Here is the most important graph in America. It shows how federal spending has increased exponentially.
This massive splurge in spending will determine what taxes you pay, how much tax your children pay, and how fast the US economy grows.
Since 2020, the US government has managed to get through $25 trillion. To put that into perspective, that is spending equivalent to the entire output of 12 Canada’s, or 8 Britain’s, or 6 Germany’s all in a mere three years.
As Europe has demonstrated, when government spending gets to a certain level, an economy loses its mojo. Back in 2000, US government spending was equal to 17 percent of GDP. By 2022, it had reached 25 percent of GDP. We risk reaching the point at which the American economy is ‘Europeanized’. It is not a happy prospect.
Don’t follow the European model of high spending, high taxes and low growth….
America has a government spending problem. Last year, the US took $5 trillion in taxes against spending of $6.5 trillion. That meant we had to borrow $1.5 trillion to fill the gap.
It is now 22 years since the US government ran a budget surplus. The past four presidents – Bush the younger, Obama, Trump and Biden - have run such large deficits, they make Bill Clinton, who largely balanced the books, look like Milton Friedman (Clinton, it should be noted, was able to balance the books thanks to the effect of Ronald Reagan's 1980's tax cuts, which led to a sustained boom.)
Add up twenty years of cumulative deficits, and the US federal government now has accumulated a national debt in excess of $30 trillion. That is almost $100,000 of debt for every person in America.
Twenty years of spending money like drunken sailors….
What, you might ask, does the federal government do with all this money? America might have become the most indebted nation in history, but it is hardly as though the federal government provides us all with Scandinavian levels of social care.
Here is a handy graphic that illustrates what the government does with our money. It is worth noting that the deficit is roughly equivalent to what the federal government spends on social security or transfers to states each year.
Money in, money out….
At some point, America is going to have to stop accumulating debt and cut spending. In order to do that, I suspect we will need to see some far reaching, fundamental changes to the way the America is governed.
Large swathes of the administrative state – the Department of Education, that alphabet soup of federal agencies in Washington – will need to be shut down. I was intrigued to hear Vivek Ramaswamy, with whom I had lunch in Nashville a year ago, talking about how one might do that. It is perhaps the most important issue in American politics.
America is a great success story. We must not allow a fiscally incontinent federal bureaucracy to ruin it.
Ps. Every time I am invited to speak to young Americans, my confidence in this country's future is restored. This week I spoke alongside Senator Wicker at Mississippi State.
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