The Corner

‘What Is Driving the Growth in Government Spending?’

This is not from NRO, the Cato Institute, or Reason:

Spending on entitlement programs was about $500 billion per year in 1972 in today’s dollars. If it had increased at the same rate as the gross domestic product, it would now be about $1.4 trillion. Instead, it is now about $2.9 trillion per year. What this means is that there has been about a $1.5 trillion increase in entitlement spending above and beyond gross domestic product growth. This is actually slightly larger than the overall increase in government spending relative to gross domestic product. This results from the fact that spending on the other categories has been essentially flat relative to the gross domestic product (infrastructure and services), or constitutes a negligible part of the budget for the time being (interest), or actually decreased relative to gross domestic product over the 40-year period (defense).

To clarify: all of the major categories of government spending have been increasing relative to inflation. But essentially all of the increase in spending relative to economic growth, and the potential tax base, has come from entitlement programs, and about half of that has come from health care entitlements specifically.

It’s from the New York Times — Nate Silver, no less. He has a piece entitled “What is Driving the Growth in Government Spending? on his FiveThirtyEight blog (h/t Rob Raffety). The piece is full of useful information. In particular, I find this table interesting: 

Interestingly, Larry Summers argued in yesterday’s Washington Post that debt and deficits are serious concerns that need to be addressed :

There is a recognition that debts cannot indefinitely be allowed to grow faster than incomes and the capacity to repay them. There is a heavy moral dimension with regard to this generation not unduly burdening its children. There is also an international and security dimension, with worries that the excessive buildup of debt would leave the United States vulnerable to foreign creditors and lacking flexibility to respond to international emergencies.

Economic forecasts are of course uncertain. Yet the great likelihood is that over the next 15 years debts will rise relative to incomes in an unsustainable way if no actions are taken beyond those in the 2011 budget deal and the recent “fiscal cliff” agreement. So even without the risk of self-inflicted catastrophes — the possibility of default or a potential government shutdown this spring — it is appropriate for policy to focus on reducing prospective deficits. Those who argue against a further focus on prospective deficits on the grounds that the ratio of debt to gross domestic product may stabilize for a decade contingent on a forecast that assumes no recessions counsel irresponsibly. Given all the uncertainties and current U.S. debt levels, we should be planning to reduce debt ratios if the next decade goes well economically.

He argues, however, that this shouldn’t be at the expense of “investments” that are important for economic growth, which includes “high-return investment in areas such as infrastructure, preventive medicine and tax enforcement that would improve our fiscal position over the very long term.”

That shouldn’t be too hard. At a time when the size and scope of government is so great, there are ways to cut spending and reform entitlements while preserving a social safety net and even investing in items that are deemed essential. This is not a new idea or argument. Hayek himself was a proponent of small government and sustainable safety-net spending. However, the safety net we have today is not sustainable and it is growing so fast (“beyond gross domestic product growth,” Silver explains) that, unreformed, it will jeopardize the kind of “investments” that Summers is talking about.


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