Uncle Sam Is Spending Like We’re In Recession; What Happens When We Really Are?
An important fact to mention is that last week we received the updated numbers of the federal budget deficit. With $ 867 billion, the budget deficit for the fiscal year 2019 has already overshadowed last year’s deficit of $ 779 billion.
There is no doubt that spending is out of control and spiral deficits are worrying enough on their own terms. Likewise, it has been expressed that things become absolutely horrible when considering that these budget deficits are occurring during an economic expansion. I would normally expect numbers like this during a major recession.
That raises an important question: what will happen when the recession comes?
Ryan McMaken analyzed the numbers in a recent article on Mises Wire. The last time the deficit was so high was in fiscal 2012 when the budget deficit reached almost $ 1.1 billion. At the height of the Great Recession-Stimulus-Panic, the deficit reached 1.4 billion in 2009.
Deficits that have only increased
Deficits are generally significantly reduced during a post-recession recovery and then increase during the subsequent recession. As McMaken points out, after the recession of 1990–91, the deficits generally declined, to grow again in the wake of the Dot-com raid. Then, the deficits decreased during the brief expansion from 2002 to 2007. During the first part of the expansion after the Great Recession, the deficits were reduced again. But since the end of 2015, deficits have only increased, and they are quickly heading towards some of the biggest non-recession deficits we have seen.
In this way, it has been indicated that the big culprit is the expense. And it is that to date, the Trump administration has spent more than $ 3.7 trillion. The growth of spending year after year is at a maximum of almost nine years. Uncle Sam spent $ 371 billion in July alone. That was 23% more than the government spent in July 2018.
It should be noted that historically, a widening gap between tax revenues and public spending tends to indicate a recession or a period immediately after a recession. And this pattern was observed during the recession of 1990–91, the Dot-com recession and the Great Recession.