Federal Budget report: The war is a very small part of the budget. Most of the budget is for "Social Programs" (taking almost 60%, effective is more like 68%). Look at the budget pie chart.
See below:
Federal Spending of $2.3 trillion Consumes - - 26% of the Economy, or $7,835 per man, woman and child or 36% of the economy counting regulatory compliance The Social Spending portion consumes 58% of the total, and has increased 14 Times Faster Than The Economy and - individual incomes pay 82% of all federal revenue compared to a 51% share in 1950 Here are a few sample color graphics from the Full Federal Government Spending Report Today's economy is 8 TIMES more federal government-spending-dependent, compared to prior generations. The left chart shows total federal spending as a share of the economy - growing from 3% of the economic pie prior to the New Deal, to 26% of today's economy. Had total federal spending been reduced following World War II, equivalent to reductions of the defense spending ratio, the current federal spending ratio would be about 13% of the economy - - instead of today's 26% ratio - - resulting in 50% less spending and taxes. Political leaders chose, instead, to eat up all defense reductions PLUS much more via massive social spending - - much financed by debt. Who was it that said we are a nation of small government with a predominant free-private sector? Well, we used to be - - but, no longer. Does this impact the future economics and freedom of our younger generation. You bet. Summarizing: the federal share of the economic pie increased 800%. A POWERFUL, REVEALING PICTURE - FEW HAVE SEEN Question: What has caused the explosive growth of federal spending faster than the economy? Answer: look for the line in this chart that has risen the most over that period. The BIG CULPRIT(rising red line) is SOCIAL SPENDING, which grew 14 times faster than the economy - - to a new high - - more than eating up the long-term decline of defense spending ratios, shown by the black line in the chart. The full report shows once the social spending ratio rose above 5% of national income in mid 1960s, citizen trust in government plummeted to half prior levels - - and inflation-adjusted median family incomes stagnated for all families and fell for single wage-earner families. Note social spending (red line) stopped rising in the early 1980s as if it hit a brick wall, and then fell - - and, other data show trust in government surged, only to fall back later as social spending ratios again climbed. This is a powerful finding that deserves more attention. (the full report contains a link to a special report and chart on citizen trust polling data). This trend (red line) is unique in U.S. history. The declining black trend line is defense spending, which in 2001 had dropped to 3.7% of the economy's national income, below where it started - following a 4-decade downward slope - - yet, national security was the prime reason our founding forefathers formed a federal government. By 2003 the black defense line increased to 4.6% of national income as shown in the graphic. This trend calls into question our nation's focus and readiness to detect and deter major national security challenges. In THIS REPORT, we will first look at what elements control the federal budget - - from where came the explosive, unprecedented increases - - and then the larger picture, showing the economy is up to 10 times more federal spending-dependent than for prior generations - nearly all said increase attributed to consumptive social spending, a category not included by our foundingforefather's4principalreasonsforfederalgovernment. This has serious future economic and security challenges for our younger generation.
WHERE DOES THE MONEY GO ??
We have seen in the Government Spending Report and in the Government Growth Report that the federal government has increased its spending at a rate much faster than growth of the economy (nearly twice as fast) since the end of World War II). Where does the spending go? Last year the federal government spent $2.3 Trillion, or about $7,835 for each man, woman and child in America.. The left chart displays this $2.3 Trillion as a pie chart, with each major spending component (slice of the pie) shown as a percent of the total. 1. The BIGGIE is that HUGE RED CLOUD in the chart called SOCIAL PROGRAM Spending, which consumes 59% of the budget. (To place this in perspective, in 1948 social spending was but 10% of the federal budget - - prior to the New Deal it was near zero).
4. Defense is next at 18.8% of the budget. From the Special Summary Report it is shown that national defense was the number one reason our founding forefathers gave for forming a federal government, yet it is allocated but 19% of the budget - - meaning 81% of federal spending is on other things mostly not included in their reasons for forming a federal government. (see National Security Report) 5. 'Other' in the chart represents the balance of the government, which consumes 14% of the total for such items as FBI, Treasury, Interior, Justice, EPA, etc. - which lately has been rising faster than the economy. Take a look at the red slice representing social spending. It appears like a great cloud, growing to consume and squeeze out the balance of the budget. Remember: in 1948 the social spending slice was but 10% of the budget. Compare that to today's 59% share of federal government spending, which consumes 6 times more of the budget pie than in 1948.
Additionally - since the Federal Debt Report shows today's debt was caused by social spending, then the 7.1% share above for debt interest should rightfully be combined with the 59% social slice of the pie - bringing total effective social spending to 68% of the budget. Some readers are shocked to note the above chart shows Foreign Aid is only 1% of federal spending - - some having previously thought it was a much larger part, which could be cut to solve most other problems like social security or eliminating the debt. While of course foreign aid could be cut, this chart shows that you would be playing with a very small part, and such would not materially impact the big picture. We want to identify and concentrate on the BIGGIES, and their trends, compared to prior generations - - and leave others to play with the 1% areas.
Social spending is that 'biggie,' as the chart clearly shows. AND- that does not include the over $1 trillion regulatory compliance costs imposed on the private sector by federal bureaucrats
You may have seen this chart elsewhere in the Grandfather Government Spending Report chapter. It is repeated here because it includes the per capita national average for spending by the Federal Government - the middle bar in chart at the right - at $7,835 per person. This equates to $31,340 for a family of four. - and that does not count $5,155 in state & local government spending per person, as shown in the chart's right bar. If today's federal spending ratio was equivalent to the spending ratio prior to1930 (at 3% of national income instead of today's 26%), then per capita spending by the Federal Government would be $904 today, instead of the 8 times higher spending of $7,835 per person shown in the chart. That excess spending today amounts to $6,931 per person, or $27,724 per avg. family of 4. If families could pay the significantly less taxes required to support the prior spending ratio, would that increase their living standards, saving rates and financial security? Of course !! Are neighborhood streets safer today? Is today's education system better preparing the current generation to face the future, than the system of prior years prepared past generations to meet their challenges? No!! How do we justify this extra drain per family drain for government? The author could not find any justification, since education quality is less today than before and less than foreign nations, crime rates are higher, the percentage of families without 2 parents is higher, real median family incomes are not climbing long-term as in the past, and household debt ratios are climbing to record levels while personal savings rates are falling.
