America's Addiction to Big Government

by Robert Carbery
 

St. Louis FED (cut from fred.stlouisfed.org)
On Friday, April 7th, Congress left town for two weeks for Easter vacation. When they return to work on April 25th, they will have only four days to pass a bill to continue funding the federal government or there will be a government shutdown starting on the 29th.
 
Will we change the status quo or enjoy yet another shutdown of the federal government and watch the politicians attempt to spin it to their advantage? We’ll find out at the end of this month, on exactly the 100th day of the Trump presidency.
 
Thanks Obama…  
 
Herbert Stein, an American economist and former chairman of the Council of Economic Advisers under Nixon and Ford, formulated a truism that our politicians should take under serious consideration today. Stein’s law plainly says, “If something cannot go on forever, it will stop.” This is so obvious yet is so blatantly ignored.
 
Our federal government has grown to such a size that it has become completely unaccountable and ineffective. In the process of growing to its current size, the state has racked up almost $20 trillion of debt. The interest payments alone demand an ever increasing portion of the budget. Over the past 75 years, the net interest paid by the federal government in order to grow the welfare state and other non-essential bureaucracies has jumped from $889 million in 1940 to $229.2 billion in 2015.
 
And this interest payment is only going to jump higher over the next couple years as interest rates finally rise and get back to some semblance of normality after the recent recession caused by the government’s intrusion into the housing market.  
 
The Congressional Budget Office reports that overall spending by the federal government has increased by approximately $1.13 trillion over the past decade, while tax revenues have increased by only $699 billion during the same time period. This irresponsible accounting by our politicians and government agencies is outright theft. Unlike households across America, our federal lawmakers continue to spend vastly more than we take in. We cannot continue down this path of debt on top of debt to dig us out of debt.
 
This precipitous rise in federal debt over the last decade or so is no doubt a reflection of Bush’s horrendous Iraq War and Obama’s misguided big government policies. Still, the growth of government has been strong and steady since the Great Society in the 1960s. But it has exploded under Bush and Obama.  
 
Will Trump be any different?
 
Eventually the bill will become due and my generation and younger will be saddled with making that incredible payment someday.
 
We must act now to change this unsustainable trajectory. The spending habits by the federal government need to be revised right away and the many arms of the federal bureaucracy must be whittled down to its essential parts if we are to make this great American experiment last. If we can’t get this done during President Trump’s time in office, then we likely never will.
 
The president’s proposed budget is a step in the right direction but still does not address the root issues of the rising cost of running our bloated federal government. Trump’s budget outline jacked up military spending about 3 percent more than what Obama sought, then to offset this hike, he proposed cuts in other domestic programs, which angered many Democrats.
 
The cuts Trump proposed will come nowhere close to making any real dent in the massive mountain of debt. Still, small spending cuts are better than none at all. No matter the size of the cut, Democrats will scream and call Trump and Republicans “heartless” for daring to slow the rate of growth of the federal government, even a little bit.  
 
Sadly, once a government program gets going and voters start to receive the benefits of that (see Obamacare), it becomes almost impossible to repeal. More taxes on the rich and the productive hardworking members of society will only make matters worse.
 
A simpler tax system (in 1913 the tax code was 400 pages, today it is over 74,000) is required that will bring in more revenue without saddling businesses with onerous regulation or high income earners and employers with crushing taxes. Taxing something will ultimately bring you less of that, therefore, more taxes can easily lead to less revenue and a drop in productivity.
 
Whatever Trump and Republicans have planned for funding the federal government beyond this month, they better think fast. Again, they will have just four days to avoid another government shutdown on the 25th and I doubt we will find a bill that both sides find acceptable to pass in such a short amount of time.
 
The more things change the more they stay the same.