Diary

How Deep Is the Bottomless Pit of Government Spending?

Is it a requirement of people who run for public office that they must abandon all sense of fiscal sanity? It would seem so.

A review of the headlines over the past 2 weeks shows us that Forrest Gump was right:

Stupid is as stupid does.

Where do we start?

Governments Borrowing to Pay Debts

What would happen to your family finances if you took out a Home Equity Loan to pay the mortgage?  It doesn’t take a rocket scientist to figure it out .. you will have more debt that you have to pay off down the road.  But it seems that governments all over the place have developed this very habit.  The Solution to Overspending on Credit? More Credit, of Course.

It started on June 11 when Gov Paterson of New York borrowed $6 Billion from the New York State pension fund to pay … the New York State pension fund!  Talk about dumb!  The pension fund plans to earn 8% on its investments, but is willing to lend it to the Government for a mere 4.5% – 5.5%!  Sort of stupid .. sort of really corrupt.  When the cows come home to roost on this one, God Bless New York!

Even more frightening to us all is the bottomless liability posed by Freddie and Fannie. Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case. Now a Trillion is a lot of money. Rather than collapse these disasters and turn mortgage underwriting and insurance back to the private sector, these living dead will suck the blood out of us for years to come …

Government Drunk on Spending

I always preface drunken government spending comments with this quote from Ronald Reagan:

We could say [Democrats] spend money like drunken sailors, but that would be unfair to drunken sailors. It would be unfair, because the sailors are spending their own money.

Want to really get concerned?  Take a look at the US Debt Clock. The Total Debt Per Citizen sits at $175,281, or $669,993 per family.  Given income per family is only $62,445, it would take 10 years of working just for the government for us to pay of this debt.

Add liabilities of Social Security, Prescription Drugs, Medicare and other unfunded liabilities — the total liabilities per citizen rises to $352,617.  Assets are $235,844.  So we are technically bankrupt. We are short $116,773 per man, woman and child in the country!!

Government Ignoring Need to Stop Spending

Encouraged by Keynesian economists like Paul Krugman who wrote even this week: The Bad Logic Of Fiscal Austerity.  He argues that borrowing a $1 Trillion and paying the interest is affordable and

not much cost to pay for generating jobs when they’re badly needed and avoiding disastrous cuts in government services.

Ah! The last thing we can do is stop government spending!  If in fact government spending was actually positive, then is there a limit?  Why not spend as much as we can borrow? (Oops! I think they are already doing that!!)  Now don’t think you have permission to argue with this Nobel Laureate or the anointed economic elite.  You just don’t “get it”.

During the last 5 years, governments have increased their spending and hiring by leaps and bounds, while their revenues have shrink.  According to the Krugman crowd, this makes sense.

Who is Footing the Bill?

But you will pay the bills.  I extracted some figures from the Debt Clock to create the following analysis:

Who's Paying the Bills?

Private industry workers (who pay ALL the bills) comprise 51% of all people working, unemployed, retired or working for governments.  Government employees, who are 14% of this total, consume over 30% of the GDP.  So 1/2 of us have to pay for the other half … BUT WAIT!

Only 1/2 of us who file tax returns pay federal taxes!  If we assume this is evenly distributed among private industry workers, we have 1/4 of the population paying for the largess of government!

I don’t think this ends well.  It can’t. It doesn’t make sense. And when you need a Princeton PhD to explain why it does, I know it doesn’t.

(Cross posted from http://liberty.cooperusa.net/2010/06/16/how-deep-is-the-bottomless-pit-of-government-spending )