A POWERFUL, REVEALING PICTURE THAT FEW HAVE SEEN Trends of KEY COMPONENTS of federal spending as a percent of the economy -a dramatic picture clearly revealing the key CULPRIT as SOCIAL SPENDING Explosion - The next chart shows the trends of total federal spending as a share of the economy (measured by national income) over the past 50 years (since the end of WW II), with total spending divided into 4 components: Defense, Social (sum Social Security, Medicare, Medicaid/health, welfare), and net interest. This chart tells a lot, and is one few have seen - - and, one social spenders do not want us to see. Its not difficult to understand. Just look for what goes up and what goes down - - and then challenge your friends with that knowledge. Pretty simple. Question: What has caused the explosive growth of federal spending faster than the economy, as shown in the Government Spending Report? Answer: 90% of the increase was due to consumptive social spending and 10% to interest - and the interest was also due to social spending, because government borrowed much of that social increase. To identify the prime culprit, look to this chart for the component rising the most. In the left chart the declining black trend line is defense spending, which currently is 4.6% of the economy's national income, 29% less than 1947's ratio at the left side of the chart and 73% less since its Korean War peak 4-decades downward. So, defense was not the culprit for government spending increasing faster than the economy. In fact, the savings from declining defense ratios of 12 points since Korea should have been transferred back to the private sector, instead of being retained by the federal government. Had this occurred, then today's federal government would be only 10% of the economy, instead of today's 26% ratio. Had this occurred, the private sector's share of the economy would have expanded 12 points, instead of contracting. But - - as we will see below, defense savings were not released back to the private sector but were retained by government for a big culprit not intended by our nation's founders. The BIG CULPRIT(rising red line) is SOCIAL SPENDING, at 14.6% of national income - - which grew 14 times faster than the economy - - eating up every penny of the decline in defense ratios. This trend is unique in U.S. history and is the root-cause of many, many economic ills impacting our young generation's future and the expansion of government's share of the economy. Look CAREFULLY at the red social spending ratio curve - it rose straight up for 36 years and in 1983 stopped rising as if hitting a brick wall during the Reagan Era, dropped 2 points and then soared upward in the 1990s to today's ratio well above that of the later 1980s (in fact, $300 billion above that ratio). The declining black trend line is defense spending, which has dropped to 4.6% of the economy, below where it started - following a 4-decade downward slope - - yet national security was the prime reason of our founding forefathers for forming a federal government. This trend calls into question our nation's focus and readiness to detect and deter major national security challenges. Camouflage?? This chart gives the appearance that increased spending on defense in the mid-1950's (Korea, Russian threats on Europe, etc.) was later used as a camouflage for the beginning of a major socialization expansion of America's government - as shown by the rising red line. As Korea, Vietnam and cold war defense ratios declined, instead of returning these savings to the free-market private sector as was done after World War II, from which the money had been extracted for necessary military purposes, many cried 'peace dividend' to justify government holding on to these defense savings and consuming same on a socialization expansion (note rising red line) - - as if it were free lottery money that government, not the private sector, had true ownership for. Now that defense has declined to well below its post WW II level the 'chickens are coming home to roost', because defense reductions will no longer camouflage social spending - unless defense is so cut as to possibly jeopardize the number one principle established by our founders as the reason for having a federal government > national security. Additionally, if in the mid-1990s the proposed national healthcare plan had been implemented as an add-on 'big culprit' to the top of the above red line - - you can guess what this chart would look like by now. You get the picture. The 'camouflage game is up' - or is it? Interest (blue line) today of 2% (for net interest) on the federal debt takes up about the same ratio compared to the left side of the chart - - due to record low manipulated interest rates vs. record high debt. As noted above, this ratio is for net interest and not gross interest that is due, as it excludes about $165 billion in interest owed various trust funds each year, but 'paid' with non-marketable IOUs (with no maturity date) instead of being paid with marketable securities. So, actual gross interest is twice as much at $318 billion which is closer to 4% of national income than the 2% shown in the chart. See Interest for details and long term graphic. Other spending includes the departments of justice, interior, state, treasury, etc., not further broken down in the chart (to reduce clutter) - but such consumes about the same 3-4% of the economy as right after WW II. ________________________________________ Who was it that blamed run-away government on defense spending? The chart clearly shows defense spending ratios fell dramatically. Who was it that blamed it on the 1980s? The chart clearly shows in that period social spending ratios were stopped dead in their track, for the first time in 4 decades, before rising again in the 1990s. As commentator Paul Harvey says, "And now you know the rest of the story." Anyone looking at this chart cannot escape the clear signal of the key trend that must be reversed - - it's SOCIAL SPENDING! (the red line) ________________________________________ You got this far, so why not let it really sink in? Let's go over that chart one more time. Looking only at both ends of the chart, the start being 1947 after post war disarmament and the end point to the right representing today: 1. Defense spending (black curve) has fallen steadily since the war, despite the cold war, and its ratio to economy size is below the 1947 level, as shown by the chart. (The Joint Chiefs of Staff started warning in 1995 that its budget would not cover costs of needed next-generation military hardware. Annual spending for military procurement has fallen to its lowest level in 50 years, in real terms. And, the retiring Chairman of the JCS warned (PBS News, Sept.1997) that America has a poor track record of identifying major national security threats. This chart proves they were not 'blowing smoke'.) It is possible that we are reducing national defense below that which was available for prior generations to meet surprises (such as WW II), further covered in the Celebration Report. 2. Interest (blue curve) is 2% of national income, about where it was in 1947. With manipulated record low interest rates as of 2003 interest can be reduced only if they reduce total debt - - now at a record $7 trillion, which includes about $3 trillion of debt owed to trust funds for surpluses siphoned-off for other spending. Interest charges are actually larger than shown if one adds in interest owed to the trust funds. 