Mullings An American Cyber Column By Rich Galen

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Capitalism?

Rich Galen

Monday December 3, 2012

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With the Redskins playing the Monday night game and the National's still not having made a deal with their 1st baseman, Adam LaRoche, there's not much to think about here in Our Nation's Capital other than that pesky fiscal cliff.

Depending on what comes up in your Google search for "What will be the effect on GDP of the fiscal cliff" you get answers ranging from a drop of about 1.4 percent (NASDAQ) up to four percent (Washington Post).

Most of the guesses fall in the 3 - 3.5 percent range.

No matter how much the economy might contract as it free falls down the fiscal cliff, this much is true:

We now have proof that the U.S. economy is totally - totally - dependent on federal government spending.

The sequestration piece of the cliff calls for spending cuts of $1.2 trillion over the next 8 years - an average of $150 billion per year.

According to the White House website, the first time the Federal government spent more than a billion dollars in a single year was in 1917 when we spent just under $2 billion having entered World War I in April of that year. The next two years of full-blown involvement saw spending of $31 billion to pay for the war.

Fifteen billion in 1917 dollars would be about $180 billion today. That's a far, far cry from the $3.8 trillion estimated for FY 2013 in which we currently reside. In fact it's just under five percent of this year's budget outlays.

In 1944 and 1945 - the two highest years for spending during World War II we averaged about $92.5 billion. In today's money that would be about $946 billion - still less than 25% of today's outlays.

SIDEBAR

To get this relative spending, I am using a site called www.measuringworth.com. The numbers I'm citing are using what is known as the GDP deflator. There are other measurements including commodity costs, income, and wealth.

END SIDEBAR

The first time the Federal government spent a half trillion dollars was in 1979 ($504 billion) and the magic trillion dollar barrier was first crossed in 1987 at $1.007 trillion.

Just to tie a bow on all this spending we first spent $2 trillion in 2002 and hit the $3 trillion mark in 2009.

I understand that the world in 2012 (or 2013 in fiscal years) is a far, far cry from the world in 1917. And, I am not arguing that we return to the abject lack of any meaningful safety nets.

Getting back to the $150 billion a year in spending cuts under sequestration, they equal only about four percent of estimated outlays for FY 2013.

As we discussed in Friday's MULLINGS "(Five Percent") a relatively minor cut in Federal spending would not, depending upon how it's distributed, cripple the government.

President Obama's tax plan will, his team claims, raise $1.6 trillion in revenue for the Feds over 10 years. Even I am confident that I can do that arithmetic in my head: $160 billion a year.

Including 2013 that means additional income to the government of $800 billion over the next five years.

Problem is, the White House' own estimate show accumulated deficits of over $3.4 trillion or $680 billion a year (it is not a straight line as the budget calls for a deficit of $901 billion for this year alone).

Subtracting $800 million from $3.4 billion still leaves $2.6 trillion in accumulating national debt over the next five years.

Adding the sequester savings ($150 billion a year or $750 billion over five years) to the increased revenues we get $1.5 trillion.

We are still over $1 trillion short of even balancing income and expenditures, much less reducing the debt.

With all of these numbers bouncing around, I am absolutely certain I've made an error or two.

But, assuming I'm in the ballpark, all this talk about the fiscal cliff may be more income protection for the millions - hundreds of millions - of Americans who get money through aid, guarantees, working for, or selling things to, the federal government.

I hope I'm wrong, but it seems to me that we have long since erased most, if not all, remnants of capitalism from the American economic system; and it happened way before a guy named Barack Obama became President.

The nation will collapse if the Federal government doesn't continuously feed the economy.

Forever.

On the Secret Decoder Ring today: Links to a really good Q & A about the fiscal cliff and a link to the WH annual spending tables. Also another amusing Mullfoto from Great

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