The Growth of Government
The image above showed up on my personal Facebook account recently. The numbers are quite telling, educational, and amusing. However, I took the liberty to strikethrough a section of the text which I’ll explain later in this post.
As I watched the first presidential debate, I can’t help but be dismayed by the fact that neither candidate plans to do enough about the national debt and yearly deficit. It is a problem that has long been bothering me ever since my very early courses in grade school economics. The debt is unsustainable. It is wasteful (ugh, interest payments). It is commonly ignored by the majority of Americans. Throughout the 20th century and into the 21st century, the governments within the US (and particularly the federal government) has been growing nearly uninterrupted.
Why Did Government Grow?
This all got me thinking — How can this situation be changed? How can this trend be reversed? How can reducing the national debt rise to be a top political priority moving far beyond just a balanced budget (and actually start paying down the debt)? Then one day as I was out for a run, ideas started coming to me (it’s amazing what a clear mind can do). The U.S. government is running as a reflection of how Americans’ personal household budgets are run. This is my own idea and possibly others have had similar ideas, but this image helps give the idea further clarity. Many household budgets run at a slight deficit. Countless others are “balanced”, but without savings. Very few are run with any significant amount of savings and investments toward the future. If it’s true that a government’s financial fitness somewhat mirrors those of its constituents’, then it’s no surprise that the U.S. government is running on a debt and budget deficit. Following this logic, I don’t expect the U.S. government’s budget to change much until its constituents begin having different attitudes toward household debts and savings.
How Can We Change It?
Building upon these ideas, I propose a cycle of change for the American people and hence the U.S. government:
- A significant percentage of people currently spending all of their income change their thinking due to influencers and self learning.
- That same group of people use their new way of thinking to change their behaviors. The changes accelerate over time and in a few months or years their behaviors are now radically different than before. Perhaps most importantly, they exercise control over any desire to ever go back to the previous way of life.
- This same group of people educate their children as they do not wish to see their children get stuck in the same earn, spend trap in which they got stuck.
- Some more time passes. At least one full election cycle — probably more.
- This same group of people begin to view the national debt as a major problem, they view it with as a matter of national security, and they view it with some disgust over our past (that we as Americans allowed things to get this way). Unnecessary and wasteful spending is a lot like the fat which has a way of building up and clogging the arteries. They get vocal, they take actions like communicating their desires with politicians and others in their life, and most importantly they vote.
- A long, slow process of gradually scaling back the size of the government begins. Slow changes are much easier to bear than shock induced crisis style changes. Slow changes are planned and give people a chance to adjust accordingly. Abrupt changes cause pain.
- After the debt starts getting paid down, something really amazing happens. Tax rates actually start coming down (hopefully, this also can simultaneously allow major simplification of the tax code).
You may ask why I care so much about our nation’s debt situation? I am a parent and I care about the reality my daughter will have to live in. In fact, I deeply care about and am concerned for all the young people across the globe, even those who have yet to be born. An ancient Indian proverb succinctly sums up how I feel, “We do not inherit the Earth from our ancestors, we borrow it from our children”.
A Cultural Change
The type of change I’m sharing here is a cultural change. Radical, absolutely yes, but America’s culture has changed many times before. I know change can happen again. Everyone can benefit from a lower tax rate– particularly our children. Just think of the freedom we would all have if we can get the monkey (national debt) off our back and the government’s reach inside of our pockets massively reduced through much lower income tax rates!
Now you may ask if I have any idea on what percentage of Americans would be sufficient to constitute the significant percentage I described as necessary for the cultural changes to take place? I don’t have a clue as I’m writing this, however, that’s not the point! The cycle of change begins with each and every one of us looking in the mirror and reflecting upon ourselves. I urge you to stop blaming the government or others for the national debt or for the current state of things. This is precisely the reason I crossed out that section on the image. To ignite the cycle of change is about adjusting our attitudes toward debts. For the politicians who are currently in office, they either arrived there because (1) we voted for them or (2) we decided to be indifferent and allow others to made the choice for us. It’s my belief that voting out ineffective and/or corrupted politicians would solve nothing about our national debt. Similarly, voting different ones into the office wouldn’t make a difference, unless we make the effort to communicate vocally and clearly to the candidates letting them know what our top priorities are. This isn’t the first time I’ve seen or heard a message like “Vote them all out”. Messages like these fly around like crazy around this time of year. Yet, very little happens. For the most part, the status quo is maintained as we witness one election cycle after another.
A day of financial reckoning lies in our future if our cultural attitude towards debt doesn’t change. The government (and the national debt) will keep growing and growing until it dies from coronary heart disease — which also happens to be the leading cause of death of Americans. Help spread the message of financial literacy — our long term survival as a nation depends upon it.
I agree on the fact that there’s this common American mentality of thinking that debt is something that is unavoidable and that there’s nothing much that can be done about it. I’m a bit pessimistic about this, but I feel like because this is an individualist society, people tend to be selfish for their own gains and that kind of mentality will continue until history repeats itself through recessions/depressions. Unfortunately, I currently think that’s really the only time when people would wake up, start paying attention again and take this more seriously. Sorry if that sounded a little too political and pessimistic. I do hope spreading this word helps and I’ll help spread the word as well.
Hi David,
Thanks for the very thoughtful comment and for helping spread my message. I consider myself an optimist, but can be cynical or pessimistic when it comes to people’s behaviors. However, in my heart I believe in people’s capacity to adapt and change for the better which is why I wrote a post like this one.
