Thursday, November 21, 2013

Learning economics through pictures: Federal government spending

This is the third in a series of posts on learning economics through pictures.  Click here for a post on the minimum wage, and here for a post on the War on Poverty.

Picture from wikipedia

This pie chart shows where the US Federal government spends money.

From here, I think there are several observations that can be made:

1. To get the budget balanced, entitlement (medicare and social security) spending needs to be contained.  It is 43% of the budget, and is projected to increase.  Two options are that the benefits could be reduced (perhaps through smaller annual increases) or the retirement age could be increased.

2. War and defense spending aren't cheap.  $700 billion in defense spending works out to over $2,000 for every single man, woman, and child in the United States.

3. The debt matters.  In addition to possibly (and I hear a gasp from all left-wing economists as I type this) paying back the debt, right now 6% of the federal budget goes to nothing but paying interest on government bonds.  Given that increasing amounts of the debt are owned by foreigners, this is decreasing the GDP of our country.

Given the massive deficits run up by Obama and expected large future deficits, this won't decrease anytime soon.  This is especially true if interest rates increase.

4.  Discretionary spending isn't trivial.  There are entire agencies like the Department of Education, the Environmental Protection Agency, HUD, etc. that arguably do more harm than good by existing (even if they were costless).  If they're all eliminated, we benefit not only by them not damaging the economy, but also by budget savings.  Even if not completely eliminated, if they're cut, this could provide a big help to the budget.


  1. I forgot to mention tat while you cite the Obama deficits, you neglect to mention his predecessor's contribution to our federal debt.

  2. I agree that it did go up quite a bit (too much) during Bush's term. But in Obama's first four years the debt went up by as much as it did during GWB's entire eight years in office. What makes it even worse was Obama's promises to reduce our deficits. That now appears as genuine as his "you can keep your insurance plan" statements.