3. AND, the BIGGIE, Social spending ratio (red curve) has risen 14 times faster than the economy, over that period - - from 1% to above 14.6% of the economy - near the all-time high. (keep in mind this is just the increase in spending ratios of the federal portion of social spending, and does not include the additional dramatic increase in social spending ratios to economy size at the state & local government levels - each reducing the private sector's share of the economy). ________________________________________ Here's another way to look at defense vs. the rest of the budget. This chart compares defense spending (black) to the balance of government called 'non-defense' (red). The red line, the non-defense part of federal spending, rose from 9% of the economy to the current level of about 21% of the economy's national income - which means this component expanded 2.5 times faster than the size increase of the total economy over the period shown. The early 1980s stopped this rise - but the trend during the past 20 years is still upward. Note the early 1953's (Korean War period) shows defense spending was 17.2% of national income (black curve), and today its 4.6% of the economy's national income. That's a drop of 13.5 points. At that time, total federal spending was about 23% of the economy. If all of the decrease in defense had been a pure cut, then today's total federal spending would be but 10% of the economy (about where it was just before WW II), instead of today's 26% of the economy - - which is more than double. Instead of a 'peace dividend' of 13 points from reductions in defense being returned to the private sector via tax cuts to citizens, this graphic proves that it was retained by government for social engineering and spent on social consumptive spending programs. (one could wonder if this had been returned to citizens, instead of retained by government, what the impact would have been on private savings to generate private pension programs - - instead of today's situation with problems outlined in the Social Security Report. We can see from the chart that this reluctance to reduce total spending since the war as defense was reduced, and therefore return to the private sector that share of the economy 'borrowed' to meet wartime needs, instead all plus more was retained by government and consumed by run-away social spending. Social spending ratios (which can no longer be camouflaged by defense reductions) must be planned to a downward slope. A political challenge considering the number of beneficiaries of such spending, but of vital necessity if we are to be equitable to our younger generation. Few would disagree that today's young families are paying a significantly higher % of their income for social spending than did their grandparents, AND they will never realize social security and medicare buying power benefits anywhere near today's retirees. NATIONAL SECURITY CHALLENGE The above 2 charts clearly show plummeting defense ratios, as if the federal government should not primarily be in the national security business, but in the social business instead. This does not make our nation stronger, or assure most of the federal government is concentrating on national defense - - the number 1 reason our founding forefathers formed a federal government. This departure (changing from maximizing defense with almost no social intent, to maximizing social and minimizing defense) raises very serious questions addressed in the National Security Report - - of which all citizens should be aware. Clearly, over time social forces have driven the federal government into areas not intended by the framers of our Constitution, thereby both weakening their intent and making more citizens more dependent on government power than on themselves. It would have been the intent of our founders that whenever national security challenges needed more resources, then they would be transferred temporarily from the private sector - - afterwards these resources would be fully released back to the private sector - - but never retained for purposes not intended. Following their principles, if America today could operate fully secure from a national security standpoint with today's defense spending ratio (about 4% of national income in the above chart) and without social, then today's federal government total peacetime spending would be but 10% of the economy's national income instead of 150% higher at 26% of the economy. That would amount to a federal tax cut of $1.4 trillion, equivalent to $4,824 per man, woman and child. Few would doubt that small and limited government was our founders' intent, except in time of national security emergencies. And most would think our founders were pretty wise. We have traveled afar. This is a powerful finding that deserves more attention. ________________________________________ TRUST IN GOVERNMENT FALLS AS SOCIAL SPENDING RISES The Trust in Government Report, a chart of long-term polling data, shows citizen trust in government falls once social spending rises above 5% national income, as first occurred in mid-1960s (per above chart) - - this ratio today is nearly 3 times higher. The level of trust in government in the mid 1960s was 100% higher than today's - and today's social spending ratios are 3 times higher than before. The above chart shows social spending (red line) stopped rising in the early 1980s, to which trust in government surged - - only to fall back later as social spending ratios again climbed. ________________________________________ TAKE ANOTHER LOOK AT THE CHART ABOVE TO BE SURE YOU UNDERSTAND IT IF YOU DO, YOU UNDERSTAND A POINT MOST AMERICANS DO NOT KNOW CLICK THIS TO SEE IT ONE MORE TIME ________________________________________ FEDERAL SPENDING GROWTH IN PERSPECTIVE Today's economy is Eight (8) TIMES more federal government-spending-dependent, compared to prior generations. The left chart shows total federal spending ($2.3 trillion) as a share of the total economy (measured by national income) - growing from 3% of the economic pie prior to the New Deal (1929), to 26% of today's economy. As stated before: had we reduced total government by an amount equivalent to the actual defense spending ratio reductions following World War II, today's federal spending ratio would have been about where it was just prior to WW II (13%) - - instead of the 26% ratio in the chart. We chose, instead, to eat up all defense reductions PLUS much more via massive social spending - - much of same financed by debt. Rather than return those savings to the private sector, where they could be properly and efficiently invested for the future of all generations, all was consumed (plus added debt) - - forever lost to future generations. Who was it that said we are a nation of small government with a predominant free-private sector? Well, we used to be - - but, no longer. Does this impact the future economics and freedom of our younger generation. You bet. Summarizing: the federal share of the economic pie increased nearly 1,000%. To help place this in an even bigger picture, the left-hand chart demonstrates how combined federal AND state & local government spending has consumed more and more of the total economic pie over time. The total economic pie is broken down into 3 sectors: the Private Sector (blue), the Federal Government Sector (red), and State & Local Government Sector (yellow). WHAT HAPPENS TO THE BLUE SLICE OF THE PIE BELOW - did it get bigger or smaller, from left to right? In the first chart the federal portion was 3% of the economy, 13% in the 2nd chart and 26% in the 3rd chart. This means: over this period of time, 22% of the economy was transferred to the federal government sector from the private sector - - because government spending increased eight times faster than growth of the entire economy.
