Wednesday, November 30, 2005

Apocalyptic Federal Spending?

I keep repeating myself, over and over. Yet it seems no one is really concerned. What am I repeating? The fact that federal spending has not had a decrease in forty years. Does that statement just float through the brain with no impact? Never decreased, no matter what the economy, no matter what the political situation, it continued to grow. Is no one frightened?

Lets create a example of common sense spending. Think of your family finances. You operate on a budget, and some years you need to make large purchases. When you buy a house, your expenditure goes up. If you have significant medical issues one year, there is a increase in your spending. Yet in most budgets, to compensate for the increased spending, we borrow money or cut spending in other areas, or both. Then we wait until we have paid the debt, or experience a increase in income. The goal is to create a economy for your family that grows and provides for your needs and future security.

How about the budget of a small town? Some years new schools are needed, or a new firehouse. Spending is increased, and the increase in community value is paid for over time or through increased revenue. Increased taxation or increased population are the primary sources of revenue growth. However, for a normal small town, the budget shrinks or grows to reflect community need pretty closely.

Now we come to the Federal government. What happens when the country needs to enlarge the military? Spend more. How about welfare? Spend more. Medicare? Spend more. All fine and dandy, but what happens when income decreases? Spend more! At times when I get on this issue, the question is raised about inflation adjustment. Well, take the 1962 budget of 106.8 billion. Using the handy inflation calculator, we find that it equals 642.17 billion dollars in 2004. Ok, the budget has increased by 3.5 times the rate of inflation. Another argument is based on population growth, but in the same 42 years, population increased by around 60%. So the spending growth is not directly related to these external factors.

What is the spending growth related to? Well the dominant factor is income growth, the more money coming in, the more money there is to spend. This is the positive benefit of capitalism, continued wealth creation. Yet, Federal income growth has some ups and downs. And it has even gone negative in three different periods during the last forty years. The reduced income is made up by increasing the deficit. There was a big push in the nineties to decrease the deficit which was successful politically in part due to income growth. Yet again, during the same period, spending increased. Would they have had the will to reduced the deficit if there was no income growth?

What is the end result of the scenario? Eventually, if spending always increases, income growth must increase, and the deficit must increase, to the point where taxation must increase. We know that increased taxation slows overall economic growth, leading to decreased Federal income. But why must we face this? Is there no politician willing to run on the premise of decreased spending? Are the constituents this ignorant? Imagine the amazing growth this country could be experiencing right now if we had taken major Federal spending cuts even once in the last forty years. It seems even more compelling considering where most of that money has gone.

We have made the least efficient use of that money socially by creating entitlement expectations. Socialized redistribution of wealth only slows the most productive segments of society and enlarges the least productive. Its a very dark future, and some would claim its the end of the world as we know it. Fear the Federal Spending Apocalypse! Or at least wake up to the simplicity of common sense spending when you go to the ballot box.

If it seems harsh to label this phenomena so negatively, get over it. We are in a dark hour, when no conservative will stand up in front of this insanity. And the perception of political suicide if you cut anything is a palpable reality in Washington affecting even those who we thought to be solid. The socialist infiltration has penetrated to the very core of our Republic, and there is no Reagan on the horizon. Who will stand up?

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