Unsteady State

Should five per cent appear too small
Be thankful I don't take it all
--The Beatles

Each year, the Office of Management & Budget publishes government budget info. The 2009 historical budget tables provide a sense of how federal spending patterns have evolved since the country's founding.

Government inflows are known as 'receipts,' while outflows are 'outlays.' Subtracting annual outlays from annual receipts determines the extent of 'surplus' (receipts - outlays = positive difference) or 'deficit' (receipts - outlays = negative difference).

The federal budget has been in a prolonged state of deficit. Since 1970, we have realized an annual budget surplus only 4 times--during the years 1998 thru 2001. These so called 'balanced budget' years were driven by unusually high capital gains tax receipts collected during the Internet bubble era.

In 2007, $2.57 trillion in receipts - $2.73 trillion in outlays = $160 billion deficit. The record annual deficit currently stands at $413 billion set in 2004, although this year's value will likely blow the previous high away.

Since taxes are part of receipts and receipts don't cover outlays in deficit situations, deficits must be financed via additional means. Debt issuance in one way. Total US public debt now exceeds $10 trillion. Currency debasement (read: inflation) offers a more nefarious means towards the same end.

While many folks fixate on the budget and deficits, my eyes gravitate toward absolute levels of government outlays. Since the 1930s, federal spending has increased annually and is tracing a geometric-like progression.

In the 19th century, it was not unusual for government outlays to remain flat or decrease year over year.

A number of factors contributed to the structural shift towards persistent spending increases. The Sixteenth Amendment, ratified in 1913, gave Congress the power to collect income taxes. Prior to this grant, government receipts were collected primarily from customs duties, land sales, and excise taxes. The Federal Reserve Act was also passed in 1913, which established a national central bank with powers to influence money and credit supply.

Monetary discipline further eroded with the issuance of Executive Order 6102 in 1933, which effectively removed the USDs 'good as gold' backing so that government could ramp spending for New Deal programs. John Maynard Keynes' view that governments should spend money they don't have motivated bureaucrats further stoked the spending fire.

Laughably, many of these measures were implemented under the auspices of 'stabilizing' our economic and social systems. There is nothing stable about this situation.

An ever increasing diet of taxes, debt, and debased currency is necessary to feed the Leviathan.

position in USD