We have seen in the Government Spending Report a chart showing the year-by-year trends of the above pie charts. There we noted that right after World War II our leaders reduced government spending to its pre war ratios. In other words, in the past, following completion of a war, the so called 'peace dividend' was returned to the private sector from which it had been 'borrowed' for the war effort. A clean effort was taken by our nation's leaders in those days to maintain the balance between the government and private sectors (at about 80% private, 20% government), only upsetting that balance temporarily in times of war. The intent of our nation's founding forefathers is clear. Alexander Hamilton, in the Federalist Papers (#7), called for the 'progressive extinguishment of debt after a war', 'discharging the public debt', warned against 'the reluctance with which men commonly part with money that supply immediate wants,' and his further warning that 'some are less impressed with the discharging of public debt', and 'some have an indifference, if not a repugnance, to the payment of debt.' They never intended the federal government to be involved in social spending consumption, let alone debt arising from same. This is shown in Federalist #23, where the purposes of federal government was defined as but 4 areas: the common defense against foreign attack, preservation of internal convulsions (civil wars, etc.), the regulation of commerce with other nations and between states, and the intercourse of political and commercial affairs with foreign countries. I don't see any social spending in that intent, do you? Wise men, those framers of our nation's constitution. Would they be shocked today? But, starting in the 1950's the expansion of government began in earnest to consume more and more of the economy. The charts clearly show the build up in defense spending for Korea and Vietnam was not returned to the private sector when completed, as in the past. A new socialization concept was born. Instead of re-paying the 'peace dividend' back to the private sector (from which it had been 'borrowed', as before) government leaders decided to claim that 'dividend' for consumptive social spending under government control - - effectively saying, 'the heck with the free-market private sector - - more government is best.' Government-controlled consumption was preferred over free market investment for the future benefit of our nation. The 80-20 balance was disrupted for good. Over time, like a type of cancer, this concept has eaten into the very heart and soul of our nation and its family values. As a result, today America is many times more a socialistic nation than ever before in its history. For additional history, see the Road to Serfdom and Legacy report. ________________________________________ GAMES: SIPHON AND SPEND TRUST FUNDS, UNDERSTATE DEFICIT and ?? BUDGET SURPLUS While some claim Social Security is in trouble, its surpluses are siphoned off to support 'off budget' spending on non-pension stuff (see Siphon-off Trust Fund Report which understates the deficit and creates the illusion to the public of a smaller deficit than is the case. Such not only places the trust funds at the risk of future debt issuance & political pressure, but by understating the budget deficit the public is less aware of spending and thereby places less political pressure on government to reduce spending. ________________________________________ AUTHOR'S COMMENT Had our leaders, after Korea, returned the economy to its 80-20 balance (as done by previous leaders following wars), would there have ever been the disaster of a Vietnam including its long-term impact on our nation in so many negative ways? If we had not expanded social spending many times faster than the economy, would the typical American family have a higher standard of living today, than it does? Would there have been the massive buildup of the welfare state, creating so many dependents of working families? And, would we have created so much debt to pass on to the backs of our children and grandchildren, money that was consumed and is gone forever? Would we have so distorted the original concept of social security as to eventually place families at greater risk several generations later? What would be required today to return our nation to the 80-20 balance? History shows socialization produces an eventual failure in terms of freedom and economics, wherever it has been tried. With the economy so socialized, with nearly 50% of same today dependent on government spending (at federal plus state/local levels), the built-in resistance to rebuild America's economic base is a true challenge. The manipulations of government leaders has caused this dependency. Like a drug addict, it is difficult for citizens to 'kick this habit' on their own. Which leaders are up to that challenge? Can you name a few?
CONCLUSION: 1. The federal government has consumed more and more of the nation's economic pie, thereby reducing the private sector's share and its capacity to maximize increased standards of living. In fact, real median family incomes have not increased (and after-tax they have fallen), and there are more serious social ills plaguing our nation today despite more government spending. 2. Nearly all of the increase can be attributed to consumptive social spending, not to investment in the type of infrastructure such as roads, bridges and ports which increase national productivity and thereby increase future living standards. 3. Here's a question with an answer that everyone knows: which generation is guaranteed to receive the most benefits compared to what they 'invested' via social security & medicare payroll deductions from their pay - - today's senior citizens or today's working families? (see the Grandfather Social Security Report). Here's another question for which everyone knows the answer: who has the most political power, today's senior citizens (who vote in large numbers and have the AARP behind them) or young families and children? 4. Here's another one: which age-group has had stagnant and falling inflation-adjusted incomes for the past 2 decades- - median income families or senior citizens? (see the Grandfather Family Income Report). 5. Here's another: which generation faces massive debts being passed on to them, including being the greatest debtor nation on earth, to lower their future living standards? (see the Grandfather Debt Report) (and for private sector debt see America's Total Debt Report). 6. And, the more government there is the more 'hidden' regulation compliance costs imposed on the private sector to reduce its efficiency in creating good jobs and successfully competing internationally with production from the U.S. , as shown by pictures in the Grandfather Regulation Cost Report. 7. Which generation is facing mounting drains in its international accounts, at the very time our economy has become more dependent on what happens outside the country? (see the Grandfather International Trade Report). 8. And, which generation is receiving lower education quality, compared to before and to today's international students? (see the Grandfather Education Report). 9. Lastly, a most POWERFUL report: which generation is carrying on their backs 3 times more state & local government employees per person? (see the report that follows this page, few have seen. (The State & Local Government Report). 10. And, all of this spending must be paid for. We know some is paid by debt, but the great amount is paid by ever increasing tax load on working citizens. The Grandfather Tax Report shows that an average worker's total income earned in the first 5.3 months of the year was required to cover all federal and state/local taxes - - compared to but 1.4 months of work required of citizens just several generations ago. That's a 400% increase !! Is that positive progress? 11. LASTLY - The Voting Report shows a 36-year down trend in the participation of voting-age citizens in the voting process, with a new low in the 1996 presidential elections. So, despite massive social spending (much financed by debt), a lower and lower portion of our population go to the polls to voice their choice. One could draw a conclusion that the higher our social spending the lower our voting turn-out, and the less our federal government represents the citizens as a whole. Something is very, very wrong. In the end, the real losers are our youth - - - from childhood to adulthood. Nearly everyone understands that families (and later our youth, themselves) reduce their own living standards because they pay more for benefits for others (that they will never see themselves) than the beneficiaries contributed. If we recognize this why do we allow it to continue? This scam transfer must be reversed. FINAL COMMENT: What is a politician to do? (the ones that are truly honorable and with a pure conscious, and who insist on fairness to young families and our next generation). They are out of money to cover political rhetoric to keep their careers going. They have just finished (past 4 years) the 2 largest tax increases in history to raise more money - and still the debt increased 24%, and family incomes did not improve from that, and the recent social security report shows the problem for that and medicare is still in deep trouble. They can no longer suck much more from defense as camouflage, without endangering national security for our youth (peace today cannot be guaranteed anymore than it could have been after World War I, and out of the blue came WW II). They cannot add more debt on top of our record level which is at 70% of GDP, near highest ratio in 4 decades, and twice the level of just 15 years ago - as shown in the Federal Govt. Debt Report. They can no longer 'hope' for rapid economic growth to bail them out, without significantly expanding the private sector share of the economy - - which can only occur by reducing the share consumed by government. WHAT COMES NEXT ? All of the above is about the drain on our economy by federal government spending expanding at rates much faster than the economy. The next web page addresses the tremendous negative impact on the private sector by the very rapid expansion of the state & local government sector - - - which is the next 'shoe to drop,' as that sector has expanded its own headcount by 10 MILLION bureaucrats faster than general population growth. For this stuff, go to the link below. ________________________________________ SHOULD WE DO SOMETHING ABOUT THIS ? The action required is clear !
