A deep dive into the OMB’s Historical Tables shows some interesting changes in federal mandatory v. discretionary spending when comparing 1965 to today:

  • Mandatory spending has more than doubled.  Social Security and Medicare are the drivers.
  • Defense spending has been reduced by about 75%.  The Bush/Thatcher peace dividend?
  • Discretionary spending currently stands at a paltry $0.13 of every $1.

Some quick hits:

  • Given the childish “it’s not our fault, it’s theirs” mentality of Democrats and Republicans maybe it’s a good thing government has diminished discretion.
  • If the weather forecast calls for a 13% chance of rain would it change outdoor plans?  Probably not.  As such should the citizenry be worried about the allocation of discretionary spending given it amounts to $0.13 of every $1?  It’s more political theater than economic materiality.
  • What will happen to interest rates?  Keeping rates too low for too long distorts the price signal.  Inflation can get out of hand.  Bubbles can form in the prices of financial assets.  Conversely can government afford to let rates rise much from current levels given the massive dead load it’s financing?
  • Spending is but one piece of the puzzle.  As spending rises so too shall taxes, aggregate debt or both.  As Margaret Thatcher told Llew Gardner in 1976, “Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”