There has been great interest in the stimulus package and budget being proposed by President Obama. However, there has been little discussion on the impact of this spending on our ability to repay the debt later - actually a burden being placed on our children and grandchildren.
The chart to the right captures the history of Federal spending going back to 1929. All amounts are shown in current dollars (not inflation adjusted). The vertical line is 2008, dividing the known past from that being proposed in the FY 2010 budget posted by the Whitehouse 2/26. The peak right after the vertical line is the stimulus package now working its way into the economy. While the President is cutting the deficit spending in future years relative to this year, you can clearly see the deficits are projected to be much higher than what they have been in past years. Much higher than at any time in history. For some reason, I thought I heard this cut in deficit spending in 2010-2019 was to be more dramatic than what was published at http://www.whitehouse.gov/omb/budget Upon reflection, I guess I was thinking the deficit cut was in comparison to spending during the Bush Presidency and missed the fact that the comparison was to 2009. Cutting the deficits in 2010-2019 to half that projected this year is still one hell of a deficit to be faced each year.
(Regardless of what I think about these continued high deficits for the next decade, you do have to give some credit to the President for opening up the proposed budget for everyone to read. Without easy access to the budget data, I would still be in the dark about the projected economic future of the country.)
Still, to put the deficit spending into some perspective, the past has to be adjusted for inflation. This adjusted chart is shown to the right and shows some really interesting information. World War II shows up clearly as a peak in deficit spending, followed by many years of a mix of small surpluses and deficits. Looking for the FDR spending during the depression - where is it? Everyone seems to be relating the stimulus packages to spending done during the Depression. However, the actual amount spent during that time does not even move the needle even after adjusting for inflation. The level of spending we are now doing has never been attempted in the history of our country, never. Even more worrisome than the spending spike this year is the continued high deficits through 2019. This proposed budget seems to reflect a major change in spending policy that goes beyond the current economic conditions.
Am I missing something? I sure hope so, but I have been through the budget tables a number of times and everywhere I look, I see runaway spending not offset by increased revenues. (Note that there are a number of new sources of revenue projects, but more on those later, especially the indirect taxes that will eventually filter down to consumers.) To the extent the Federal government will have to cover the deficits with increased borrowing, that money will be moving out of the capital markets servicing business expansion. More to think about on that topic.
In thinking about this situation, I believe everyone wants the best for the Country. I would also like to drive a new car, take a vacation to a nice warm beach, and work four days a week giving me three day weekends, but it's not going to happen. I can't afford what I would like and have to settle for what I can afford. This I believe is the question the Country is going to have to face shortly, what can it afford, regardless of what we would like?