________________________________________ UNKNOWN TO MOST You have seen this report on Federal government spending; now take a look at the equally dramatic companion State & Local Government Report with several eye-opening pictures - you will find each man, woman and chld is carrying 3 times more state & local government employees, than ever before - - 11 million in excess. Look at just 2 pictures. Or, go to the HOME Page & table of contents of the Grandfather Economic Report - a collection of reports showing the economic threats facing families and their children, compared to prior generations. Go to the top | Home & Contents | Summary | 12 Questions | Feedback | What's New | Link Index | Eye-opener | Must See | Inputs and suggestions welcome: Michael Hodges via E-mail This is the bottom of the Grandfather Federal Spending Report at http://mwhodges.home.att.net/fed_budget.htm
As stated above (from the Federalist Papers of 1787, Alexander Hamilton, etc. - see famous quotes), the framers of our Constitution outlined but four (4) core reasons for forming a federal government: (1) national defense, (2) preservation of peace between states (civil wars, riots), (3) regulation of trade between states & with other nations, and (4) international relations. (note > 'national defense' was listed as #1 - - thereby being the priority). If successful in carrying out those principles, it was believed the 'welfare' of citizens would be assured. (note - this was their meaning of the word 'welfare', not income redistribution and entitlements). As further evidence of original intent, for the following 1 ½ centuries the federal government stuck by those principled reasons, and by the late 1920s was still consuming/controlling only about 3% of national income (the economic pie). Taxation was used only to pay those bills. Such principles did not include such items as social welfare, entitlements and income re-distribution functions. We were a nation that used government primarily only for those 4 principles, relying on ourselves for all other needs. Additionally, the founders were against debt. At the writing of the constitution they were concerned about debt incurred to finance the Revolutionary War; and it was their intention to pay off debt, using excise taxes on imports. Alexander Hamilton (federalist #7) called for the 'extinguishment of all debt'. Later, Jefferson wrote ""I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared." ________________________________________ 40 years after the Federalist Papers, in 1825, we have evidence that some wanted to alter the core principles - - but they received a strong warning from one of American's most respected presidents. "Aided by a little sophistry on the words 'general welfare', [they claim] a right to do not only the acts to effect that which are specifically enumerated and permitted, but whatsoever they shall think or pretend will be for the general welfare." --- Thomas Jefferson 1825 to W. Giles. Such warnings as Jefferson's were effective for the next 105 years, as evidenced by spending continuing in the area of but 3% of the economy - - until, as we shall see - - came the "New Deal" of the 1930's. "We can pinpoint a time - the late 1800s to early 1900s - when America rose to world dominance, as the balance of power shifted from the Old World to the New World, a period of small government, no income tax and strong constitutional support for free enterprise - when market entrepreneurs (Dow, Gerber, Ford, Kellogg, etc.) succeed by creating better products at lower cost and out-performed political entrepreneurs of the Old World who used government to gain an unfair advantage. The 1920s was the last decade when such could be built without major interference from government." (historian Burton Folsom, Jr. - senior fellow, Mackinac Center in Imprimis, 12/97). If federal social programs were nearly non-existent for the first 150 years of our republic - - why was such allowed to be invented out of thin air later on - at about the time of my birth? Following is a short review of mega-trends during my life-time, to highlight the road traveled and some consequences experienced: In the 1920s, a decade before my birth, "America's fundamentals were strong - - nevertheless, it was about to enter the Great Depression - a financial collapse brought on by disastrous macro-economic policies of the government - followed soon after by the worst world war in history" (The Economist, 12/20/97, pg. 15). Researchers (see "The Bubble That Broke the World" by Garet Garret, 1932) place prime blame for the Great Depression on the new Federal Reserve Bank and its undisciplined creation of 'money' (debt) out of thin air, which created a huge bubble and the 'roaring 1920s, followed by the eventual collapse. Note: this calamity was not generated by free enterprise. While pro-government forces began tinkering, free-enterprise auto sales zoomed from 181,000 in 1910 to 5,000,000 by 1929, and private truck freight out-performed the railroad industry (with its price fixing and government controls) - - mothers were able to buy Gerber's baby food and low cost bleach (as Dow defeated the European cartels). With the Great Depression came the invention of a 'justification' for rapid expansion of federal powers in the 1930s - - called the New Deal - - as America imported certain big-government ideas invented in Europe. We allowed advocates of socialization and centralized government to take charge of our nation, unnatural to its history and the intent of our nation's founders. ________________________________________ (The chapter on famous quotes proves that our nation's founders intended that the Federal Government NOT be involved in social issues concerning citizens, such as: social security, Medicare, Medicaid, health, welfare, education, income redistribution, entitlements, unemployment insurance, farm subsidies, housing, flood insurance, etc. And, it is amazing that any true believer in the core principles of our founders would discard their wisdom and intent and, instead, listen to 'ideas from Europe,' especially recognizing that much of our nation was populated by those fleeing European history and its reliance on big-government and centralized power.) The U.S. economy was driven by certain forces away from dependence on individuals and families as in the past, toward more and more dependence upon centralized government. Many labels were given to government encroachment: Roosevelt's National Recovery Administration (NRA), which included pressuring auto firms and others to regulate wages, prices, work hours, etc. - although Auto already led industry in high wages, the Smoot-Hawley Tariff (the most restrictive tariff in history), the Reconstruction Finance Corp.(government financing banks, railroads and other industries), The Agricultural Adjustment Act (regulate farm production), the National Industrial Recovery Act (regulating the others, the Wagner Act (shifting balance of power from entrepreneurs to labor union bosses), etc. Tax revenues needed to pay for such government expansion soared. ________________________________________ ________________________________________ GOVERNMENT GROWTH: Let's take a look at government growth in America, as measured by its spending as a share of the economy's total national income. Did it expand faster than the economy, or slower? 