Federal Reserve Z1 data on total U.S. debt for 2017 was released in March, and it appears that while it took eight years, the Obama Administration finally had an economic year it could be proud of. A year when inflation-adjusted GDP increased moderately, in this case by 2.3%, but the increase was not driven primarily by rising debts, with Americans continuing to sell off its future to consume today. Total U.S. non-financial debt actually fell by 0.5% of GDP, from 253.5% of GDP in 2016 to 253.0% of GDP in 2017. Federal government debt fell from 86.0% of GDP to 84.9% of GDP, the first decrease of the Obama Administration. Household debt edged down from 78.8% of GDP to 78.7% of GDP. These improvements took place, aside from 20 days, after President Obama had left office, but while the policies he had hashed out with Congress mostly remained in effect.
By the end of 2017, however, the new President and “King of Debt” Donald Trump finally began to get some of his agenda through. His huge, deficit-increasing tax cut was signed on December 22, and will take effect in 2018. A huge deficit increasing spending bill followed this March. And he has been moving to get rid of government restrictions intended to prevent the financial sector from lending people more money than they could pay back, and from speculating on derivative bets while having taxpayers bailout their losses. Last year I wrote that Generation Greed was planning one more economic and fiscal orgy at the expense of its children and grandchildren, and at the expense of the future of the United States. This year, in light of the Harvey Weinstein brouhaha, the term “orgy” seems too consensual. The last economic and fiscal gang rape is probably more like it.
Some years go the Medicaid Statistical Information System (MSIS) State Datamart, which I once used to compare New York State with the U.S. average and adjacent states with regard to Medicaid expenditures and beneficiaries, was shut down. The most recent data I tabulated was for 2011. Now, the Centers for Medicare & Medicaid has released their new system, T (Transformed) MSIS.
In the wake of 9/11, when about 3,000 civilians were killed on U.S. soil despite $billions spent on defense, a series of failures was revealed. Various agencies had the information to identify and stop the attack, but failed to cooperate. Despite a huge military posted all over the world, there were only two military airplanes defending the entire East Coast of the United States, only one of which was armed. And the non-military agencies tasked with defending the U.S., such as the Coast Guard, U.S. Customs Agency, and Immigration and Naturalization Service, were distributed among a variety of federal departments, with little emphasis on any of them and no coordination between them. To remedy this 22, agencies were removed from other Departments and integrated into a new Department of Homeland Security.
Today, we face the equivalent of 9/11 in every part of the country every year. Life expectancy is falling, due to the cumulative disadvantage foisted on later born generations by those who came before, an opioid epidemic, and rising suicide. Life expectancy is set to fall for the third consecutive year for the first time in 100 years.
But this crisis has been building for two decades, its scope not understood until a couple of economists, with expertise not in vital statistics but rather in value added taxes, brought it to public attention.
The belated realization of what is happening is a failure for this country’s policy wonks and journalists every bit as large as 9/11 was for our intelligence agencies and military. And a similar response is required.
The Republican tax plan includes a repeal of the federal income tax deduction for state and local income taxes, and a partial repeal of the deduction for local property taxes. The Economist magazine likes the idea.
“Republicans have since come to view the state and local deduction as something that encourages big government, rather than deterring it. It subsidizes Democratic-leaning states that set their taxes high…States are surely capable of balancing their budgets without receiving a federal subsidy for doing so. There is no real justification for distorting their fiscal decisions one way or the other.”
There is one justification, though no politicians on either side have an incentive to point it out. Thus making the policies that really shift money, and the identify of the beneficiaries, once again the “unsaid.” One reason that high tax states are in fact high tax states is that the federal government drains money out of them. This deduction of state and local taxes from federal personal income taxes is sort of a partial make-good.
New York City was long known as America’s welfare capital, with a large dependent poor population and extensive services for them. But one doesn’t hear much about that anymore. New York State has also had the highest Medicaid spending in the United States, but one doesn’t hear much about that anymore either. The data shows New York still spends more on aid to the needy than most other states, as a share of its residents’ personal income, but the gap between New York and the rest of the country closed between FY 2004 and FY 2014. As the gap closed, aid from the federal government to New York shifted to other places. Today, moreover, most of this “social” spending is on health care, and thus on older people, not on those with lower incomes. A discussion of these trends, with tables and charts, follows.
Let’s start this post the way I ended the one before. Our population is getting older. Labor force participation is down. The average worker is getting poorer. The average adult is getting fatter and sicker. There are fewer intact families, and less family support. Jobs are very temporary, even among those who still have actual jobs. Unions have disappeared except in the public sector, where they have become another part of the ruling class getting richer as the expense of most workers. People are moving around the country, spending their childhood and getting their education in one state, their working and taxpaying years in one or more different states, and their retirement in yet another state. Leaving friends, family, church and community behind – often far behind. More people are dying early, and becoming disabled early. With a cradle to grave welfare system and an otherwise fractured and mobile society, a relationship with the federal government is becoming the only relationship most Americans will have from cradle to grave.
All these factors are likely to turn the federal government, more and more, into just an insurance company that also has an army, a government that is less and less able to accomplish much of anything else. Trying to change this long-term trend, given our economic, demographic and social conditions, would likely cause a social collapse with far more suffering and early death than is taking place already. There is lots of bad news about this, but perhaps a little good news as well. That good news has something to do with the views of Supreme Court Chief Justice John Roberts, and President Franklin Delano Roosevelt’s “Four Freedoms” speech.
Just based on the news, it would be easy to believe that not much had changed for the federal government during the Obama Administration, other than Obamacare. After that program passed, barely, the Republicans took Congress, and there has been a stalemate – with shutdowns, possible defaults, and a sequester that was meant to force compromise by taking both sides hostage, but turned out to be the actual public policy.
Now that I’m looking at the data, however, I see things completely differently. Obamacare is nothing but a blip in the relentless increase of health care as a percent of the federal budget, mirroring its ongoing increase in the economy as a percent of GDP. The sequester actually did shrink federal spending in the limited areas to which it applied, something people don’t realize because the limited federal government operations people actually see have continued to stagger on the for the moment. Meanwhile, demographic and economic changes have completely re-shaped federal expenditures based on programs that were enacted before Obama and the Tea Party were even elected. Notably the increase in the share of the population that is age 65 or over, and the share of the workforce that is working poor rather than lower middle or middle class. The result is a government completely transformed in a way that is in once sense alarming, but in another sense hopeful.