America's Deficit Spending Addiction

Like a junkie that keeps increasing his fix to get the same high, the U.S. Government deficit spending addiction has expanded by an all-time record 9.66% compound annual rate of the growth over the last thirty years. Even during the tumultuous three decades that included the Great Depression, World War II and the Cold War, the U.S. deficit only expanded at an 8.51% compounded growth rate. Fortunately, the American people are increasingly convinced that feeding this addiction not only does not work; it might be dangerous.































































Decade



Debt (billions)



% of GDP



Compound % Increase



1930



16.2



Base Year



Base Year



1940



50.6



52.4



12%



1950



256.8



94.0



17%



1960



290.5



56.0



2%



1970



380.9



37.6



3%



1980



909.0



33.4



9%



1990



3,206.3



55.9



13%



2000



5,628.7



58.0



16%



2010 (est.)



14,456.3



98.1



19%



U.S. Federal Reserve Chairman, Ben Bernanke, earned the title “Helicopter Ben” from critics who latched onto his quote; “The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it wishes at no cost.” Mr. Bernanke went on to state that the Federal Government could always rent helicopters and fly over cities dumping out cash to get the economy moving. This is the equivalent of the “pusher man” who gives out free samples of narcotics expecting that the users get hooked.

From the outset of the financial crisis, the U.S. Federal Government has been flying its helicopters over America and sprinkling huge amounts of money on programs such as, “Making Homes Affordable”, “Cash for Clunkers”, unemployment benefit extensions, infrastructure boondoggles and various Wall Street crony bailouts. This spending and guarantee orgy during 2009 resulted in a U.S. budget deficit of $2.5 trillion and only generated an incremental increase in GDP of $200 million. Only government can avoid going to prison for involuntarily taking a dollar from a person, squandering 92 cents and giving a nickel and three pennies back.

Passage of the $787 billion American Recovery and Reinvestment Act (ARRA) was trumpeted as the silver bullet to save the economy and create 3.5 million jobs. The Administration estimated that although each job would cost taxpayers $92,136, the resulting increase in gross domestic product of $105,000 would more than pay for the cost. But a referral to “Recovery.Com”, the official U.S. government web site regarding ARRA “funded jobs”, states that only 681,825 jobs have been funded so far and at a cost of $117,933 each. Consequently the US Government actually spent $25,797 in overhead cost for a make work job. Further more, given that the average American working in the private sector makes only $36,400 per year, it would take the equivalent of 3.24 full-time workers taxed at 100% of their annual income to pay for one make work job.



The U.S. Federal Reserve in their April meeting continued to predict that unemployment will fall to 9.3% this year and 8.2% in 2011. In order to achieve this reduction, the U.S. economy would need to add 385,000 jobs each month through December of this year and 323,000 each month next year. With the trend of initial jobless claims running above the 400,000 level where the economy starts to add net jobs, these numbers seem psychotic.

The “generosity” of the U.S. Government with Americans’ money is not only restricted to our domestic concerns. In a show of support for the European $1 trillion bailout of Greece, the U.S. Federal Reserve opened up U.S. dollar swap agreements with the European Union, England, Switzerland and Canada. Since the Federal Reserve is not required to be publicly audited, we will never know how big of a commitment the taxpayers will be responsible to pay.

The only possible alibi the U.S. Government can provide to support their deficit spending is that it encouraged a massive increase in discretionary personal consumption. Unfortunately, this focus on conspicuous consumption versus productive investment is why U.S. industrial production as a percentage of GDP has been cut in half over the last 30 years. Today, the GDP of the U.S. is only 22% industry and 77% services versus the GDP of China of 49% industry and only 40% services. With the average age of Americans increasing and their savings rate for retirement having expanded by 4% since the beginning of the financial crisis, we may have reached the tipping point that explains why consumption targeted government stimulus is a failure.

It is clear that deficit spending has not only been ineffective, but has dangerously skewed the American economy to focus on consumption versus production. If the definition of insanity is doing the same thing over and over and expecting different results, then it is time for Americans to force their government to go “cold turkey” and break the long term addiction to deficit spending.

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