1. As recorded by this chart > For a many, many years prior to the 1930s (the New Deal) the Federal Government's spending consumed about 3% of national income. With the New Deal the federal government expanded its control of the economy from the prior 3% of national income - - up to a 13% share before World War II. As the chart shows, after the war it continued its upward march to higher and higher shares of our economic pie, reaching today's 26% of same - - an 8 fold expansion in economic control and federal government-dependence of our economy - - shown in the Federal Spending & Budget Report. 2. If we add federal government spending of 26% of the economy plus the spending of state & local government of 17% of the economy (much of which was caused by federal government mandates), the sum total now consumes/controls 43% of the total economy - - up from 12% for combined spending - - indicating total government has grown faster than the economy - much faster. (see the long-term trend chart on Government spending). 1. 3. This reduced the pure private sector (that part of the economy not dependent upon government) from an 88% share of the economic pie - - down to a 57% share. That's a 31 point reduction in the private sector's share, and said reduced share was further eroded another 13 points by mandated regulation compliance costs created and imposed by increased government at all levels. 2. 4. America has become much more a socialistic economy, and less a free-market one - - as more and more power and control was transferred to government at federal and other levels - - away from individual and family control. Basically, the movement was to one of centralized government 'knows best', compared to individuals - and government is a 'wiser & better parent', than natural parents. 3. This 31 point move in government dominance (from a 12% to a 43% share) included 23 extra points controlled at the federal level and 8 extra points at the state & local government level. As stated above, the federal government sector increased its share of the economy 8 times higher than before - from 3% of the national income economic pie to 26% of same. Currently, 68% of the federal budget is consumed by social spending and interest on the debt resulting therefrom. (the author blames all interest on social spending since that was the primary growth area of the government). In addition, state & local government tripled its share after WW II (from 6% to 17% of national income), much in response to social mandates from the expanded federal sector. All such government increases came by subtracting parts of the economic pie that is non-government spending dependent - - called the pure free-market private sector. 4. Looking at the movement from federal + state/local government control of 12% of the economy to a 43% share, the overwhelming driving new item was Social Spending - - a function not included by the founding forefathers as one of the four core functions of government - at the framing of our constitution in 1787. (see Federalist Papers, James Madison and Alexander Hamilton) 5. In addition, this expansion in the social arena was to a great part financed by debt with zero plan to pay it off - authorize and spend now, let future generations carry the debt burden - and, act like a 'free lunch' has been created out of thin air. Peacetime debt moved from about 10% of the economy's GDP to the current historic peace-time record six times higher - - or, 6 times faster than the economy expanded. 6. This expansion, or increased centralized control and dependence on government, took various dimensions, with several specific surge points (a color graphic showing several federal surge points is at the top of this page): o 1930's - The New Deal - Start of social programs for Social Security pensions and welfare. The first, major departure from the four principles of government outlined by our nation's founders. A 5th principle was added 'ad-hoc' - socialization, which was a joining of those interested in large, all-powerful centralized government with those interested in income re-distribution - - for which no end point is envisioned, and for which history shows such eventually could produce an economy and nation much like the former Soviet Union, or Nazi Germany. Many have documented the U.S. socialization start was a concept imported from Germany in the early 1930s, when that government was expanding its size vigorously and in the beginning creating public works programs by the day. We know the result. The socialization expansion in America was somewhat interrupted by World War II, only to regain its vigor sometime thereafter - in greater force. The GREAT SWEEP of government expansion is shown by a dramatic chart covering a 126-year period. o 1960's - The Great Society - Significant expansion of social pensions and welfare, with the start of creating medical dependence on government via Medicare & Medicaid - - as well as moving high percentages of education revenue from 83% local control to a status whereby federal and state government's controlled more than 54% of same compared to 17% before (3 times more), and pushing down into schools mandates for social programs at the expense of learning and quality of the many. Since such consumptive programs subtract from national productivity, inflation began to rise and the international purchasing power of the dollar began to fall, wheras a $1 in 1950 is now worth less than 13 cents - - resulting in further socialization by adding cost of living (COLA) adjustments to such spending which further accelerated the looming problem. The U.S. became the world's largest debtor, and its international trade accounts moved to continuing deficit. o By the 1970's trends emerged of the ramifications, and 'chickens started to come home to roost' from the aforementioned social expansions. After many years of solid family income growth, American median family incomes stagnated and began to fall (adjusted for inflation)- which has continued for 2 ½ decades - - personal savings percent disposable income declined for 20 years despite families requiring two wage-earners instead of one - - the quality output of the nation's education system (SAT scores) became the worst in 35-years despite rapid increases in real per-student spending - which caused the education productivity index to fall 71%. It became recognized that social programs created previously had not only failed to achieve their goals in cost and result, but some, such as Social Security and Medicare, were in fact 'Ponzi Schemes', which were in a financial solvency/fairness crisis. Add to this rapid expansion of debt to ratios never before witnessed in peace-time, without a single amortization plan to remove said debt from future generations. Our nation's social fabric weakened in a way never before witnessed, as evidenced by crime, drugs, teen-age pregnancies, divorce, father-less families, and generations of welfare-dependents. America was not feeling good about herself. o 1980's - Reagan Era - Beginning against the back-drop of dangerous threats and trends, The Reagan Era Report documents a major challenge to run-away government. 1. The first era in 50 years when the private sector share of the economy did not decrease as a result of government spending expanding its share of the economic pie. (Prior to this era, such spending had increased from 12 % of the economic pie to 43% of same, reducing the private sector by large amounts.) 2. Declining real median family incomes were reversed to the upside. 3. Double digit inflation and interest rates were eliminated. 4. The Evil Empire was brought to its knees, ending a 40-year cold war. 5. Taxes were reduced, and still government revenues increased. 