Chapter 10 GOVERNMENT SPENDING
SECTION I THE ECONOMICS OF GOVERNMENT SPENDING Total Government Spending in 2003 was $ 3,000,000,000,000 For every man, woman, and child (per capita) $ 10,300 Spending in the public sector made up of federal, state and local government began to rise significantly in the 1940s (FDR)
TYPES OF SPENDING Goods & Services Tanks, Planes, & Ships Office Buildings, Schools, & Parks People (civilian & military) Discretionary 1/3 or 33% Transfer Payments Social Security Welfare Unemployment compensation Disability Grants-in-aid (Govt. to Govt.) Nondiscretionary 2/3 or 67%
THE IMPACT OF GOVERNMENT SPENDING Resource Allocation Planes vs. Schools Roads vs. Healthcare Redistribution of Income Rich to Poor Industry to Industry Competing with the Private Sector Hospitals Electricity Package Delivery
SECTION II FEDERAL GOVERNMENT EXPENDITURES ESTABLISHING THE FEDERAL BUDGET Governmental Fiscal Year 10/01 to 9/30 Starts with a request from the President Appropriations (spending) drawn up by the House & approved by the Senate Final Approval by the President
MANDATORY SPENDING Spending authorized by law that continues without the need for annual approval of Congress Entitlements or spending on programs such as as Social Security, Medicare, welfare, food stamps and other programs which entitle the recipient to the benefit if they qualify for it. DISCRETIONARY SPENDING Spending that must be approved by Congress on an annual basis. Includes the Defense Department, welfare (threshold qualifications), transportation, education, etc.
FEDERAL GOVERNMENT EXPENDITURES - 2004 Social Security 22% Income Security 14% Medicare 12% Health 11% Interest 8% Total 67% National Defense 18% Education 4% Justice 3% Transportation 4% Other 4% Total 33% Nondiscretionary Discretionary
U.S. NATIONAL DEBT CLOCK The Outstanding Public Debt as of 04 June 2010 at 10:00:52 AM $ 13,031,602,388,987.40 The estimated population of the United States is 307,171,107 Each citizen's share of this debt is $42,118.11. The National Debt has continued to increase an average of 3.78 billion per day since January 1, 2010! During this class period the debt has increased by-- $1,575,666.00
PART III TYPICAL STATE & LOCAL EXPENDITURES State Intergovernmental 30% Public Welfare 18% Utilities 10% Higher Education 10% Highways 6% Administration 3% Hospitals & Health 6% Other 17% Total 100% Local Education 36% Utilities 10% Fire & Police 7% Public Welfare 4% Highways 4% Hospitals & Health 7% Administration 5% Other 27% Total 100% Note! Unlike the Federal Government Local and State governments cannot run budget deficits. They must balance their budgets every year.
SECTION IV DEFICITS, SURPLUSES AND THE NATIONAL DEBT Deficit Spending is spending in excess of revenues collected. Federal Debt is the total amount borrowed from investors to finance the government s spending. Public vs. Private Debt Internal debt (public) is owed to trust funds External debt (private) is owed to individuals, companies and governments.
THE DEBT AS A % OF GDP (2009) Japan 192% France 80% Germany 77% Canada 72% Britain 69% United States 53% Mexico 38%
Here is a pie chart showing the makeup, or ownership, of the National Debt as of December 1998. As you can see, the largest slice of the pie, over 40%, is owed to the Federal Reserve Bank and to other government accounts; that is, this part of the Debt is owed by one part of the government to another. The remaining 60% of the Debt, roughly $3.3 trillion, is privately held.
The National Debt on January 1st 1791 was just $75 million dollars. Today, it rises by that amount every hour or so. The following graph shows how the National Debt has grown year by year since 1940 in actual dollar amounts, uncorrected for inflation:
The chart indicates how large the deficit or surplus was as compared to the size of the economy. After World War II ended, the significant deficits in relation to the size of the economy were during the 1980s and at present.
IMPACTS AND BEYOND HOW THE DEBT IS HANDLED Crowding-out Effect When government goes to the market to borrow funds others find fewer funds available Balancing the Budget How can we ever balance the budget? Cut spending Raise Taxes Growth all of the above?