Happy Friedman Day!
Posted by Richard on June 7, 2009
You've no doubt heard of the Tax Foundation's "Tax Freedom Day," the day when Americans have finally earned enough money to pay all our taxes. This year, it was April 13. But because of borrowing, taxes don't pay the full costs of government. This year, it's not even close.
Today, we've finally reached what the American Institute for Economic Research calls Friedman Day, the day that we've worked enough to pay for all government spending. Friedman Day has been coming later and later in the past eight years, and this year it came seven weeks after Tax Freedom Day and nearly halfway through the year:
The reason? The federal government deficit for the fiscal year ending Sept. 30 has mushroomed to $1.84 trillion. This means that about 46 cents of every dollar of federal spending will be financed by borrowing through the sale of new U.S. Treasury securities.
…
Nor is the current 2009 deficit simply a one-year spike. The most recent estimate for the 2010 deficit is $1.3 trillion, still about 8.5% of GDP.
And the debt will go up accordingly, by another $1.3 trillion.
The United States seems to have entered a new era of historically high deficits and a national debt that is therefore growing by leaps and bounds. Emergency or not, temporary or not, this is new territory for the federal government and for the economy.
You and I aren't paying the difference between Tax Freedom Day and Friedman Day out of our pockets, but we're on the hook for it — or our kids and grandkids are. And no, we don't "owe it to ourselves." We owe more than two-thirds of it to foreign investors and governments. And they've been getting antsy about our government's profligacy.
When the subprime mortgage crisis heated up last July, foreign governments began to worry about the value of the U.S. securities they were holding. When Fannie Mae and Freddie Mac started to look insolvent, Treasury officials had to make phone calls around the world, reassuring foreign holders of Treasury and especially "agency" (Freddie and Fannie) securities. Then the government nationalized Freddie and Fannie, taking explicit responsibility for their liabilities.
This was America's "Argentina moment." Suddenly, the United States could be viewed as a debtor nation, obliged to persuade the owners of its debt that everything would be OK.
Friedman Day, as it inches ever closer to Milton Friedman's July 31 birthday, should serve as a warning that government is consuming way beyond its means. In the years ahead — and for future generations — everything may not be OK.
So take a moment to celebrate Friedman Day today. But then spend some time in sober reflection about our future.
Hathor said
Is this a better late than never post. If there had been ”’no”’ spending during this FED fiscal year FY09, three generations of the future would still be paying off the debt. It seems that some folks are just now becoming numerate.
rgcombs said
I don’t know who you mean by “some folks.” I’ve been railing against the growth of government, profligate federal spending, irresponsible politicians, and unconstitutional programs for over 40 years. Not at all late.
And let’s put the current situation into context. The last and by far biggest deficit of Bush (a terrible spendthrift in his own right) was, thanks to his ill-advised “stimulus” package and the first financial system “bailout,” $400 billion. Prior Bush deficits were much smaller and had been declining since 2003, thanks to the much-reviled tax cuts, which increased revenues. (In fact, I recall posting back in 2005 or 2006 about credible projections of a balanced budget by 2008 or 2009.)
The first Obama deficit is currently estimated at $1.85 trillion and still rising — almost 5 times the ”worst” Bush deficit and nearly 10 times the ”average” Bush deficit. $1.85 trillion is ”half” the federal budget. So the Obama administration is spending ”twice” its income.
And now they’re talking about another big “stimulus” bill.
We’ve had reckless federal spending, deficits, and growing debt under both parties for a long time. But nothing even remotely as bad as this. It’s truly unprecedented — and likely catastrophic.
Hathor said
If Obama had done nothing, this fy09 budget had been projected to have a 1.4 trillion deficit. If that’s what you call a balance budget. I believe the TARP was passed two and a half months after the FED fiscal year09 started.