The Corner

Deficit in FY 2010 Nearly $1.3 Trillion

Fiscal year 2010 ended on September 30th. Looking back, the Congressional Budget Office calculated that during that year the deficit has reached nearly $1.3 trillion. The 2010 deficit is the second-highest shortfall — 2009 is the highest  —since 1945, as a percentage of the economy.

To the extent that spending is slightly less than in FY 2009, it is due to the spending provided during the financial crisis to the banking industry.

Outlays ended the year about 2 percent below those in 2009, CBO estimates. That decline resulted primarily from a net reduction in outlays for three items related to the financial crisis: the costs of the TARP ($262 billion lower than in 2009), payments to Fannie Mae and Freddie Mac ($51 billion lower), and federal deposit insurance ($55 billion lower).

This cut in spending, which obviously followed a gigantic increase in spending on these programs, is probably why Paul Krugman had this piece on Sunday claiming that there hasn’t been a big expansion of government:

Here’s what you need to know: The whole story is a myth. There never was a big expansion of government spending. In fact, that has been the key problem with economic policy in the Obama years: we never had the kind of fiscal expansion that might have created the millions of jobs we need.

Now, let’s go back to the CBO data. According to the monthly budget review, once we exclude those three programs (TARP, Freddie and Fannie, and the FDIC), spending rose by about 9 percent in 2010. This is my favorite part (in a horrified kind of way) of the CBO piece. This 9 percent spending growth, CBO explains, is “somewhat faster than in recent years.” Now, I am not sure how you feel about this, but I think that something is really wrong when a 9 percent growth in spending is not that big of a deal anymore.

Here is what the federal government spent our money on:

This is stunning: This table, which was put together by the Wall Street Journal, shows that overall, the government has grown by 21.4 percent in two years. We have a spending problem, not a revenue problem. This has consequences. Our debt is huge, it will get worse, and the interest we could end up paying on that debt might end up eating up all of our wealth if lawmakers don’t change their ways.

The federal government is like an addict who started out with a decent job but, over the years, had to get deeper and deeper into debt to feed its habit. Washington’s addiction to spending has made us dependent on debt, and the only way to address this issue is to stop spending and start saving.  

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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