Sorry for the delay in posting -- been a busy year so far. Well, not so much busy as just covered with endless layers of snow and ice. The mid-winter doldrums are in full force, and I find myself looking at tropical vacation prices on Expedia for a couple hours a day.

OK, let's get to it. Before we get to all that positive stuff that I was promising a couple posts ago, we should look at all of the deficit busting stuff that's swirling around out there. Now that we have a wonderful mixed government, 'working together' has become the mantra of the major parties. So Obama pays a visit to the US Chamber of Commerce, to soothe the sensitive nerves of the country's plutocrats. And Speaker SprayTan is suddenly impressed with the Socialist President's willingness to roll up his sleeves and tackle the 'tough choices' of government waste.

The news cycle pundit winds are carrying the public discussion towards these general themes: cutting spending, tackling 'entitlements,' reigning in public unions and pensions, and dismantling Obamacare. As usual, the dreaded albatrosses of Social Security, Medicare, and Medicaid are tossed about as the biggest threats to our future. I saw some GOP knucklehead bragging about the pie chart that he was handing out to freshmen Congressional reps, showing how these dreaded entitlement programs were going to drag down the entire national budget within a few years. Of course, aside from Ron Paul, Joe Scarborough, and the usual raft of lefties, very little is said about our military entitlement programs, which guarantee to private contractors endless no-bid contracts, occupation-industrial dollars, and virtually no fiscal oversight.

Obviously, government budgets are in trouble at almost every level. The federal government is running a large debt. States, many of which cannot legally run deficits, are slashing everything in sight, demonizing public unions in the process, as if their legal, signed contracts are now somehow greedy graft. Localities are struggling to keep cops, teachers, and firefighters employed. And I would imagine that the pothole-to-pristine pavement ratio is the worst that it has been in decades.

So what's really going on with government spending? Don't we need to tighten belts everywhere? Do we need to raise the retirement age to 80?

First, let's look at federal spending as a share of US GDP, for the last hundred years or so.


Obviously, the relative size of the federal government has been slowly growing, as compared to the entire US economy. And yes, we do see a spike in the last few years. But much of that surge has been, well -- the actual surge. We have probably spent, conservatively, $1.2 trillion on the occupations of Iraq and Afghanistan -- and it doesn't look like we're rushing out of either place any time soon. In a global context, the US represents around half of the world's military spending.

Even so, the size of the US government as a share of GDP is not outlandish, in comparison to other countries, industrialized or otherwise. We're essentially in the middle of the pack, spending more than African countries, South American nations, and Japan, but less than most of the European social democracies. But of course, it's the increasing debt that is really the problem, as we're hearing all over the place now. Here is the history of the US deficit, again as a share of GDP:




Again, we see an uncomfortable uptick in the last 10 years or so, and likely an undeserved projections of a decline over the next few years.

So we've got a slowly growing federal sector, and an accompanying federal deficit to go along with it. Why? Well, we've obviously hit a rough patch for tax revenues. But in general, federal revenues are also growing along with the spending. They're just not growing at the same rate:



Notice the significant trough that appears with the Great Recession. Not a surprise. Less growth, less tax revenue. But the government cannot contract with the lost revenue, as contracts and commitments must be honored through time. Thus the deficits and burgeoning federal debt.

As far as how to fix the deficit and reduce the national debt, I really don't have a horse in the race. In general, I think that the federal government should, and will, shrink. Long-term unemployment and underemployment will completely restructure the labor market for good, and the 'natural' rate will probably settle in the 10% range. That's the official number. The real ratio, including discouraged workers and people in the prison system, will probably settle in around 20 to 25% -- for a long time. It will eventually dawn on us that this huge swath of people is not just lazy or under-trained. Rather, the nature of technology and production will simply make full-scale employment an untenable basis on which to construct our social, cultural, and economic institutions.

We really do need to start shrinking all aspects of federal spending, using the concept of subsidiarity: that is, functions should be performed at the smallest level possible, while still preserving efficiency. But if the direct financial size of government shrinks, the legislative, judicial, and regulatory functioning needs to become much more creative and bold, to preserve some equity and fairness as power is devolved.