6. Congress spent all of the increased revenues and more, causing deficits. It is clear that President Reagan believed the statement of Nobel laureate Milton Friedman: "We know full well that government will spend every penny - and more - that is yielded by taxes. A cut in taxes will mean a cut in spending, and there is no other way to get a cut in spending. The big spenders know very well that a multi-year tax cut will force multi-year spending reductions." There can be no doubt that the 'Reagan Era' represented a revolution in that it significantly departed from significant trends of government growth relative to the size of the economy at the federal and state/local levels - - which prior to the 1980's had been well outside that envisioned by the nation's founding fore-fathers for generations - - all of which was a shock to those believing the-more-government-the-better crowd. As the Reagan Era closed, many wondered would this revolution, which basically stopped the up-swing of the socialization pendulum, be sustained into the 1990's or negated with the initiative recaptured by big-government forces. o 1990's - New World Order, and The Bridge to a Global Society. Despite such clear negative results prior to the Reagan era and the positive results during that era, pro-centralized 'government knows best' leaders in the 1990's planned to further increase citizen dependence on government - first by implementing the two largest tax increases in history (1990 Bush, 1992 Clinton), trying to more than compensate for the Reagan tax cuts and fund further social expansion, then by proposing health care programs for all citizens despite our nation having less life expectancy at higher health cost than others, which if implemented would have increased government's control of the economy another 14 points - - to approximately 60% of the total - and transfer even more sources of private sector revenue to government control. This meant, instead of the sum of federal and state & local government's share of the economy just being 4 times larger than before, it would be moved to a 5-6 times larger share of the economic pie. Such a plan would have been implemented had not at the same time national debt and the financial consequences of past social programs essentially placed the nation's national government in a 'broke' situation, and by virtue of the carry-over impact of the Reagan revolution. Still, some leaders continue to 'sneak-in' parts of this medical expansion, with hopes another opportunity to accelerate said agenda will emerge. Concerning education in the 1990s, Nobel Laureate Milton Friedman called education quality the worst in 35 years, education economist W. Williams said there is a negative correlation between quality and spending, the Organization of Economic Cooperation and Development (OECD) called relative international education performance and the quality of U.S. schools mediocre at best, the Secretary of Education said he is disappointed, a 1997 poll of voters in Florida released by AP reported 67% considered public schools mediocre or a failure concerning academics, and the President in November 1996 called on volunteers to teach children to read and proposes to throw more money at the situation instead of restructuring the delivery system. In November 1997 USA Today reported that 60% of new students to California colleges, and 70% for Florida colleges, require remedial courses - - a further implication of the decline in education quality - - as colleges lowered their own standards to meet lower high school output quality. Additionally, the Federal Debt Report shows that over half of our entire federal debt was created in 1990's, and by 2000 43% of all outstanding public debt was owed to foreign entities. Even worse, this example to create federal debt for government expansion has spilled over into the private sector, as the entire nation has thereby become more debt dependent than ever before, as dramatically shown in the highly-acclaimed America's Total Debt Report - with soaring financial sector and household sector debt soaring much faster than growth of the economy - - and each new dollar of added debt producing a diminishing amount of GDP. Most disturbing trends that the 1996 (and in 2000) presidential elections represented a 36-year low in voter participation turn-out ratios per the Voting Report, and the Trust in Government Report showed but 20-30% trusting government and new lows in citizen trust of honesty & ethics of elected officials - - a massive drop in trust from 3 decades ago - both of these are far from the performance of a representative democracy envisioned by our nation's founders. 7. Such major changes to the past, as government increasing its share of the economy by 30 points as measured by spending, further laid the groundwork for an expansion in economic costs not shown in government spending - - accelerating government regulations mandated on the private sector without compensation - - which further eroded the effective share of the economy of the pure private sector, compared to prior generations. Larger government does not make less regulations than smaller government - it mandates more , now consuming 14% of the economy. Larger government does not result in less tax drain on families - - the Tax Report shows federal and state/local government consume on average 5.3 months of a persons income to cover all taxes, 4 times more months than prior generations - with current tax revenues now at the highest peace-time ratio to economy size in history. 8. The results of social experiments is that the nation has become so government spending-dependent, partly fueled by calling everyone a 'victim' with some lack of social right yet to be guaranteed and financed by government at the expense of others, that a frame of mind has been entrenched in many citizens that they have a 'right' to being taken care of socially by 'big brother', instead of being responsible for their own lives and well-being - - as were their forefathers. America had become a socialistic society, a government-dependent society, a collectivist society, an irresponsible society, and an overly consumptive, demanding and greedy society. As a result, tremendous pressure has been built by vested interests of the many dependents (government employees and recipients of said spending, plus organizations such as the teacher's union and AARP) to fight against any reduction or taking of their new rights - as such would mean they must learn to become dependent upon themselves. 9. It appears to this observer that God and Family has been replaced by Government and its created Dependents. Citizens have been 'conned' into accepting that there is a 'free lunch', if only they will trust in government power as their 'Father' instead of in themselves and their Maker. America has become a government-dependent 'socialized junkie', and as with any addiction and dependence created during a lifetime it is very difficult to break. We know it must be done, but will not require our leaders to do it for us (if it affects us today, even if our children must pay the price) and feel powerless or unwilling to do it ourselves. 10. A solution: Like any 'junkie', we need a dry-out period for our own sake, and for that of the young generation. We need a 'bite-the-bullet' plan that calls for a steady reduction in the share of the economy represented by government spending, its regulations, and its debt - implemented in a fashion where any burden therefrom is shared equitably by all. We will bite whatever 'bullet' to do our part to meet a noble plan which we believe will benefit those to follow us. While Europe, with its even higher government spending ratios, march to even higher levels of allegiance to a super-European bureaucracy in Brussels, American can move in the opposite direction - - to lower spending ratios, by reducing support to that 5th 'principle ' (social spending), which was not one of the 4 original principles of government by our founders - - but which was created out of thin air. We owe it to ourselves to become responsible as individuals again, especially to our children and the generations to follow - and as a salute to our nation's wise founding fathers. "The best government governs least." 