Monday, November 19, 2012

Why we can't have nice things. One graphic that will show you why Government "Investment" in infrastructure is almost impossible to come by these days.

The spending side of the Federal Budget is the sum of two major categories that spending can be slotted into: Mandatory Spending ("Non-Discretionary"--must happen under the law per previous legislation) and Non-Mandatory ("Discretionary"---can happen, or not happen, with active legislation). 

Mandatory spending occurs on things that are required when: (1) recipients meet eligibility requirements, such as Social Security, Medicare, Medicaid, and/or (2) "automatic stabilizers" like employment compensation, food and housing  kick in as the state of the economy changes (i.e. recession).

Non-Mandatory ("Discretionary") spending is spending on "everything else".  You could term it government "investment"---roads, bridges, infrastructure, science, space exploration, education, Big Bird, on and on...You know, the fun stuff and stuff that complements and enhances private investment.  What economists call "Public Goods".

Using historical tables from the Office of Management and Budget (OMB), I cropped the most significant mandatory spending budget items for the years 1967 and 2012 and calculated the percent each budget category was/is relative to the total budget of the respective year. I use 1967 because it is the first year of the Medicare program (federal payments for the health care of retirees).

Keep in mind, the numbers you see below are in "millions". So for instance, in 1967 the total spending on Mandatory and Non-Mandatory budget items was $157,467 millions (see number at the bottom), or a little over $157 Billion dollars. In 2012 the total is 3,595,422 million or almost $3.6 Trillion. 

In 1967, 32% of the Federal spending was on Mandatory items in the budget. That means 68% could be spent on the "Public Goods" mentioned above.

Fast forward...In 2012, 63% of the Federal spending is on Mandatory items. That means only 37% left to spend on Public Goods/Government Investment in stuff.

That is quite a reversal of fortunes in the last 45 years. 

Can you see now why it is difficult to have any new "public goods" toys?

Note: Numbers may not add up because I rounded AND I cut lots of categories to include only the essential budget items.
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