With seemingly every day bringing more bad news from Europe, many are beginning to ask how much longer the United States has before our welfare state follows the European model into bankruptcy. The bad news is: It may already have.
This year, the fourth straight year that we borrowed more than $1 trillion to support the U.S. government, our budget deficit will top $1.3 trillion, 8.7 percent of our GDP. If you think that sounds bad, it’s because it is. In fact, only two European countries, Greece and Ireland, have larger budget deficits as a percentage of GDP. Things are only slightly better when you look at the size of our national debt, which now exceeds $15.3 trillion, 102 percent of GDP. Just four European countries have larger national debts than we do — Greece and Ireland again, plus Portugal and Italy. That means the U.S. government is actually less fiscally responsible than countries like France, Belgium, or Spain.
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And as bad as things are right now, we are on an even worse course for the future. If one adds the unfunded liabilities of Social Security and Medicare to our official national debt, we really owe $72 trillion, by the Obama administration’s projections for future Medicare savings under Obamacare, and as much as $137 trillion if you use more realistic projections. Under the best-case scenario, then, this amounts to more than 480 percent of GDP. And, under more realistic projections, we owe an astounding 911 percent of GDP.
Meanwhile, counting both official debt and unfunded pension and health-care liabilities, the most indebted nation in Europe is Greece, which owes 875 percent of GDP. That’s right, the United States potentially owes more than Greece. France, the second most insolvent nation in Europe, owes just 549 percent of GDP. Even under the most optimistic scenario, we owe more than such fiscal basket cases as Ireland, Italy, Portugal, and Spain.
So far we have been able to avoid the consequences of our profligate ways because the very public turmoil in Europe has helped prop us up as the world’s safe haven for foreign investment. Compared to the euro’s problems, the dollar looks pretty safe. This means that others are still willing to lend us money at absurdly low rates. But that won’t last forever. In fact, already seven European countries, including Germany and Sweden, have better credit ratings than the U.S.
Perhaps we can take some solace in the fact that our welfare state is not yet as big as Europe’s. But the key word here is “yet.” Today, our federal government spends more than 24 percent of GDP. Throw in state and local spending, and government at all levels consumes over 43 percent of everything produced in this country over the course of a year. As bad as that is, it’s still less than Europe, where the average of government spending at all levels is slightly more than 50 percent of GDP. But the Congressional Budget Office projects that federal-government spending in this country is currently on a path to exceed 42 percent of GDP by 2050. Government spending at all levels will exceed 59 percent of GDP. And CBO assumes state and local spending will decline in the future, which seems unlikely.
By way of comparison, today, Ireland is the only country in Europe with a bigger government than the U.S.’s will be in 2050. That’s right, one can look at countries like France and Greece, or even Denmark and Sweden, and realize that we will eventually have bigger governments than those quintessential welfare states have today.
At that point does the United States cease being the United States as we have known it? At the very least, can our economy survive such a crushing burden of government spending, and its attendant level of taxes and debt?
Given this looming disaster, President Obama has just submitted a budget that explicitly rejects “austerity,” avoids any reform of Medicare or Social Security, and adds some $7 trillion to the national debt over the next ten years. And Republicans? They are busy debating the pros and cons of birth control.
Michael, please inform me if you can and will, just when it was that we citizens stopped believing that D.C., money was real any longer. Could it have been when the national debt reached 8 trillion? 11 trillion?
My point being that few people have any sense of financial reality,( i.e. consequences to imprudent monetary behavior) caused by the example of goobermental spending.
Excellent article. Before FDR and his disastrous New Deal, federal, state and local spending was just 10 percent of GDP. Now it's 43 percent, as this article points out and getting worse.
Those numbers don't take into account two other factors that are the result of government bureaucracy. The first is inflation, which makes everything cost more and so is a kind of hidden tax. The second is the shadow government that needs to exist in the private sector in order to comply with increasing regulation. Look at the HR department in most companies. A good portion of what these people do is keep a company in compliance with a thicket of well-meaning labor laws. The question is how much better our lives would be with less resources squandered on big government.
But we can cut government spending sharply and reap society-wide benefits. The best example occurred right after World War II. Federal spending was 44 percent of GDP in 1945. The great President Truman ignored concerns by many big government nitwits and cut federal spending to 26 percent of GDP in the first year, 14 percent in the second year, and 12 percent by the third year (1948).
The big concern was that unemployment would again soar, as it had right before the war, when it was still at 12 percent in spite of all the New Deal spending. After all, nearly 40MM Americans were employed directly or indirectly by the government war machine. Most were in the military, of course, but millions of others were building tanks and ships and other war-related materials in the private sector. By 1947, only 5 percent were so employed.
The unemployment rate was just 3.9 percent by 1948 as millions of workers were rapidly absorbed by a booming economy.
Millions of GIs came home, got married, bought houses, and had kids. That baby boom generation knew unprecedented prosperity and economic growth.
So let's do it again. Let's cut spending and taxation at all levels of government down to 10 percent of GDP, the way it was before FDR. Let's make all those lazy bureaucrats and welfare bums get real jobs like the rest of us.
In 1946 there was 50 people working for every retiree. Today, 3 working for each retiree. We are getting way too old and we don't have enough children.
You have commented on the big question: Was the post-war boom an anomaly or the norm to which we are trying to get back to? After WW2, much of the world was in disarray and rubble and it was up to the US to put it all back together, since we were the only ones left standing with any means. As a result, our economy took off and never looked back. At least until the 60's when we hit a bump in the road known as Vietnam. Remember when 'Guns or butter' became 'Guns AND butter' under the Johnson administration? But I digress. Yes, cutting govenment spending would seem to be a 'no-brainer'.