11. The New Millennium, Legacy and Cross-road: Forces are in place moving America away from its glorious strength and independence of the past - - toward a centralization of many nations into a higher level of government - - a type of global government. Today we are witnessing the prototype of such a global government in the construction of the European Union and its single currency (see The EURO), and with such broader organizations as expanded NATO, and the World Trade Organization. As America has become more and more dependent on government, and less so on individualism, family, religion, and a large pure free market society - - and less so compared to the main principles outlined by the framers of our Constitution - - its entire independence is threatened to be merged into something further from the reach of citizens - - a form of government of which our nation's founders attempted to circumvent. This sets us up for a potential step-up in government control at a higher level. 12. Today America's economy is faltering under the load of historic debt of the government, household, business and financial sectors. The various chapters of these Grandfather Economic Reports contain significant evidence of many long-term negative trends that require correction - - especially government spending in areas not contemplated by our nation's founders which dilutes their intent and our focus, more reliance on private and government debt, and more dependence on importing instead of producing needed goods ourselves. The Energy Report shows that America, which used to be self-sufficient regarding energy supplies, is more dependent on foreign supply than ever before. We must remember the top of this page, in the 1920s when America was booming - - and, then the Great Depression loomed - - which provided the 'justification' for accelerated dominance of big government. The unsettled nature of the world's monetary and debt situation in the late 1990s may signal trouble ahead. With today's government spending in American now consuming nearly 42% of the economy, with record debt ratios to economy size for government, the financial sector and households - - there can be little doubt that another major financial crisis would result in those justifying big government to grow same to even higher shares of our economy - - as evidenced by history. 13. Defense of our nation is the first of four core reasons for a federal government, as outlined by our founders (see top of page). Prior to 9/11/01 we could be proud that we were a nation without war or pointing missiles as shown in the Celebration Report - - yet a clear warning was issued regarding the over-downsizing our military to finance spending on items not in the four founding principles, especially in the face of a history of major surprises, the concern for which was recently expressed by the Chairman of the Joint Chiefs of Staff. We may be placing our young generation's national security at risk, compared to the past - due to spending in areas not contemplated by our founders - - which significantly reduced the economic surge potential that won World War II - - and in the 1990s halved our military - -and which reduced our federal government's focus on the prime reason for a federal government (see National Security Report). 14. America is at a cross-roads. We have seen the creation (out of 'thin air') of a function of government (social welfare and large, dominating government) not contained within our constitution, or intended by its framers or intended by our elected officials for the following 150 years - - has grown to consume many times more of our budget than the funding of the original 4 core principles. (the 2nd chart in the Federal Spending Report shows it all). Former British prime minister Margaret Thatcher (Washington - Oct.22, 1997) warned that we must invoke our "national pride and offer our people a genuine identity in a world of cardboard cut-outs, an anchor against the pull of bureaucratic internationalism and cultural globalization." Will we re-affirm our independence and the ultimate power of the individual free-man instead of the State, and cause trust in government to reach new highs instead of new lows, as envisioned by our founding fore-fathers, by reducing our internal dependence on big government, by reducing the impact of same along the lines of item 12 above - - and will be stop the 'drug' of ever increasing dependence on private sector and government debt owed domestically and foreign leading to national "decline by simple economic over-extension" as shown in history - - or, will America succumb to the death of our economic independence and individual freedom as she is pulled along the road to bureaucratic internationalism and indebtedness - - continuing a march along the Road to Serfdom - - for her citizens of future generations? ITEM: when someone says, "The Era of Big Government is Over" You should respond, "Compared to What?" Then ask them to tell you, "to what lower shares of our economy will federal and state & local government be reduced - and by when?" Then, show them real history in the 3 - charts of Government Growth And - - also ask them if the new war on terrorism, which came about because America was not using its federal government to focus on its prime mission (National Security) as intended, will further expand the share of the economy consumed by government even beyond that showed in this graphic - - instead of reducing the non-national security spending areas. This author is hopeful these reports will serve to assist a better outcome. THIS IS MY WISH FOR MY CHILDREN AND GRANDCHILDREN - a better economic future with more freedom and self-reliance and less government-dependence - than indicated
That's why the Grandfather Economic Report series was created - - - - to pass on to others the findings of this study such that they may have better data from which to reflect and assist the healing of America, as well as preparing actions to protect their loved ones. This report series covers various subjects, from family incomes to debt to social security, using hard data from reliable sources presented in color-graphic form. The author hopes it will be informative to many, and may assist one small step in an improved direction - - such that our young generation may experience more freedom and economic well-being than ever before. The author pays a Tribute to Milton Friedman, who, along with the innocence of my new grandchildren, was an original motivating force resulting in these Grandfather Economic Reports, which are summarized by 5 core threats in Summary Report page 1. A tribute is also paid to the WISE WORDS FROM A FOUNDING FATHER OF OUR GREAT NATION "There is in the nature of government an impatience of control that disposes those invested with power to look with an evil eye upon all external attempts to restrain or direct its operations. This has its origin in the love of power. Representatives of the people are not superior to the people themselves." Alexander Hamilton - Federalist Papers, 1787.
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