How Big Is Our Deficit?
by Bud Conrad Chief Economist, Casey Research
Originally posted March 16, 2010
I’VE BEEN WARNING ABOUT BIG BUDGET DEFICITS for years, often looking through the lens of our deficits compared to GDP. Using that ratio, I have pointed out that the current deficits are the biggest since World War II.
Yesterday, however, I came upon a surprising measure that is as simple as it is effective in helping to understand just how extraordinary today’s deficits are. The measure calculates how big the deficit is, expressed in “constant” dollars – dollars that have the same purchasing power over time. Using that measure, the current deficit ($1.4 trillion) is a surprising 260% of what the government deficit was in the worst years of WWII, the biggest war we as a nation have ever fought.
The comparison to WWII is relevant and important, because the effort for that war turned this country completely upside down and saw the government commandeer the levers of industry, for example auto makers and refrigerator plants, to make tanks, airplanes, bullets, and bombs. At its peak, the war effort consumed 90% of government spending.
But there’s a crucial difference between then and today: back then we knew that, in time, the war would end and the elevated government spending would be reduced. Today, however, while the cost of military is a still high 20% of federal spending, the vast majority of our government’s expenses are for non-discretionary items, such as Social Security and Medicare, that aren’t expected to be cut. In fact, they are only going to go higher from here.
I hope this chart concerns you as much as it did me. It’s worth passing along to everyone you know as a way of warning that we are very much in unchartered waters. It is certainly a compelling counterargument the next time a Keynesian economist says deficits don’t matter.
This is too big to ignore, and we are close to unleashing a new paradigm of dollar collapse. Freewheeling spending will meet its limit, and I think we will see something break in the year ahead.