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Guest Post: Have We Reached Peak Government?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
If we are not yet at Peak Debt, we are getting close, and that means we are also getting close to Peak Government.
Have we reached Peak Government? That is, a structural point beyond which government can no longer grow sustainably?
To help answer the question, I've assembled charts of the foundations of growth: population, gross domestic product (GDP), private employment and output per person (i.e. productivity). These have grown 28%, 75%, 28% and 58% respectively. (I have used 1990 as a baseline, as the past 23 years gives us a reasonably accurate clue as to the long-term trendlines of the current economy.)
In other words, if growth depended entirely on population growth, the real (inflation-adjusted) economy would have grown 28% since 1990. Instead, the GDP rose by 57%. This is the result of rising output per person, i.e. an increase in productivity.
U.S. population:
GDP: ( US Real GDP by Year: 1990: $8 trillion, 2013: $14 trillion; the $9 trillion and $15.7 trillion shown on this chart yield the same results)
Private employment:
Output per person:
Since the state (government) depends on the economy to generate its tax revenues, government cannot grow sustainably at a rate that exceeds the expansion of the economy. Thus we expect government to grow at around the same rate as the economy and productivity, i.e. around 60% to 75%.
But Federal government expenditures have risen by 317% and state/local government spending has leaped by 328% since 1990. In other words, government has expanded at roughly four or five times the underlying growth rate of the economy.
State/local government spending:
How can government expand 300+% while the underlying economy that supports it expanded by 75%? Answer: borrowing money, i.e. debt--lots of it. Federal debt has skyrocketed by 600% since 1990.
This is simply part of a vast, unprecedented expansion of debt in both public and private sectors since 1990:
So the question of Peak Government is ultimately a question of Peak Debt: how much money can the government borrow to sustain its current spending? Can public and private debt expand at rates four or five times that of the underlying economy? If so, for how long?
If we are not yet at Peak Debt, we are getting close, and that means we are also getting close to Peak Government.
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obamacare begins....please read...
http://www.godlikeproductions.com/forum1/message2371124/pg1
Great piece.
The charts make it quite clear where the fundamental problems reside.
Ya, except government spending is nominal, and GDP is real. It would be much more interesting if the same basis was used for all the items compared. Paging QC.
Somewhere, Joseph Tainter is pounding his head into his desk muttering "decreasing marginal returns. . . . "
Have we hit peak obedience yet?
Have we hit peak obedience yet?
YES! Precisely the core issue!
There are 23,000,000 government employees at the federal, state & local levels (that we know of; this doesn't include "contractors," either), many of whom have worked one or more government jobs previously, and are "double stacked" (collecting pension from prior government job while drawing salary from current government job, which is more common than many "private citizen plebes" would believe).
At the federal level, the AVERAGE GOVERNMENT EMPLOYEE SALARY, NOT INCLUDING BENEFITS = $78,000.00
Average salaries for state & local government employees runs closer to $55,000, though the range is very wide.
Nearly all government employees are unionized and receive generous pre and post-retirement fringe benefits.
Does anyone know how many of these 23,000,000 workers, drawing a collective taxpayer derived salary of 1.7 trillion USD annually, are "essential?"
How about minimally "productive," or "useful?"
They're sucking the republic and all private sector productive members dry - like a massive parasite on a host, threatening to kill the host (literally).
Think about it: In USSA-Amerika .dot.gov (USSA), 1 out of every 5.6 Americans with a job is employed by a federal, state or local unit of government (not including enlisted military personnel or government contractors).
The republic is being bled to death by the bureaucracy.
CHS's analysis is totally flawed because he only accounts for inflation with the GDP graph but not the others. In reality, when you level everything off onto the same playing field, you see that government spending as a proportion of GDP has hardly expanded at all over the years. You are misunderstanding the sources of the economic problems. It is not becaus of government worlkers "sucking the republic and all private sector productive members dry". Not at all. The republic is dying because it hit Peak Oil way back in 1971 and has had to import oil and other things, via its trade deficit, for 40 years. Now its reserve currency status is ending and the requirement of the monetary system to grow exponentially cannot be supported because the real economy is contracting.
Oh really?
Would you care to explain how the massive ramp up in the total nominal number AND relative to overall population % of federal, state & local government employees (along with their corollary nominal & real wages/benefits) over the last 50 years has NOT contributed massively to U.S. deficit spending, accumulated U.S. National Debt, and how this hasn't constituted a massive parasitic & commensurate drain on the private sector in terms of suppressing productivity, output, real wages & the private sector labor participation rate (especially in the period post-women joining the workforce en masse, which began in the 70s and peaked in the early 2000s)?
