It's the Economy! (Stupid)

"Patric Hale has done a wonderful job researching and presenting the key issues facing the United States in the 21st century. His new book is exciting to read and should be in the library of every concerned citizen and corporate manager. This book is a general guide and reference that can be used and accessed for many years to come."

Robert Johnson
Director (Ret.)
Hewlett-Packard

(excerpt from the book...)

As stated in the previous chapter, the US Federal Government is the largest business in the world with a budget of almost $3 trillion and employs 4.2 million people. By itself, it is as large as the entire economy of China--the third largest in the world. By contrast, the largest private company in the world by market capitalization is ExxonMobil at a mere $410 billion, or roughly 14% the size of the Federal Government. For US citizens the Federal government's size seems overwhelming and unwieldy. The budget itself seems beyond comprehension--to citizens and some of our leaders alike.

On the facing page you will see the development of the Federal Government by the numbers since 1901. The numbers quickly become staggering almost beyond comprehension. But "beyond comprehension" is simply unacceptable both for us who pay all that money, and especially for the media and members of the government who must try to explain it to us. So this chapter will focus on trying to bring some clarity to the Federal Budget, showing where the money goes, and putting all of this in context.

Let's begin with the $3 trillion itself. Some politicians on both sides rail against this figure as being either too big or too small depending on what one wants the Federal Government to actually do for its citizens. Again, the question is: "Compared to what?" On the next page you will see the same chart as that on the left but broken out as a percentage of GDP since 1930. The numeric size of our government by the numbers is actually meaningless--as our economy grows, and inflation affects all things economic, so will our government grow as well. Consequently, the only way to keep these big numbers in context is understanding them as a percentage of GDP over time. Only then can we track whether the situation is getting better or worse compared to the past.

On the chart on the next page it is the "outlays" column that matters most because this is the amount of money the government actually spends that determines its size, not how much it actually receives. Naturally most citizens would prefer that it be the other way around, but that's another issue. Over time, as you can see, with the exception of WWI and WWII, Federal Government outlays have generally been between 18-23%, or an average of about 20%. Considering the size of the US economy, an average of 20% is hardly unreasonable for its government. And despite our understandable anathema for deficits--for good reason--even that has been hardly out of whack over the years (see Chapter 9). Nonetheless, it seems incongruous that our leaders can't seem to balance the books each year as the difference between receipts and outlays is statistically so small. But let's move on....

The best way to approach the budget of the Federal Government is to view it just as if it were any other business: That is, it has receipts and different subsidiaries that have demands on those receipts; then a bottom line after the receipts are distributed. On the next three pages you will see the Federal Budget described department-by-department, and the major sub-expenditures. On the left you will see a top-line summary of all of these.

(...more in the book)