The editors of the Washington Post continue to ride the hobby that I referred to earlier. This time it’s in the form of a large animated graphic illustrating the increases in revenue and expenditures since 1962.
It’s interesting but it omits several important things. The first is that it neglects the revenue side of the equation almost completely. It shows the revenue but there is little commentary (or animation) associated with it.
The second is that from 1962 to date the federal budget has run at a surplus in a relative handful of years and all but one of those times (2000) the Social Security trust fund surplus accounted for most of that surplus.
The third is that interest paid on the debt for 2026 is roughly the same size as for Medicare.
Without those trust fund surpluses either taxes would have needed to have been higher or the federal debt would be higher and interest on the debt would be higher.
It is tempting to look at the growth of Social Security and Medicare and conclude that without them we wouldn’t have a debt problem. That doesn’t follow. For decades Social Security ran surpluses that financed other federal spending. Without those surpluses, taxes would have had to be higher, other spending lower, or borrowing from the public greater. And eliminating Medicare would not have eliminated the cost of providing medical care to the elderly; it would merely have shifted that cost elsewhere.
We do have a problem, but it’s not simply that we created Social Security and Medicare. It’s that for generations we have been unwilling to pay, currently, for the government we have chosen to have. We’ve been living on the cuff for almost all of the last century, and it’s a very bad habit.
The editors acknowledge that governments are supposed to offset deficits in bad times with surpluses in good times. That’s precisely what we haven’t done. We have run deficits during recessions, wars, and emergencies as a good Keynesian would expect but we’ve also routinely run them during expansions and peacetime.
People’s eyes glaze over when you get into numbers into the trillions. They just can’t comprehend numbers that high. The numbers need to be shared in ways that matter to them personally. For example, our current spending on interest is about $15,000 per year for a family of four. People understand what an extra $1250/mo could do for their family budget.
I want us to at least get serious enough where we can get a primary surplus (budget deficit minus interest).
Dear Charlie, Could you explain what you mean by “primary Surplus”? Just paying interest does not affect the principal. And if you mean annual deficit, just paying the interest on the accumulated deficit means the accumulated deficit increases by the whole amount of the annual deficit.
I note that the Federal Reserve has debased the US dollar more rapidly than the Roman Emperors debased their coinage.
Bob
Payment of Interest only stability is what any creditor looks for first. Else you have a death spiral. Not to put words in Charlie’s mouth, but he really means budget surplus. Net zero
More later, but, in my entire life I have not seen a workout where spending goes on merrily, but debt service or operating expenses are labeled “damn the torpedoes,” and not addressed. But look at our current posture, spend, spend, spend.
Debauching the currency is next. The current Dem Party is beholden to the socialists, and free beer and control of the revenue producing base is their mantra. It should give everyone pause.
Taxes are as large an expense as any other for Americans. But people continue to vote for the same thing. At our firm we call that shooting your dick off.
I participated with a group of health care economists/students for a while. One of the questions we asked is what would have happened if we had not developed Medicare. The group came to the conclusion that we would have developed something similar. Every other first world country did and with families getting smaller and more mobile it was going to be needed.
However, it was delayed medical spending would have been slowed and we might be spending less than we are now. The fact that old people, nearly all of them instead of a much smaller number absent Medicare, meant new medical products and therapies could be paid for and would be profitable. Just as an example MRIs dont spread like wildfire if half your patients dont have the means to pay.
Otherwise, I agree. As I said, I dont think it gets addressed until there is a true crisis. Part of the reason for that is SS and Medicare. Old people vote. part of the reason we see what minimal cuts we occasionally see are usually aimed at stuff that helps the younger generation.
Steve
Absent significantly cutting back on popular social and medical programs, the only way to stabilize the federal budget is with tax increases. While taxing the rich alone won’t be sufficient, the notion of “paying their fair share” is essential to generate support for broader tax increases.
Meanwhile, the kleptocracy continues to siphon off America’s wealth.
I agree with your observation, Zachriel. I have opposed every tax reduction over the last 40 years for exactly that reason.
I also believe we need to rethink the role of government at the federal, state, and local levels but that’s another subject.
Bob, A primary surplus does not include interest. It is the cost of current government expenditures, not paying for the past ones. Since we are paying $1.25 trillion in interest, if our annual deficit is less than $1.25 trillion, that is a primary surplus.
The reason it is important is around financial markets. With a primary surplus, even though the debt is still growing, it is not consuming fresh capital. A lot of companies focus on EBITDA – Earnings before interest, taxes, depreciation and amortization. A primary surplus is similar.
If you can’t run a primary surplus, you are in a death spiral. We haven’t run a primary surplus in a while.
Seems odd that we wouldnt mention bond rates in this kind of discussion. The 30 year is at 20 year highs. Higher than it was when inflation was over 8%. While I think some of that is clearly related to the tariffs and the Iran War, I have to wonder how much is related to our debt? Have to think it also may be related a bit to what’s going on in Japan where the effort to sustain the yen appears to be having fading effects. (Another debt ridden country.)
Steve