Does the U.S. Really Have a Spending Problem?

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Revenue and spending as a percentage of GDP has changed greatly over the years. Image courtesy of the Congressional Budget Office.

Revenue and spending as a percentage of GDP has changed greatly over the years. Image courtesy of the Congressional Budget Office.

Europe was created by history. America was created by philosophy — Margaret Thatcher

Watching Meryl Streep utter the above line during her spot-on portrayal of the former British Prime Minister in The Iron Lady got me thinking: are philosophy and reality necessarily the same thing?

It’s a loaded question, of course, because when one of its most puzzling conundrums involves a tree and a forest (but thankfully, not a bear), it’s apparent that philosophy and reality are only partially mutually exclusive. What is not in dispute, however, is that philosophy can help drive reality, or at least one’s perception of the facts. Such is the case with respect to politics and the 21st century American economy.

U.S. Spending Too Much?

Government spending has grown sharply over the decades. In 1965, it was $11,900 per household; by 2009 it was $31,542 before declining slightly to $30,015 in 2012. In ten years, it is projected to increase to $34,602.

A plurality of the general public now believes that the United States government spends too much money. According to a February 24-25, 2013 Rasmussen poll of 1,000 likely voters, 45% of Americans prefer cutting spending as the primary method of reducing the federal deficit.  Since we all operate within budgets, the concepts are easy for us to visualize. If our household annual income is, for example, $60,000, we cannot spend more than that amount without going into debt. With our ability to acquire debt limited to the amount creditors are willing to extend, we must therefore reduce spending as necessary stay within our family budget.

By contrast, the U.S. government has an unlimited ability to borrow/print money and is not subject to rigid spending limitations. The ability to print money as needed has allowed America to aggressively pursue ideological principles. Our social safety net, for example, is far and away the world’s largest, with over one-third of federal outlays devoted to health care and welfare alone. When a cause is considered worth fighting for, troops are sent around the globe, even if the fight is not officially ours. Given the myriad self-proclaimed causes and as evidenced by just twelve balanced budgets since 1940, the United States has clearly chosen ideology over budgetary enforcement practices.

The adherence to philosophy comes with a price, and with the national debt ballooning above $16 trillion, the deficit hawks in Congress have had enough. One way or another, they intend upon shrinking the size and scope of the federal government by reducing spending. Based upon the Rasmussen poll, it would seem that a large percentage of the American public actually prefers that approach to restoring fiscal sanity.

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