I do hope that changes can happen in the gradual manner as I described. I hope it’s not the recessions/depressions that cause the reactionary changes, because as I mentioned “Abrupt changes cause pain”.
I do want people to be a little selfish in learning how to build their wealth — keeping more of what they earn (i.e. not spending it) and learning how to invest what they save to help insulate themselves and their family against financial shocks. This type of selfishness is quite reasonable, because it does not come at the expense of others. One family learning how to better build their wealth does not come at the expense of others since our economy is not a zero sum game.
It’s the overly selfishness that comes at the expense of others that I think you’re referencing though. Yeah, observing those kind of behaviors can make me pessimistic as well at least for a time, but I allow it pass through me.
I agree that personal debt (with the exception of a sensible mortgage that one can afford) is a big problem. Many American families have NEGATIVE net worths. However, the US government is not a household. It can print money. It can sell bonds at very low interest rates (for now) and do it again 90 days later infinitely. It can use deficit spending to get the economy out of a recession. I certainly think that there are problems with _excessive_ national debt, but I don’t think it can be compared to a family’s finances simply by subtracting zeros. I found this webpage helpful and seemingly non-partisan: http://faculty.winthrop.edu/stonebrakerr/book/defphob.htm
Also this reddit thread was unusually coherent: https://www.reddit.com/r/explainlikeimfive/comments/2o8jbw/eli5_why_isnt_americas_massive_debt_being/
Hi Ruin,
Thanks for the comment, those are both excellent links you provided.
I feel the purpose of the image is to put the numbers into a context that the majority of people can understand. Many people can grasp the meaning of a number in the 10s of trillions as it is so far out of context with their daily lives. The simplicity of chopping off 8 zeroes helps with allowing something as large as the US federal budget to be understood on a high level.
What concerns me in the first article you linked is the rate of change of the national debt when expressed as a percentage of GDP changed dramatically following the year 2000. The article then says “the current level is well within historical bounds”. I consider World War II an extreme outlier. When 1945 is removed from the table, our current level is not within normal historical bounds. I own part of the US debt through treasury bonds, so I do receive benefit from some existence of national debt. This doesn’t change the fact that I’d rather we, as a country, have little to no debt whatsoever. When the debt is large, it makes continued use of expansive fiscal policies even riskier to help counter the next downturn as that only balloons the debt further. I do not want the US positioned into a corner where we have a choice between (1) continued use of these fiscal policies, but risk defaulting or (2) don’t use fiscal policies and make any recession or depression last even longer and be more painful.
If my first 3 points for change in my numbered list were to happen, then that would also likely help smooth out economic cycles in general. Less severe booms and busts due to a much lower percentage of families living paycheck to paycheck, not overextending themselves during good economic times, and having themselves more prepared for the down economic times (not being forced to sell assets at the worst possible time when too many others are selling).
The reddit thread has some reasonable comments within it too. Here’s one I found: “That’s because, given that debt service takes up only 6.23% of all federal spending, it’s seen as quite affordable.”
I certainly don’t find 6.23% of spending on something that provides no current benefit as reasonable. We’re paying for our past. Sure, we may have had past benefit and our current state may be benefiting from the past. The way I see it, taxes could be 6.23% lower if there were no national debt. I guess the real questions I have for you are:
– Do you feel that all government spending is necessary, useful, and appropriate OR are there areas where you feel there is waste?
– Do you want to see the size of the federal government increasing in the future?
– If you were given an option when you first began working to not pay any Social Security taxes and would not be allowed to ever receive any benefit from SS, would you have taken this option? (i.e. do you feel that you could do a better job investing that money than the government has?)
Well you pretty much owned me in this debate. But tbh I mostly agreed with the points in the original article and was playing devil’s advocate a bit because I wasn’t fond of the household analogy. In response to your three questions. One and two, clearly No. Part of the problem is the way our nation’s budgeting process seems to only allow for stark Yea or nay options:. Pass a bloated budget or shut everything down.
In response to the third, I think in my twenties the government would have done a better job managing my retirement savings (it’s not hard to beat the ROI of beer and strippers). If I had an option back then to just have all the money I paid to FICA put directly into my chain wallet – and this was irrevocable? Well let’s hope I would have uncharacteristically made the right decision. However yeah you’re right, once I matured, I could do a lot better job than the govt. (Especially since they aren’t actually saving and investing the money anywhere – but that’s probably a whole separate topic)
I appreciate you playing devil’s advocate and it was not my goal to turn it into a debate. I am also annoyed by the stark options as you mentioned. Particularly so with referendums where so often all the choices offered are poor.
Really good stuff here. I’m not as against low interest debt as I used to be. And at the rates we’re seeing now, I think there’s an argument for borrowing quite a lot for arbitrage opportunities.
In the case of the US government, is it possible that they’re actually coming out ahead in real terms by selling more bonds, as the interest rates are so low? That is if your bonds are at 1%, and inflation is at 2%…
It probably doesn’t excuse the gap between the income raised in taxes and current spending.
Hi Done,
Yes, I do feel that the US government is coming out ahead by keeping rates low for a long period of time and understating actual inflation (and the government has many motivations to do so, but that’s the topic for another post). The US government also wins out if there is a sudden spike in inflation for all of the old debt as it becomes easier to pay it off with an inflated currency. The loss would be on newly issued debt under a higher inflation environment.