The Federal Government’s 2022 fiscal year just ended on September 30th. This year’s spending deficit of $1.4T is less than half of the deficit recorded in 2020.
Federal spending was at $6.3T down 8% from the prior year while federal revenue was up 21% to $4.9T. The 2022 deficit is still the third largest that has been recorded in the last twenty years.
Deficits have become so common that Americans don’t even think much about them anymore. But one should realize that the American economy isn’t much different than any of our businesses.
Sooner or later we all need to balance the books.
There are two schools of thought on deficits in economic circles. The first goes like this.
As populations expand, those new people entering an economy need places to live and work. This requires major investments in infrastructure like new roads, bridges, and utility systems.
Governments take farmland, invest in these things, and magically cities spring from the prairie further increasing their long term revenues in additional taxes. Many call this the, “Build It and They Will Come System.”
This happened after World War II ushering in decades of strong economies and growth. But that isn’t the majority of what is happening now.
Entitlements like welfare, medicaid, and social security have grown as a percentage of the overall American budget like wildfire since the beginning of the 60’s. On a per capita basis, entitlement spending has grown at twice the rate of income in the past 50 years.
Last year, the Federal Government spent $5.85T on entitlements, and the debt associated with our annual deficits continues to rise.
Many don’t realize that over the past few decades of our history, there was only one time when any of our federal debt was repaid. It was during the Clinton Administration when the budget actually balanced.
This was based on the changes to the tax system done during the Bush years that resulted in additional tax revenues for the next administration. But that was an isolated instance. Most of the time, we just keep piling on additional debt year after year.
And why isn’t this a source of national debate? Because it’s become so common that most Americans don’t see it as a problem.
Our country didn’t acquire large amounts of debt until the beginning of the 20th Century. Since very little of it has been paid off in that period, it continues to grow.
But as the economy also grows it looks like the debt is getting smaller. It’s a lot like seeing a building in your rear view mirror as you drive away. In reality, it’s still the same size, it just looks a lot smaller.
And what happens to any company or economy that goes too far into debt? Sooner or later people stop lending it money, and then what happens?
I don’t even want to consider the long-term consequences.
Let me leave you with this.
In the short term, I think about inflation and the other problems inherent we all face. By chance, I went to lunch and bought a couple of hot dogs and a diet yesterday. Of course, the diet’s only job was to make me feel better about eating the two hot dogs in the first place, but here’s my point.
The dogs cost me six dollars apiece. When I was a kid, they were a quarter. When the hot dog vendor in the old neighborhood by the train stop raised his prices to .35 cents, I almost had a heart attack. I was only five at the time, but I actually thought it was the end of the world.
A lot has changed in the past fifty years.
We have prices that are increasing at a rate of over 8% annually. That’s how much they should go up every three years, not in just one.
We also have a federal government that can’t stop pushing additional money into the economy. Those additional funds do nothing but increase demand for goods and services which further exacerbates inflation.
And here we are.
Until we can get the federal budget under some sort of control, the rampant inflation we all face won’t go anywhere. We’re all just along for the ride not being able to do anything about it.
We can only make the changes to manage our businesses accordingly, but do so knowing that we’re right there with you. You aren’t alone in this insanity.
We’re all going to get through this. Let’s get through it together.
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