U.S. Budget and Economy

The first graph in my prior post shows that total outlays rose from about 18 and a half percent of GDP in 2000 to about 21 percent of GDP in 2008 and, after a large spike in 2009, are projected to continue at about 22 percent of GDP through 2014. As a help in determining the cause of this rise in outlays, following is a more detailed version of the second graph in that post: In addition, following is a table that shows the change in the nine major components of actual federal outlays from 2000 to 2008 and of projected federal outlays from 2008 to 2014: CHANGE IN FEDERAL OUTLAYS (percentage of GDP) Commerce Undist. National Income Social Net & Housing Offsetng Other Total Years Defense Health Medicare Security Security Interest Credit Receipts Outlays Outlays ----- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------...

There has been a great deal of discussion about the role of spending in the current and past deficits of the federal government. Since the most commonly referenced deficit, the unified deficit, is equal to federal revenues minus federal outlays, deficits are affected by all items that affect revenues and outlays. These items include tax rates, economic activity, and spending. Regarding spending, I have posted a number of graphs and tables that look at spending from 1940 to 2014 at the following links: Outlays in Billions of Current Dollars Outlays as a Percentage of GDP The following graph shows total federal outlays and receipts since 1940: The actual numbers used to create this graph can be found at the second link . As can be seen, total receipts have mostly been in the 17% to 19% of GDP range in the 54 years since 1954. They have only dipped below 17% of GDP in five years, reaching a low of 16.1% of GDP in 1959 and they have risen above 19% in just nine years, reaching a high ...

My prior post suggested that the initial events that lead to financial crises are more likely wars, not the periods of paying down the resultant debt. The following graph shows the federal debt held by the public during major wars since 1790: The actual numbers and sources can be found at this link . The graph shows the federal debt as a percentage of GDP, as opposed to my prior post which deals with the current dollar amounts. The debt as a percentage of GDP gives a better measure of our ability to service the debt since the government receipts used to pay the interest have remained around 18 percent of GDP for the past 50-plus years (see the first graph at this link ). In any event, the graph shows that there was a tremendous growth in the debt during the Civil War, World War I, and World War II. The growth in debt was much more rapid than any paydown in debt after the war. The growth in debt during the Mexican-American War and the War of 1812 was much more modest but the paydo...

According to this link , Frederick C. Thayer, a professor of Public Administration at George Washington University, wrote an article titled "Do Balanced Budgets Cause Depressions?" for The Washington Spectator on January 1, 1996. Following is an excerpt: Even though the sequence that begins with budget-balancing and ends with depression has been common in American history, the question of a linkage has been ignored. The following paragraphs include all the basic data: 1817-21: In a period of five consecutive years, the national debt was reduced by 29 percent, to $90 million. The first acknowledged major depression began in 1819. 1823-36: In a period of 14 consecutive years, the national debt was reduced by 99.7 percent, to $38,000, a virtual wipeout. This didn’t help either. A major depression began in 1837. 1852-57: In a period of six consecutive years, the national debt was reduced by 59 percent, to $28.7 million. A major depression began in 1857. 1867-73: In a period of s...

As stated here , the OMB (Office of Management and Budget) released the final volumes of the President's FY 2010 Budget on May 11th, 2009. These included the Analytical Perspectives which contains a section on the long-run budget outlook. On June 25th, the CBO (Congressional Budget Office) released the Long-Term Budget Outlook . The following graph shows the outlook for the federal debt held by the public as projected by both documents. The actual numbers and sources for this and the following graph are at http://www.econdataus.com/pro2010.html . As can be seen, the CBO document provides two projections, one for the "extended baseline scenario" and one for the "alternative fiscal scenario". The former appears to be very close to 2010 Budget projections. Regarding these projections, the 2010 Budget states the following on page 190 of the Analytical Perspectives: The long-run budget projections in this section extend the particular policies proposed in the ...

As reported by numerous news sources, California now faces a $21.3 billion gap between revenues and spending. Many have attributed this gap chiefly to increases in spending. For example, a February 18th article from the Reason Foundation is titled "What Caused the Budget Mess? California's Spending Has Nearly Tripled Since 1990". According to the article, state spending (including the General Fund, special funds, and bond funds) has nearly tripled from $51.4 billion in FY 1990-91 to $144.5 billion in FY 2008-09. The numbers in the first table at this link agree with the 1990-91 figure but show $136.2 billion in 2008-09. The small difference is likely because this latter figure is an estimate which continues to change. Still, this represents an increase of 165 percent. The problem with this comparison is that the figures are not corrected for inflation or the growth in California's population. In fact, the article states the following in a later paragraph: If ...