Please do refer to factual historical data when referencing total government sector employment along with real levels of funding said levels of employment.
I'd recommend, for the sake of brevity, concentrating your data points beginning in 1912.
Interstingly, because I have pretty much done that (most of my data goes back to 1915, not 1912 as you suggest). I am at work right now so iI can't spend too much time yammering about it and analyzing what you are suggesting. I will look into it more tonight and get back to you. In the meantime you can read my own article on this subject. Google "markbc.net is the us government really spending its way to oblivion". I will corrobrate my data with that provdied by FRED in CHS's referenced graphs, and since my data I believe comes from the same source then I don't think I will see much of a difference, but I will check.
BTW, can you please explain to me what "economic productivity" is? And why is it that only the private sector has productivity, and not the government? I am not interested in hearing an explanation based on the government taxing the private sector to get money; that is merely an artifact of how the monetary system is structured today. I am interested in hearing a reason based on sound principles of resources and energy, and how these get converted by labour into physical goods and services that we consume.
Yes, I double checked my numbers. I am correct. See my comments near the top of the page.
Why would you expect government to be sustainable? Is cancer sustainable?
If they direct the creation of money, can't they continue spending meaningless numbers without limit?
Had to quit reading right there, as false premises lead to flawed, wholly moot analysis.
I guess I shouldn't expect anything but that from statists though...
Yes, government is like a cancer. It keeps growing until it kills the patient.
*Peek Government?
Yes.
Is the teleprompter shutdown?
Karl Denninger must think so. He just went John Galt!
http://www.silverdoctors.com/karl-denninger-goes-john-galt/
what took him so long????
~~~~~~~
Denial, as always.
Crack-up Boom, Bitchez!
For daring to question the great ForumFuhrer himself, I BAN YOU!!!
<--- I am seriously considering/planning on going Galt in 2014
<--- Will keep paying taxes to the illegitimate and evil Obama regime
<--- Yes, definitely going Galt in 2014, plans done, in execution stage
<--- Still in planning stage, trying to figure out how to make it work
< Who is this "John Galt" everybody keeps talking about?
< I am John Galt?
My current ambition is to cease paying taxes to the evil regime in Sacramento. :-/
<- Already went Hugh Akston
<- Already went Ragnar Danneskjöld
<- Go 'way, baitin.
Stop feeding the beast. If most people turned down their lifestyle to the zero tax zone the government debt climbs faster and eventually collapses from it's own weight.
Yes, yes, Karl. When "talking your book" no longer makes you wealthy (and you might have to actually have to produce something of real value), take your marbles and go home. Fine, off you go then...
I will happily accept your silver in exchange for the food we produce.
"Karl Denninger must think so. He just went John Galt!"
He's just pissed off that Reggie was right about Blackberry.
Karl dug his own grave long ago by effectively banning anyone on his forum who was a proponent of precious metals. It was strange to say the least. The guy is ferociously intelligent and yet.......... I suppose we all have our blind spots. I know I have mine.
He is opting out now and by doing so and by turning into a proponent of Gold and Silver as a vehicle for asset protection he is simply showing that those he banned were perhaps correct all along.
Is he saving face? Who knows.
On balance though his writing / analysis will be missed. I know of very few who can tear into a subject with the speed and authority over facts that he has. His insights, though not always in agreement with my own, are valued.
Hopefully he will step back but not out.
Did I miss something?? When exactly did Denninger become a proponent for gold and silver??
One of the links in the thread post above has Karl's writing with what I originally thought was a plug for Silver. However it looks to be an ad on the website (not his, his writing was highlighted though, and purposely made to look he is plugging it).
So the website that his writing is on makes it look as though he is endorsing Silver but most likely that is not the case.
So yes, I think you are right- It's not Karl's plug, but rather the website his writing has been posted on.
Perhaps the Middle East will be America's Singapore.
indeed, our obsession with the Middle East will make us sing poor
Anybody that can't understand those charts, should be fired from all banks, political parties, banned from serving as an elected representative, and hit many times in the head with a bat.
If you have no intention of paying it back, is it really debt??
It becomes someone else's haircut.
Have We Reached Peak Government? Nope. Some people have not knelt before the Great Leader and kissed the ground on which he walks.
The damn governemnt pisses me off. Today zero hedge is really starting to piss me off in the same manner as they continue to load their page with auto playing ads.
WTF This place is suppose to be against crap like this. If tommorow comes and those ads continue to autoplay I will not visit this site again.Fix it Durden!
Anyone with me?
Fix it yourself.
