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I've updated these charts with the May figures released today by Treasury. The yawning gap between tax receipts and expenditures in the top chart equals about 9% of GDP ($1.3 trillion in the past 12 months), and it is very likely to continue to grow. We have't seen anything even remotely close to this degree of fiscal profligacy since WW II. Obama lectured Congress yesterday about how they should impose fiscal discipline by (again) adopting a pay-go rule, which would require all new spending increases be financed by either spending cuts elsewhere or higher taxes.This probably made for a good sound bite, but it is amazing that he exempted his own spending profligacy from the rule. The big problem we face in the years ahead is that his spending plans will ramp up federal government spending from the 20% of GDP level which was the average over the past 40 years, to 24-25%—a 20-25% permanent increase in the level of government spending. His budget, meanwhile, makes the heroic assumption that tax revenues, currently just a bit over 15% of GDP, are going to quickly rise by 25-30%, to 19-20% of GDP, a level we saw only briefly at the height of the dot-com boom. If tax revenues don't experience the most incredible surge that has ever been recorded, the deficit is going to be more than $1 trillion per year for the foreseeable future.
3 comments:
You might find this interesting:
http://blogs.ft.com/maverecon/2009/06/the-fiscal-black-hole-in-the-us/
Thanks. This reinforces my belief in the maxim: if a trend can't continue forever, it won't. We are on a fiscal course that can't continue forever, and I predict that at some point we will vote in a government that will shrink spending.
It might be instructive to look at the UK. Labour came to power in '97. Since then tax went from 38 to 45% of GDP as the govt spent money "improving" public services (health, education, policing). What that meant was hiring a lot of bureaucrats*; something like 2/3 of the job growth since '97 has been in the public sector (which I would guess, in aggregate, votes Labour). Has there been any improvement in public services? Well, over 97-07, public sector productivity declined by an average of 0.3% pa. Anecdotal evidence isn't good, either.
This seems to be the template for the US, and the fiscal "stimulus" (read: expansion of entitlement programs) is just the start.
*As a proportion of those hired, there were more administrators hired than doctors/teachers/policemen...and there are plenty of arguments against govt provision of healthcare and education, anyway!
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