I’m not a fan of Steve Forbes but his essay President Obama, Clinton Prosperity Requires Clinton-Sized Government is proof that even a blind squirrel finds a nut sometimes. In it Forbes counters the unspoken assumption by Democrats returning to Clinton era tax rates Clinton era growth will follow, pointing out that the federal budget back then was half a trillion dollars smaller and the Fed wasn’t printing dollars like a bunch of coked up monkeys running the printing presses.
In 1998 the budget for fiscal year 1999 Clinton submitted contained $1.7 trillion in spending and $1.8 trillion in revenue for a $9 trillion economy. It was the first balanced budget in 30 years, and resulted in a $124 billion surplus.
Contrast this with Obama’s 2012 budget. $3.8 trillion in spending and $2.5 trillion in revenue resulting in a deficit of $1.3 trillion. To put it another way the 2012 deficit alone is roughly 3/4 of Clinton’s budget. The US economy has grown to $15 trillion in 2011, making it about 66% bigger today than it was in 1999, but the rate of government spending has increased 124%, almost double economic growth that period.
So where has the money gone? Defense obviously. In 1998 when the ‘99 budget was being formulated American troops were deployed on a peacekeeping mission in Bosnia-Hercegovina. Today the world is different and America has deployments not only in Afghanistan but covertly in Libya, Syria, Yemen, Northern Africa and wherever Islamic terrorists like to hang out, so in my opinion the expense is justified to a degree. But I am not averse to defense cuts. How long do we have to protect Europe from the Germans or Russia? Isn’t 70+ years of American boots on the ground enough there? I’ve even advocated drawing down troops in Japan and South Korea, although these nations may not be so keen to see our backs given China’s rise to superpower status.
By comparing the 1999 and 2012 budgets by budget function, what’s interesting is the lack of divergence between functions over the 13 year period. As a portion of the total budget defense’s portion grew by 2.56% between 1999 and 2012, the largest positive shift of budget resources. Considering how things have changed in the world a 2.56% allocation to defense seems modest. Other notable changes include a nearly 9% decrease in Net Interest – a fact that strikes me as some kind of budgetary gimmick or error, and a 2.53% decrease in Social Security payments (don’t we have a higher percentage of elderly in our population today than in 1999?)
Comparing the FY1999 to FY2012 US Federal Budgets
When I look at the budget figures for both years, nothing leaps out at me and says “Here’s why we’re $16 trillion in the hole.” Bush didn’t add a whole new category of spending, and neither has Obama. The reason our budget mess is not apparent in these figures is because it’s a problem of scale. To use another analogy, it’s not as if any slice of the pie has grown over the others, the entire pie has grown beyond inflation and outpacing the economy. If the government grew at the same pace as the economy in the period 1998-2011 the federal budget in 2012 would have been $2.50 trillion dollars, $1.3 trillion less than the actual 2012 budget and coincidentally, the same figure as last year’s deficit. The entire federal government expanded and I find that disturbing because that implies uncontrollable growth, and a single statistic proves it.
How much does federal spending make up the economy? Dividing the 1999 $1.7 trillion budget by $9 trillion GDP results in 18%. Using the same numbers for 2012 and we get 25%. The federal government now owns 7% more of the economy than it did in 1999. 7% of an imaginary number like $15 trillion is meaningless on the face of it, but when we realize that while we weren’t looking the federal government added to itself an economy the size of Mexico (2011 GDP $1.15 trillion) or South Korea (2011 GDP $1.11 trillion) that it didn’t possess in 1999 and things start to look a bit more serious. Perhaps those Tea Partiers weren’t as crazy as the mainstream media portrayed them as after all, unless of course you assume government control of the economy isn’t necessarily a bad thing.
If we add state and local spending, the situation gets worse for a Tea Partier, better if you are a socialist, adding another 14% of GDP for combined government spending of 38.9% of GDP. Ranked against other nations in the world that puts us roughly tied with Canada, a few points ahead of Japan and Australia and a few points behind Spain and Ireland, two nations that are struggling to stay afloat in the EU.
Total US Govt (federal/state/local) Spending as Percentage of GDP 1903-2011
It is ironic that the administration of President Bill Clinton, a man so detested by the GOP establishment they tried to have him forcibly removed from office would serve as the epitome of small government at the same time as his Democratic successor strives to emulate his tax policies to fund an even bigger government. But it is what it is; up is down right is wrong, good is evil and the Clinton era stands as a shining example for small government libertarians and conservatives to strive to recreate. So party like it’s 1999 and embrace the smaller government ideals that underlaid its prosperity.
Calculations used in this article can be accessed here in their entirety.