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Grow the Economy by Growing the Budget?

February 27, 2009

The Stimulus Bill debate has come and gone so now the numbers are here for all to see. The new federal budget has an unheard of deficit and unheard of spending for years to come. Let’s put the $3.6 trillion amount in perspective. In 1998 the total U S Budget was 34% of GDP and the average European government spent about 48%. In 2010 the total U S Budget will grow to 40% of GDP and the average European government will spend about 47%.
 
                                      United States Federal, State,
                                and Local Government Spending
                                           Fiscal Year 2006
                                            FunctionAmount     (billion)       Percent GDP
                                  Overall government spending
            Federal, State, Local                             $4,704.1               36.1
                            Spending by major government function
             Pensions                                                      $747.1                 5.7
             Health Care                                                $783.8                  6.0
             Education                                                   $786.8                  6.0
             Defense                                                        $622.2                  4.8
             Welfare                                                         $411.4                  3.2
             Interest                                                        $312.3                  2.4

The numbers are astounding so think about the spending in human terms. At some point all of us put on a pair of pants and guess what, they don’t fit. Now, the best way to look at this problem is to lose weight. Unfortunately, the President has decided it is better to buy bigger pants. Just as losing the extra weight would prove more healthy choosing bigger pants will have negative health consequences. 
 
We have decided to let the government take a dominant role in the economy to the detriment of the private sector- you and me. Think about this fact. I have traveled the world and in some pretty desolate places I have put my credit card in to a machine and received the local currency. At the end of the month I get a detailed accounting of my activities to the cent. On the other hand the U S Government can’t so something as simple as count votes. I am not anti government but I am aware of its limitations and drawbacks.
 
This profligate spending isn’t imaginary money, it is money which must be paid back to foreign governments who buy our debt. All of the extra spending is not free but is built on taking on more debt ( $6,000 per person), and we are transferring money from the taxpayer to fund  the government’s endless largesse. In some cases like health care $634 billion is a down payment for government universal health care when the reality is Medicaid and Medicare are unsustainable in their present form.
 
For the sceptics who remain unconvinced we are going down the wrong path with such a larger role for the Federal Government ask yourself a simple question about economics. Essentially, economics is about efficiency. Efficiency about time, money, people and labor to name a few.
 
In what instance in modern history has a centralized plan funded by the government, directed by the government and structured by the government delivered on its promise?
 
It was wrong when the recent Republican years in power added to the huge spending binge and it is tragic for us to think changing political parties and Presidents make it acceptable to do so.

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