Ring in the Old

This is an excerpt from an article in Barron’s, October 6, 2014, by Thomas Dolan.

Happy New Year? Cries of joy and good cheer did not ring out Wednesday, when the U.S. government closed out fiscal 2014 and opened the books on fiscal 2015. There was little to celebrate, except that it’s over.

If you wonder why the U.S. government cannot control its finances, you can use the Brookings Institution’s new Fiscal Barometer, a product of its Hutchins Center on Fiscal and Monetary Policy. In the past 12 months:

    • Individual and payroll tax collections were up 7.5%, to $2.394 trillion.
    • Corporate and other collections rose 13.1%, to $570 billion.
    • Defense spending shrank 4.9%, to $580 billion.
    • Social Security benefits grew 4.5%, to $836 billion.
    • Medicare benefits paid by the federal government rose 2.1%, to $487 billion.
    • Medicaid benefits paid by the federal government grew 11.4%, to $294 billion.
    • Interest on the public debit climbed 5.4%, to $271 billion.
    • Federal spending on everything else, from foreign aid to welfare to bureaucrats’ paper clips, advanced 0.6%, to $1.013 trillion.

Total receipts were up 8.5%, to $2.965 trillion, while total outlays rose 1.0%, to $3.481 trillion. In the same period, GDP was expanding at an annual clip of about 2.6%.

What this means is that the federal government can regain control of its fiscal affairs. In the three places where Congress and the president have chosen to fight deficit spending, they have succeeded. Thanks to the much-derided sequester, tax receipts are up, defense spending is down, and the discretionary cost of general government is rising much more slowly than the economy.

But in mandatory spending, or entitlements, the government has tied its own hands. These programs roll along upward without serious review. When all is said and done, a succession of Congresses and presidents of both parties have refused to make changes to spending programs that constitute more than half of the federal budget.

And American attitudes about the national debt are changing. As William Gale of Brookings recently observed, “It is interesting that many people who thought former U.S. President George W. Bush’s agenda was unaffordable back when the debt-to-GDP ratio was half as big as it is now, feel that a ratio of 74% is nothing to worry about even though the debt is predicted to rise further.

People who complain about the sluggish economic recovery are giving more power to the elected officials and popular economist who call for more spending, more borrowing, and more stimulus. Such policies actually produce the illusion of economic growth, just as a dead frog’s legs twitched when Luigi Galvani applied an electric current to its muscles.

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