I have Ghostery addon to FF. I have zero adds in my browser.
Using Opera with Ghostery is a good idea.
I use firefox with adblock..........havent seen an ad/pop up in yrs........
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
^ this
and if you want to support the site, then donate
The advertising is paying the freight for content that is otherwise free. So not only does the sight provide value to the content consumers but also to the advertizers and the advertizers provide value to ZH! Not sure where you been for the last 15 years or so but it's sorta the model of the ENTIRE INTERNET.
If you can't deal with it, please, vote with your feet. And happy trails.
slightlyskeptical must be a liberal, still blaming everyone else for his/her shortcomings...
DaddyO
www.Noscript.net is your friend.
Definitely looks like a peak.
There is a good book called 'Overshoot' that explains all of what is happening now in depth, and was written in 1982.
It's a sobering read, about how populations overrun their net resources and then face a critical moment of re-evaluation- Do we change or Do we die (by whatever method though throughout history 'fighting for the leftovers' seems to be a favorite).
Highly recommended.
Peak government will occur when millions of people die. The grand finale hasn't even begun yet folks. What happens afterwards is anyone's guess, but it isn't going to be pretty.
I've said it before and I'll say it again, the Law of Diminishing Returns fits every walk of life, even government. It's uses are so much more vast than the normal economics 101 defintion.
Or, have we reached PEAK BULLSHIT?
Not to worry! The banksters are in full contro!
Jesus Christ!
Look at those charts go hyperbolic, what happened after 2000?
After 2000?
Mass interventions in everything. Forestalling the collapse.
Continues to this day, only increasing exponentially as necessitated by simple math.
It will end. But it will not end well.
On the very last graph, notice the dip in “total” private/government debt, and then the rebound. The dip was the beginning of private debt deleveraging. The rebound is solely due to increased government borrowings. It’s been my opinion since this crisis began that Bernanke CANNOT allow debt to decrease, because if it goes, that will lead to deflation and the possibilities of a depression. He makes that VERY clear in his writings about The Depression. So he has stepped in to replace the debt you and I have taken out. How long can this go on? As we continue to delever, can he continue levering? Is there anyone in government who can stop him? And given Yellen has apparently be one of the main architects, I don’t anticipate the process slowing down under her watch if she becomes the next Fed Chair. Randy
Nope. Remember Japan.
This shit show can go on for a LOT longer than most people think it can. We may not be 'close' at all to Peak Debt.
Exactly. Japan's been printing for 25 years. We've been printing for 40+. It can (and will) go on for a very long time.
"Productivity has INCREASED"????
Why are you using fiat-dollar-denominated fake GDP figures in the first place??
Can "productivity" really be measured by them? Or even reliably measured at all?
How much of the supposed "productivity gains" is the result of DEBT?
And how many people dropped out of the middle classes or even the wage-earning economy so that "productivity per worker" could allegedly "rise"?
Stick to something like "number-of-widgets-profitably-SOLD-per-person" and you might get a more reasonable idea...
Yes yes OOOOOOOOH yes! Volume is the key - and the dropouts support bills are a relevant cost - ie a deduction fromn GDP.
Our civilization is pretty simple, energy consumption rises -> productivity rises. When productivity is arbitrarily defined as "using fucktons of stored-up potential energy to make useless but attractive shit (so that parasites can exploit the enormous difference between your ex-external energy productivity vs potential productivity gains with external energy to sell you energy-using and labor-saving technology, using, you guessed it, debt in the form of credit-money)".
It is a useless measurement except perhaps in that from it one might be able to glean a few nuggets of insight into the conversion rate from energy consumption to economic production. If the latter seems to rising while the former is stable or falling, barring some massive, revolutionary improvements to energy generation technology or enormous increases in energy efficiency (neither of which have happened vis oil in the timespan under consideration), you're probably being lied to. But no surprise there, the whole thing is a giant lie. On its own, rising production only really tells you that we're burning through more energy, or more recently, expanding net debt just to keep the charade going a while longer before more realize that this economy can never, ever hope to balance its books because the growth all that debt was supposed to bring forward never happened and merely destroyed a bit more irreplaceable energy supply, further pricing it out of the range at which economic growth may occur.
He shoots! He scores!
i to make the case for "peak Government" you have to add "relative to what?" Federal largesse dispenses many favors...but not without payment or cost either. this is what his called the problem of "friction' i believe and simply put if there is a way Government will find it. what's hard to keep up with is "peak innovation" (which clearly hasn't happened) as new materials, energy sources and means of production spring forth with striking regularity nowadays. i would not be beholden to any "old ways" right now. the only thing that remains the same is the voracious need for capital to keep expanding what's working.
