Monday, May 08, 2006

US Debt 1: How Bloated is the US Govt?

The US has the largest economy in the world.
But it also is the most indebted country in the world.
And it has the biggest government spending, the biggest bureaucracy, in the world.
Just how big are the spending, and the taxes and borrowings to keep those huge expenditures?

Lucky that I checked the Mackinac website, and I saw Mr. Mark Brandly's article, "How big is Bush' big government?". For brevity purposes, I removed certain paragraphs; if interested to see the whole paper, please see

Below are the relevant numbers from Mr. Brandly's paper:

* Federal spending alone in fiscal year 2006 is expected to be over $2.7 trillion, which means the federal government spends $7.4 billion a day or $5.1 million in every minute of the year. This is 815 times the level of federal spending in 1930.

* This $2.7 trillion in federal spending breaks down to $9,000 per capita or more than $36,000 for the average family of four. If we add in all state and local spending, then total government depredations (a term Murray Rothbard used to describe the greater of government spending and government receipts) are currently over $4.4 trillion or about $14,700 per person annually.

* A significant portion of this spending is being financed with government borrowing. In 1930, the per capita debt load was $140 per person. The current federal total debt level is $8.4 trillion, which works out to around $28,000 per person. In short, the per capita debt load is 200 times larger than it was in 1930. Adjusting for inflation, the real debt per capita is still over 16 times more than it was in 1930.

* Federal government debt increased $553 billion in fiscal year 2005 alone. That's more than $1.5 billion of additional debt per day and over $1 million of borrowing per minute for every minute of the year. The interest on the debt in 2005 was $352 billion or more than $1,100 for every man, woman and child in the country. These interest payments are roughly equal to 37 percent of federal income tax revenues.

* Much of this debt is owed to the Federal Reserve. U.S. taxpayers are on the hook for $758 billion of government securities that are held by the Fed. So, on average, every person in the country owes the Fed about $2,500.

* One way to see the harm of government intervention is to realize its effects on our standard of living. The depredations of the state reduce the incentives to be productive, destroy our capital base and have a negative effect on economic growth. From 1959 to 2005, adjusting the numbers using the implicit price deflator, real Gross Domestic Product increased an average of 3.37 percent annually.

* Consider the possibility that government interventions reduced real economic growth 1 percent annually during this time. If there had been an additional 1 percent per year economic growth since 1959, then real GDP would currently be 55 percent higher than it is. The 2005 GDP of $12.5 billion would have been $19.3 billion. The median family income is estimated to be $44,389. A proportionate increase in this statistic results in a median income of $68,800.

* In this scenario, a worker with a salary of $44,389 who is losing 35 percent of his salary to taxes has a tax liability of $15,536. After paying the various types of taxes he gets to keep only $28,853 of his salary. With the extra 1 percent growth per year since 1959, if that worker represented the average, his gross salary would be $68,800 and he would get to keep all of it.

* It is conceivable that the $4.4 trillion of annual depredations could have caused more than 1 percent annual damage to our economic growth since 1959. What are the implications of a 2 percent negative impact on GDP? If the absence of interventions had added an additional 2 percent annual growth, this would have resulted in 141 percent more output today. The 2005 GDP would have been over $30 trillion and the median family income would now be $107,000. The worker described above with the $44,389 gross salary and the $28,850 of after tax pay, would have an income of $107,000. The depredations have reduced his net income by 73 percent.

* Those of us making the case for liberty have logic, history and morality on our side. Government intervention is immoral and should be stopped for that reason alone. However, the economic costs of the intervention are also important. Part of the appeal of freedom is that it leads to tremendously higher standards of living and these numbers show that government interventions that cause seemingly small amounts of harm, over time, impoverish a society.

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