I have no doubt that we could turn this country around and once again become the envy of the world. At least more than it is now. The fair tax would play an incredibly large role in the recovery. My only fear is that we no longer have leaders with testicular fortitude to stand up to the status quo of spend like hell to get re-elected. I'm only 47 years old, but I have seen a decline in character that is hard to explain. Well, maybe not. It brings to mind the quote "power corrupts and absolute power coruptes absolutley." Have we gone too far? I certainly hope not. Oh, and by the way, great comment jdg. I agree completely. Great minds think alike.
Quite persuasive - until the penultimate sentence. Republicans are not "busy debating the pros and cons of birth control"; they are (or should be) resisting a bullying statist and his flagrant attack on religious liberty.
The Republicans are not debating the pros and cons of birth control, they are debating whether the govt can force companies to provide it for free.
Winning that argument is central to the task of controlling leviathan.
If we lose that argument, or just surrender it as the author suggests, then all other battles are meaningless, because the war as a whole is already lost.
Except Mark, the MSM and the Dems are not spinning it like that. They are spinning it as "the Republicans want to deny women birth control" or even "the Republicans want to deny women health care." And the politically ignorant are picking up that spin.
After looking at these numbers (External Link) ...YIKES
All I can say is 'we in a heap of Trouble!'
Greece? We should be so lucky. At least they have the EU to 'bail them out'. Sure, they may have to give up some entitlements, but it's nothing to riot over... oh wait, yes it is. External Link
Anyway, by the time this posts our broke nation will be broker by another half billion or so.
Ain't spending other peoples money grand.
I don't believe the author is suggesting that Republicans should ignore the contraceptive mandate. I believe he's saying that there is too much focus on issues such as the mandate and too little on this administration's out-of-control spending and the disastrous path we're on. I completely agree. Republicans should be relentless in proclaiming that Leviathan must change its spendthrift ways and the only way to accomplish that is to defeat Obama.
The United States is hardly Europe, however much certain media and other types pretend it is. The main problem with Europe is that the European Union was a bad idea to begin with, and is the primary cause of the collapse of European countries like Greece. Of course Greece might have collapsed on its own but being in the union did not help one bit. Nor have other European nations benefitted from being a part of the union with a single disastrous currency. Had European countries been left to develop on their own they might have fared better. Also, Europe does not have the tradition of a moreorless "united" political system, but a history of brutal dictatorships as well as Social Democracies. Also, the collapse of the Iron Curtain and the addition of countries such as East Germany added financial wrecks to already vibrant if not struggling economies in countries that were not part of the Communist bloc. But again, the United States is hardly Europe. Our problem is that our Corporations shipped most of our production overseas so they could manipulate and exploit people without rights or benefits, and to gain more profit so a few people could indulge in decadent life styles.
Then again surf over to "Atlantic", Dailykos, or Moveon.org and the level of financial ignorance is staggering.
We were winning the argument at this time last year. But the OWS' job was to discredit all protestors and they did it defacto to the Tea Party. The kids thought they were showing disatisfaction with Wall Street. Instead the media guys used OWS to undermine all protestors. The Tea Party has been removed as a force by a two bit movement that was never serious in nature.
My advice is to buy gold. have some Chinese currency, and wait, just wait. China has dozens of protests every day. Europe just delayed the doom. President Obama will win a second term with 51% of the vote and try to start a "soft cultural" revolution about the time the bill comes due in 2013 or 2014.
There isn't anything we can do so kick back and enjoy the ride.
This is what I've suspected for a long time, but have been afraid to say for fear of ridicule. Do you think that OWS might have been a covert CIA operation to discredit the Tea Party's anti-government message? You know: they saw the potential threat it posed down the road, and nipped it in the bud? I can't quite believe that it was just the media using it for its own purposes. Too passive. What if OWS never came about? How would they have discredited the Tea Party then (which was obviously on their agenda)?
Sometimes I wonder. I saw some of the OWS types in New York, and they didn't exactly appear to be "kids." A lot of them were undercover cops, and quite a few of *them* (the cops) didn't appear to be regular NYPD. I'm wondering who was behind the whole thing, and who benefited (clearly, the real protesters didn't really benefit -- a lot of them now have criminal records and more than a few ended up with missing teeth and a handful of hospital bills they couldn't pay for). And Soros just seems too easy an answer. Usually the real power isn't that obvious and visible.
James, I would put nothing past this administration, and I am sure they had some operatives within the movement to at least keep tabs on where it was heading. However, I believe the concept was hatched as reported, within Canada, picked up on and funded by Soros, who then communicated and integrated the planned marches into the overall strategy with Obama's campaign leadership. Everything is integrated and planned, in order to support the narrative: class warfare, anti-rich, anti-wall street, etc. And it is ALL designed to combat Romney, the candidate Obama wants to square off with. He was deemed the best target, and the socialist agenda was built to run against him.
"If one adds the unfunded liabilities of Social Security and Medicare to our official national debt, we really owe $72 trillion, by the Obama administration’s projections for future Medicare savings under Obamacare, and as much as $137 trillion if you use more realistic projections. Under the best-case scenario, then, this amounts to more than 480 percent of GDP. And, under more realistic projections, we owe an astounding 911 percent of GDP."
This is deceptive. We are not going to have to meet our entire multi-trillion dollar obligation to Social Security and Medicare next year, or in the next two years. Everything depends on the time period over which liabilities have to be paid. If we had to pay out 911 percent of GDP over 100 years, would there be a crisis?
The question is, can future entitlements (as they are, or subject to reform) be supported by the future US workforce? This requires annual projections of entitlement cost versus expected income. The gross obligation (x time GDP) tells you nothing.
Also, "911 percent of GDP" actually means "911 percent of *current* GDP". GDP may rise if all goes well in November.
