on everything else in our federal budget, from law enforcement to border protection, children’s programs to national parks, highways to foreign aid.
Although defense has declined dramatically as a percentage of the overall federal budget over the past forty years, we have actually increased total defense spending. In recent years, we have added resources to fight terrorism abroad. That means that other discretionary programs are much more susceptible to cutting. These include education, research, transportation, infrastructure, and other programs that, if properly designed and effectively executed, can promote economic growth and development. How will squeezing those areas serve to keep America great?
All of this puts us in a major-league quandary. Our nation has to bring what we earn into line with what we spend at a time when our spending literally is out of control. One option – cutting investments in America’s future in order to finance our large and growing mandatory spending programs – is another way of cheating the next generation. Unfortunately, today we are both cutting our investments in the future and handing our descendants a mountain of debt. That is a double whammy for young people and the unborn. It’s not just irresponsible, it’s immoral and downright un-American.
David Walker
David Walker served as United States Comptroller General from 1998 through to 2008 and is now the President and CEO of The Peter G. Peterson Foundation. He is also the author of Comeback America: Turning the Country Around and Restoring Fiscal Responsibility.
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“The recession and attendant financial shock appear to be easing……”
Ugh. Let me get this straight you open up with that and then go on to say among other very similar statements such as below that things are to paraphrase very much Hell in a Hand Basket.
For example, foremost
“All of this puts us in a major-league quandary. Our nation has to bring what we earn into line with what we spend at a time when our spending literally is out of control.”
And foregoing to that…..
“The hole is getting deeper because we are doing little to bring our income into line with our spending.”
I’m confused. What do you mean? If the recession appears to be ‘easing’ then how can you lucidly write the rest which is highly negative of the current ‘deep hole’ situation? Which is it? An easing recession or is our digging a deeper hole as you point out under any intelligent analysis conceivably easing it? It can’t be both and make clear sense, can it? Or is this some way to make us think through convoluted logic and somehow get the point that we’re in deep dookey but you know things appear to be ‘easing’. Again, what do mean by ‘easing’? Does the increasing unemployed in any way shape or form indicate an easing of a recession? Does the number of foreclosures indicate an easing of a recession much less the Alt-A and ARM resets looming just up ahead indicate an easing of a recession? Does the commercial RE collapse at hand indicate an easing of a recession? Do all the dismal numbers coming out of retail, manufacturing, state revenues and attendant budget deficits etc., indicate an easing of a recession? Do any of the above point towards that by any stretch of the imagination? How can it? I guess it could if you’re delusional or at best academically shizophrenic.
You’ll likely take offense as to how I unfairly in your mind ripped this apart. Nonetheless of the subjectivity, here’s one good way to avoid this next time: tie an essay cogently together which doesn’t waste everyone’s time having to read see-saw logic drivel and that ultimately doesn’t make any contributory sense. The point is what have we really learned from you that we already haven’t heard from ad infinitum pundits out there? What’s revelatory here? I’ll answer for you. Nothing. Yeah, we’re in deep dookey and yeah we’re mortgaging our future. No sh$t. Who doesn’t know this by now that has a solid non-politicized economic background? [Although by you mentioning Bush here and interestingly not naming Obama (much less Clinton) by name you know kinda raises my hackles for some reason or another.]
C’mon. You’re highly educated. You can do better than this.
RH
ps. I came across critical harsh here I know. But you know what, I’m really tired of the blather and very little substance getting spewed out on the internet by every other ‘expert’ on the economy when it’s obvious they need to get some editing done first before they post this sort of pabulum. And it’s obviously getting too easy for too many to do it.
Note: Edited to remove profanity.
Easy fix, go back to a constitutional government and sound currency. Get government out of where it does not belong.
Wow! This type of article from the Daily Reckoning. DR guys, is this a depression or not? I have a great idea of what type of environment this is. I guess perhaps the recession is easing…into a depression. Please read the articles first before you grab them from cyberspace and post them on here. Perhaps Walker is selling a book or something. That seems to be what all the “experts” do nowadays.
Rick, i think you are delusional. One comment was about the CURRENT economic situation, while the other was about the gloomy LONG TERM fiscal prospects due to the goverments future obligations. See the difference? Mellow out dude, everything isn’t just black or white.
The ‘current’ economic situation is described as ‘easing’. Then we get to who’s delusional here. Since apparently you’ve bought into that what else needs to be said thereafter?
The current situation in case you don’t know IS getting WORSE. It is NOT EASING by any stretch of the perverse imagination. To say otherwise is just unadulerated dreck coming from an author who should know better.
And again, this is just more ‘no sh..’ pabulum addressing our long term fiscal prospects. Who doesn’t already know this? Again, a no sh.. moment. I mean c’mon. If we’re going to write about the economy at least make it interesting and half-way original and innovative at this juncture. Tell us something we don’t already know IOW or save the bandwidth for somebody else with something to say that makes a difference.
I’m chillin – but annoyed nonetheless with this sort of feel-good propaganda that you seen all the time from the MSM about how things are really looking rosier. I don’t expect nor want to see it on quality reads such as DR.
RH
How about “freezing” military spending….eliminate two illegal wars, slaughtering untold numbers so we can have a deficit, so we can crush all social amenities, so that we can destroy labor, so that, blah, blah, blah, blah….and save a TRILLION DOLLARS in a flash….
But, Obama (I’m non-partisan) has taken the military budget “off the freezing” table…..
So much for realities.
And, I agree with most of the other commenting readers; we are slipping slowly but surely into a deeper pit…….
Last year….2.8 million foreclosures; this year (2010) expecting officially 3 million…so enjoy the slide!!
This site needs some better writers…..