Just before the adulation starts gushing out, and even though I like the CHS slant,
"In other words, if growth depended entirely on population growth, the real (inflation-adjusted) economy would have grown 28% since 1990. Instead, the GDP rose by 57%. This is the result of rising output per person, i.e. an increase in productivity."
So, in the space of 20 years we have learned a good trick - how to get nearly 60% more out of each slave. REALLY???? The time honoured VOLUME (ie real stuff) reconciliation might show a very different slant: it is only because everything is measured in terms of the output of the evil little bearded shit's printer that we can even keep a straight face when this sort of hypothesis hits the screens. Surely any productivity gains postulated should be measured in adjusted units and take account of the relevant costs of the activity. In other words - lets say everyone works like a farmer. In those 20 years he has used increasing automation culminating in yield maps of his land to indicate fertiliser and sowning density adjustments for optimum results. If we simply say that one man is now required for a farm which required 2 only 20 years ago and now produces twice what it did then, is the farmer 4 times more productive?
Clearly not. Moreover, if he has grubbed up his hedges to allow the tractor to be remote controlled via GPS locator technology, where in the calculation do we see the damage to the environment, or is this not seen as a relevant cost? Taking this a little further, if we manage to kill the bees, is this then part of someone else's P&L account, and not a deduction from GDP? Should we not also adjustr for the change in method of the farmers activity?
CHS doesn't define what metrics he's using to measure government itself, nor what he means by the word "sustainably". I would submit that no human government is ever sustainable beyond a few thousand years at the very most, with the historical average being much shorter.
Fact is, Western and all other oil dependent (if you want to be technical, dependent upon tax revenue on wealth and economic activity which only exists due to easy access to cheap petroleum products) states have not been sustainable since their respective oil production rates went into structural decline. If you want to be really honest, they were never sustainable because their existence was premised on levels of growth and for lengths of time which any sane person should have had the basic reasoning skill to deduce was and is not possible given available resources and technology (remember: the amount of the former was MASSIVELY underestimated until the last century or so, while the latter has greatly improved at a rate nearly no one dreamed possible).
Personally I think the only useful way to define peak government is the point at which its per-capita interference in the lives of humans reaches its height. Every government reaches this point at a different time and in a different condition. I don't think we're there yet, but western and other industrialized nations' governments aren't terribly far. This raises the question of what the initial level and base-rate of government per-capita interference will be for successor governments, however much smaller they might be. If history is any guide, don't expect the level to drop much. For some color to this line of reasoning, have a look at Amish or Mennonite communities, or the governments of America and Europe in the 19th century. Not exactly minarchist republican bastions of personal liberty and self-government. As always, careful what you wish for, you just might get it. As ever, you'll have exaclty as much the state can afford to give you, based on the value you provide it with (ceteris paribus, the level of freedom-from-government is inversely proportional to the size of the population). Happy peasant farming, fellow future serfs.
Martin Armstrong makes a good case that Peak Government has a long way to go. When the borrowing limits max out the government will go into berserker mode when it comes to taxing and outright confiscation. There is a lot of wealth yet to extract from the middle class. And it will be done with MRAPs and SWAT teams, if that is what it takes.
There is an old programers adage, garbage in - garbage out.
U.S. Department of commerce, bureau of economic analysis...
U.S. Department of labor, Bureau of labor statistics...
Not really paragons of truth nor accuracy.
Not disagreeing, but if your results and conclusions are based on flawed data, chances are good your results are flawed.
I believe we're past Peak Government. More borrowing is not possible. Taxes are already past the point of diminishing returns. All we're waiting for is for the USG fiscal position to finish its collapse.
I'd place the point of Peak Government somewhere between the housing bubble and Obamacare passing.
Why do you think they want to flood the United States with new illegals aka immigration law? All tax revenues generated by the American people have stagnated. Under the current GDP [Ponzi} growth model, the system will go into a death spiral. The short term thinking was used in the United Kingdom, no need to explain the limited success it impacted for long term tax income development objectives.
Isn’t that right President Soetoro?
Everyone wants to live at the expense of the State. They forget that the State lives at the expense of everyone.
Frederic Bastiat
Only because of the way the monetary system's currently structured. If we ditched it and instead instituted a legitimate, government issued, non-debt based, non-interest bearging currency, then that would no longer be the case.
I detect the unique stench of another ignorant acolyte of Bill Still the Fiat Shill, who never met a printing press that he did not like --- just as long as the government operates it directly.
Wake the fuck up. Fiat IS the problem, not the issuer!
