In the 1980's it was all about the Soviet Union. Nuclear war, the commies, death was near.

In the 1990's it was all about the money we spent in the 1980's. Our federal debt was a concern and the taxes needed to pay the interest on the debt was a topic of debate. The Concord Coalition was formed. A Democratic president and a Republican congress got together and they balanced the yearly deficit and started paying off the accumulated debt.

The 2000's replaced the commies with terrorists and we went on a spending spree again. Although our debt has ballooned to $10T, few people are talking about the payments on that debt the way we focused on it in 1992.

Im hoping a focus on debt financing will return and tax payers will again decide it is important to pay off those loans and not waste tax dollars on interest payments to other countries (since we dont really buy much of our own debt).

But none of the presidential candidates are talking about it. I expect the Democrats instead to focus on spending even more money to help people, including people that dont need help like farmers and auto companies.

The next president is going to have to face some unprecedented economic issues. We have dug a big hole for ourselves.

The Spending Explosion

September 10, 2008

Wall Street Journal

Here's a prediction: The media will report today that the federal budget deficit is big and getting bigger. What most of them won't report, alas, is that the cause of these deficits is an explosion in federal spending. The era of big government is back, bigger than ever.

The real news in yesterday's Congressional Budget Office semiannual report is that federal expenditures on everything from roads to homeland security to health care will on present trends reach 21.5% of GDP next year. That's a larger share of national output than at anytime since 1992. If the cost of the federal takeover of Fannie Mae and Freddie Mac prove to be large and are taken into account, next year federal outlays could be higher as a share of the economy than at anytime since World War II. In this decade alone, federal spending has increased by almost $1.2 trillion, or 57%.

The federal deficit is expected to hit $407 billion for fiscal 2008 (which ends at the end of this month) and $438 billion next year. Still, the deficit is expected to be only 3% of GDP, which is in line with the average of the last 30 years. We hope Congress and the Presidential candidates don't obsess over the deficit per se, because the real fiscal drag from government comes from how much it spends, not how much it borrows.

The real runaway train is what CBO calls a "substantial increase in spending" that is "on an unsustainable path." That's for sure. The nearby chart shows how much some federal accounts have expanded since 2001, and in inflation-adjusted dollars. This year alone, federal agencies have lifted their spending by 8.1%, with another 7% raise expected for 2009. There's certainly no recession in Washington. The CBO says that, merely in the two years that Democrats have run Congress, federal expenditures are up $429 billion -- to $3.158 trillion.

The fiscal blowouts have included a record farm bill, notwithstanding record farm income; an aid bill for distressed homeowners, extended unemployment benefits, and more generous veterans benefits. Next up: votes on $50 billion for Detroit auto firms, an $80 billion energy bill, as much as $50 billion for spending masked as a "second stimulus," plus $100 billion or more for the Fannie and Freddie rescue. Rather than sort through priorities, Congress is spending more on just about everything.