How has the composition of government spending changed since the 1960's? Support your answer with examples from the article.
According to Timothy Taylor, government spending has changed since the 1960’s. Back in the 1960’s, government devoted more funds into building various types of capital, therefore, spending more on public investments. However, the composition of government spending has changed since then and according to Taylor, Third Way report predicts that public investments might drop to 5% in a few decades. Taylor reports that the government committed more funds for public investment around 1960’s while locating less funds for entitlements, but government spending has changed in recent times . Back then, entitlements only accounted for 15% of the federal spending, but this percentage has increased in the recent past. Currently, entitlement consumes more than half of all federal spending and the proportion keeps increasing.
In the recent past, the federal government has shifted its roles from providing goods and services to its citizens, towards providing payments for households. In 1962, spending on entitlements was far less than that on investments, but today, entitlement spending has overtaken investments by far. In the United States budget for the Fiscal Year 2013, about three quarters ($725billion), fell under entitlement as social security payment. Other major spending includes unemployment insurance ($117 billion) and payments to federal retirees ($124billion).
On the contrary, Taylor points out a small allocation for public investments. For example, federally financed physical capital only receives $3,054billion, which falls under one third of the total amount of federal spending. The government only allocates $925 billion for national defense and $1,017billion for transportation while the rest falls under regional resources, natural resources, community, and power .
How does this shift in the pattern of government spending affect the real economic burden of the national debt?
In the past, the government allocated more funds for federal investment. Such investment yielded long-term benefits for the economy since it improved efficiency within agencies, and contributed to the growth of the national economy, through increase of overall capital stock. Federal investments in the form of physical capital, research and development, training, or education, provide long-term benefits and increase income in the future. This shift clearly means that federal investments receive less funds, therefore, this translating to reduced efficiency in agencies, and poor economic performance. In turn, the government has to borrow funds to sustain its activities.
Increasing funds for entitlement does not qualify as investment since the households use up these funds in a short time. In fact, paying funds to households can only qualify as consumption. Rather, spending on training, education, and research qualifies, as investment since the values for such spending, translate to the long-term with the value received being stored for the future. If the government spends more funds in education and research, the value of these two resources does not diminish in the current period. The educated population has more information in decision-making and entrepreneurial skills, leading to more streams of income for the economy. The research work also improves innovation leading to the production of better goods and services while optimizing production processes. These two resources fall as the major investments for the American economy.
If the government spends the borrowed money on consumption, future generations suffer because the debts may crowd out investment spending, thereby reducing long-run economic growth. Such a government cannot print out more money, since it can cause inflation, which poses another major problem. In extreme cases, rising debt can lead to default hence bigger economic problems. Future generations also face the burden of having to pay foreigners huge amounts, which stretch over longer periods causing a strain on federal funds that can improve the economy.
Conclusion
The government needs to set its priorities right, when allocating funds between entitlements and public investments. Though entitlements can server for the better of the community, they only qualify as consumption, which finish in the current period. Instead, governments should locate more funds towards public investment, since such investments serves the interest of both the government and the public. A government only caters for the well-being of future generations by allocating more funds in public investments.
Works Cited
"Saving and Investment (Chapter 10)." Worth Publishers, n.d. Electronic.
Taylor, Timothy. Conversable Economist. 2 August 2012. Electronic. 8 April 2014.
"Tuesday Budget Balance." n.d. Print.