So .. we should instead grant the power of money creation to ... private banks? Remind me again how that's different than today?
The government got taken over and corrupted by a private bank 100 years ago ... and your solution is to disband government? No. The logical response is to re-separate the government and private sector and start enforcing regulations.
You obviously know nothing of monetary history, and seem to naively and ignorantly accept the facade that TPTB have thrown over monetary affairs over the past 100 years or more.
In fact, the last period of privately-issued money in the USA (which worked quite well, compared to today's system, even with multiple busts caused by credit overextension via fractional reserve banking) ended with the Civil War. To call the Federal Reserve "private" is to make a mockery of the word, as it is a government-sanctioned monopoly, hence effectively government-controlled. To deny that is to deny reality itself.
No, the REAL solution here is to completely separate the power of issuing money from government AND from any other monopoly power. Only when the free market is supplying money of people's own choosing, not fiat currency forced upon them under threat of force and violence, will honest money be seen and used.
Now, go ahead and parrot some of Bill Still's egregious misrepresentations and lies about private money and particularly some of the numerous falsehoods he loves to spout about gold and the gold standard --- it is part and parcel of his insidious pro-fiat, pro-government program, after all.
Bill Still, "libertarian"! Make me laugh!
Is the Fed government-controlled, or is the government Fed-controlled Seeing as it's the government that is drowning in debt, I'd reject the former. In reality, that question has no answer, as it's when public and private sectors merge that Orwellian regimes emerge. It's neither the fault of the public or private sector; it's merely the natural progression of human society towards the emergence of totalitarianism until things get so bad again that a bloody revolution turns everything upside down and a new cyle starts.
"Free markets, free markets", blah blah blah, go worship some other idol please. There is no such thing as a free market, you are believing in one handed claps, pink unicorns, and dry waterfalls. They may exist in Ludwig von Mises' imaginary thought experiments but in the real world there is no such thing.
Sophomoric sophistry, nothing more.
Like others here lately, you refuse to acknowledge that while few or no markets may be perfectly free, there are wide DEGREES of freedom within any market and between different markets, and within any economy and between different economies, that are both profound and all-significant.
Your puerile strawman argument that "free markets do not exist" is analogous to claiming that morality and ethics do not exist, as ideals or even as hypothetical constructs, simply because no one person on earth is perfectly ethical and moral.
Now please go peddle your specious twaddle in a more appropriate venue. I suggest Yahoo or YouTube or Facebook.
This article is COMPLETELY misleading. It is comparing apples to oranges. The chart of GDP over the years is INFLATION ADJUSTED to 2005 dollars! But the government expenditure charts AREN'T! They are unadjusted nominal values. The comparison is COMPLETELY MEANINGLESS.
Come on CHS, are you deliberately trying to decieve people?
Yes, I double checked my numbers against these, and mine are correct (i.e. they agree). Basically, when you factor all those charts together so that you are comparing apples to apples, in other words, you USE THE SAME INFLATION CORRECTOR FOR ALL CHARTS (duh, what a concept...), then you see that government spending didn't increase at all from 1975 until 2008; the total fluctuated around 35% of total GDP. Then, after the 2008 collapse, it jumped up to 43% of GDP. Since this happened AS A RESULT OF the 2008 crash, it cannot be argued that an increasing government over the years was progressivey destroying the economy, because total government spending as a % of GDP was constant for the previous 30 years!
Here is the actual chart for GDP you should be using, which isn't inflation adjusted:
http://research.stlouisfed.org/fred2/series/GDP
If you divide GDP in the last year shown on that graph by the value from 1990, you will see that it's gone up about 3 times. And now, if you go to the above graphs in CHS's article and do the same for federal and state / local government spending, you'll see that they have also gone up by around 3 to 3.5 times. In other words, government spending has barely increased at all as a % of GDP.
This oversight on CHS's part is so blatant and easy to correct, I can't help but think it was deliberate. I have now lost all respect I ever had for his analysis, although I can't say I had much to begin with anyways.
Calling all HEDGETARDS, use your brains, you morons.
OK, I apologize if I came down hard on CHS. I realize that everyone makes oversights, although this one is so blatant and careless I can't help but question how it could have gotten through. It is now the duty of a responsible adult to correct his mistakes and post another article on ZH pointing out the REAL numbers that show how government spending as a % of GDP has hardly increased in 40 years.
The bajillion dollar question(s): how much money can the government borrow to sustain its current spending? Can public and private debt expand at rates four or five times that of the underlying economy? If so, for how long?
Great article.
CHS you are the bomb. Love your books...