Government Spending A Journey Down the Rabbit Hole

Budgeting At Home �Timmy makes $42, 000 working as a pig farmer. �Timmy spends $193, 000 a year, because he only wears the highest quality fashions that he can purchase at his local TJ Maxx. �Timmy’s �Is gross cashflow is -$151, 000. this a good financial strategy for

Timmy’s Budget �It’s terrible �As individuals or families, we shouldn’t spend more than we earn �This puts us in debt �Then we get this…

But… �Government is different �The federal government spends much more money than it makes �No one gets too mad at us…

So What is the National Debt? �A lot �Like, seriously, a lot �The aggregated shortfall of our federal budgets ◦ If the United States spends more than it earns in revenues, this is called a deficit ◦ Each additional year of deficit adds to the debt

Debt Growth �Debt has risen exponentially since 1940 �$9 trillion in 2007; more than $17 trillion today �No sign of decreasing

Debt is Increasing �http: //www. usdebtclock. org/

Debt Memes

Revenue Expenditures Revenue v. Expenditures

Why So Much Debt? �Mandatory Spending �Great Investment �Economy runs on debt �Lack of political will to cut programs or raise taxes �“Kicking the can down the road”

But is Debt Bad? �For an individual or family, yes �“The economy runs on debt” �GDP = Gross Domestic Product �GDP = C + G + I + NX ◦ ◦ C = Consumption G = Government Spending I = Investment NX = Net Exports �Hopefully, GDP increases every year

State-by-State GDP

Economic Theory �As the government attempts to keep GDP growing, they continue to pump money into the economy, increasing the Government Spending portion of GDP �This increases debt, but also prevents recession/depression �We will explore these ideas in greater detail next class.