Pay More Attention to Where the Government Spends
People talk a lot about government spending, and it’s easy to understand why. Too little spending and government can’t function, and too much spending is like a sugar high that’s fun for a while but leaves our grandkids indebted. Since the country is transitioning to a new management team, I thought now might be a good time to take stock of the current situation.
First, the US Federal Budget is huge. In 2016, the government spent $3.8 trillion dollars. That’s more than the value of all the goods and services produced in any other country in the world, except for Japan and China. It sounds scary until you remember that at $18.5 trillion, the US economy is equally staggering in size. The 21% of GDP that the federal government spends is normal, or even low, for a developed country.
What do we spend our money on? The budgetary pie chart often surprises people.
Source: Office of Management and Budget
The majority of federal spending goes to safety net programs like Social Security and Medicare. Over the years, some politicians have tried to cut these programs, but they’re very popular. People will fight passionately to keep that spending, so I don’t think it’s going away. Governments that cut military spending tend to take a lot of flak (and rightfully so in my opinion) for making us weaker, so let’s set that aside too. That leaves less than 25% of the federal budget for everything else the government does. For budget hawks and other cost conscience taxpayers, this means there are fairly limited options for where we can trim the fat in government spending.
Now, let’s look at President Trump’s proposal for a big infrastructure stimulus. He wants us to build new roads, bridges, tunnels, airports, and more, to help modernize the backbone of American commerce. I happen to be a fan of this proposal.
But big projects like these will require taking on more debt, which makes many people nervous. In these situations, I fall back on my business experience. When I consider borrowing (or loaning) money for an investment, the key questions are: What is the money for? And, will it produce a return that justifies the risk? In that context, we need to decide what kind of returns we think America can get from an infrastructure investment, and how certain we are of that return.
Using the food analogy, I see infrastructure not as a sugar binge, but as more of a protein shake that will help us grow healthy bones and muscles for future growth. And, it’s an investment we can finance cheaply — 2.5% for 20 years at current interest rates. I think that’s probably a good deal for America.
Another area of interest for me is how we might shift federal government spending down to state and local levels. Could some of that $2.3 trillion in social safety net spending be reallocated to states? Other areas, like housing and education policy might also benefit from more local control. This might not reduce our total government spending, but I think we might all benefit from shifting our spending authority closer to the people. After all, we’re a diverse nation with a lot of different ideas about how we should spend our resources.
I’m cautiously optimistic that investing in infrastructure and shifting spending to more local authorities could set the United States up for continued prosperity and stability. And as a businessman, I’ll be watching where our tax dollars are flowing as I look for new investments. Wherever government spending flows, those industries tend to flourish. Whether it’s medicine, defense, construction, or almost anything else, there’s one awesome truth about economic development: Everybody needs real estate.
If any of my readers have ideas about where government spending is headed and how that might affect industries or create investment opportunities, I’d love to hear from you!
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My Best,
Ben