According to a number of news stories, Chinese Premier Wen Jinbao expressed concerns about China's holdings of U.S. government debt on March 13th. Following is the opening paragraph in a March 14th article in the Washington Post : Exerting its new influence as the U.S. government's largest creditor, China yesterday demanded that the Obama administration "guarantee the safety" of its $1 trillion in American bonds as Washington goes further into debt to combat the economic crisis. Further on, the article states: China surpassed Japan last year as the largest foreign holder of Treasury bonds. Any indication that it intends to cease those purchases -- or, worse, stage a sell-off -- could drive up the cost of borrowing for the U.S. government, as well as send mortgage rates higher for millions of Americans. To my knowledge, the chief source for the amounts of Treasuries held by foreign countries is the Treasury Department. Each month, it posts updated estimates of the fo...

An overview of the fiscal year 2010 U.S. Budget was released on Thursday, February 26th. A link to the overview can be found on this page , along with the following description: A New Era of Responsibility: Renewing America’s Promise , provides a description of the Obama Administration’s fiscal policies and major budgetary initiatives. This document is an overview of the full Fiscal Year 2010 Budget expected to be released this spring. The overview contains 9 summary tables which give actual budget numbers for 2008 and projected numbers for 2009 through 2019. These numbers can be combined with historical budget numbers from the prior budget to look at historical and projected budget data from 1940 through 2019. The following graph shows selected measures of the deficit since 1970: The most commonly discussed measure of the deficit is the unified deficit, shown in purple. The graph shows the actual values of the unified deficit through 2008 and projected values from 2009 forward. In ...

On February 6th, the Bureau of Labor Statistics (BLS) released its Employment Situation report for January of 2008. Following is the opening paragraph: Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors. The following graph shows the labor force, household survey employment, nonfarm employment, and unemployment rate since 1998: The actual numbers and sources for this and the following graph can be found at this link . As can be seen, employment has decreased and the unemployment rate has increased sharply since December 2007, especially in the past few months. Also noticeable is the fact tha...

Note: There is a updated version of this post at this link . On January 30th, the Bureau of Economic Analysis issued its initial estimates of the real gross domestic product in the fourth quarter of 2008. Following is the beginning of the accompanying news release : Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 3.8 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent. The Bureau emphasized that the fourth-quarter “advance” estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4). The fourth- quarter “preliminary” estimates, based on more comprehensive data, will be released on February 27, 2009. The release goes on to describe the...

On January 7th, the Congressional Budget Office (CBO) released its latest budget and economic projections. The report is titled The Budget and Economic Outlook: Fiscal Years 2009 to 2019 . The following graph shows the deficit under selected policy alternatives as projected by this report: The actual numbers and sources for this and the following graph can be found at this link . As can be seen, the baseline deficit (the purple line) is projected to plunge to $1.2 trillion in 2009 and recover over the next three years, stabilizing to just over $200 billion per year from 2012 through 2019. However, other means of financing will cause the debt held by the public to increase an additional $313 billion in 2008 and $204 billion in 2009. The report explains this other financing on pages 18 to 20 as follows: Federal Debt. In most years, the amount of debt that the Treasury issues roughly equals the annual budget deficit, although a number of other factors also affect the government’s nee...

On January 9th, the Bureau of Labor Statistics (BLS) released its Employment Situation report for December of 2008. Following is the opening paragraph: Nonfarm payroll employment declined sharply in December, and the unemployment rate rose from 6.8 to 7.2 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment fell by 524,000 over the month and by 1.9 million over the last 4 months of 2008. In December, job losses were large and widespread across most major industry sectors. A number of news articles stated this to be the worst job losses since 1945. For example, a Wall Street Journal article was titled "Yearly Job Loss Worst Since 1945" and a CNN Money.com article was titled "Worst year for jobs since '45". In fact, the preliminary figures for the loss of nonfarm jobs in 2008 is 2.589 million jobs and this is the highest figure since 2.75 million jobs were lost in 1945. The following graph from the BLS...