Chart Of The Day: Entitlement Nation, Now And Forever

Tyler Durden's picture

The following items comprise what is defined as the key Non-Defense Discretionary Spending (NDDS) components of government outlays:

  • Job training and worker dislocation programs
  • All elementary, secondary and higher education
  • Health research and training
  • Consumer and occupational health and safety
  • Federal law enforcement and Federal judicial system
  • Pollution control and abatement
  • Air, ground and water transportation (FAA, Coast Guard)
  • US Army Corps of Engineers
  • General science research, NASA
  • Energy R&D and demonstration projects
  • NIH/CDC spending on disease control and bioterrorism
  • International drug control and law enforcement

Why do we bring it up? Because the following chart shows the ratio of historical and projected government spending on entitlements - these are self-explanatory - to all the non-defense discretionary items listed above. It shows a disturbing trend.

Why is the trend troubling? Jpm's Michael Cembalest explains in his latest note:

With a deal in place, we can get back to financial markets and investments for a while. Before doing so, here’s why I have some Sympathy for the Devil (e.g., House members who initially balked at a debt ceiling increase). No question, default is a very bad idea... However, there’s an undercurrent to US fiscal dynamics that is striking. The chart shows dollars spent on entitlements for every dollar spent on non-defense discretionary spending (NDDS). This latter category includes education, infrastructure, energy R&D, law enforcement and a wide range of other things that affect the productivity and the general well-being of the US economy (see table), not just today but into the future. The entitlements-to-NDDS ratio is already at an all-time high, and is headed for the stratosphere during the next few years according to CBO projections.

In addition to the obvious question of how the US will fund these unsustainable payments, Cembalest has a few additional questions:

  • Is this what the designers of entitlement programs initially envisioned?
  • Is there a point at which progressive politicians would be concerned about this shift, and if so, at what ratio? If you were a fiscal conservative in the mold of the now defunct Democratic Leadership Council, how would you view this?
  • How is parliamentary democracy affected when 100% of government revenues are already committed to mandatory programs, leaving legislators little spending left to fight over without running large deficits?
  • What does the table on the next page suggest about the likelihood of the Affordable Care Act really being deficit-neutral by the time all of its actual costs are tallied up?

And still another: can one mention these issues and not be branded a retrograde Hooverite for doing so? I still believe we will see some kind of grand bargain within the next 3-5 years (but not during this Presidency) which will broaden the tax base (means-tested limitations on the ability to deduct mortgage interest, state/local taxes, charitable contributions and perhaps a modest Federal tax on municipal bonds) in exchange for some kind of effective curtailments in the entitlement system, of which there have been few to speak of since their inception.

* * *

Or not, and as deficit spending explodes once again after the near-term lull in 2014-2016 as per CBO projections and then goes stratospheric, all the incremental debt needs to fund government spending is monetized by the Fed, leading to even great wealth disparity between the 0.7% which now control $100 trillion of all the world's assets and everyone else, until it is not the Fed's balance sheet but social cohesion which ultimately snaps and ends this great monetarist experiment.

Then again, maybe this time it is different and the central planners will find a way to refute every single law of mathematics and physics in their attempt to refute two thousands years of common sense. We can't wait to find out.