Economics 101 — How did we have a Federal Budget surplus in the year 2000

Who among us can remember the most controversial economic topic of the Presidential Campaign of the year 2000?

As unimaginable as it sounds today, the topic was  “what to do with the federal budget Surplus“.  That’s right, Surplus !!

Without arguing about what individuals or events were responsible for growth of the budget deficit during the intervening years, let’s simply take a look at what happened to the dollar expenditures during the 11 year period from 2000 to 2011.

Total Federal expenditures in $Billions

	Federal budget item	Year 2000	Year 2011	Largest budget items
a	Social Security	$449	$775	3
b	Health care	352	858	2
c	Education	60	113
d	Defense	358	878	1
e	Welfare	176	472	4
f	Protection	28	56
g	Transportation	47	93
h	General govt	15	29
i	Other spending	80	96
j	Interest	223	230	5
k	Total Spending	1,788	3,600
l	Surplus (Deficit)	$236	($1,299)

As we can see, the total expenditures (as shown in row k) have more than doubled in these 11 years from $1,788 billion to $3,600 billion dollars.

If we look further, we can see that the top 5 expense items are

Social security,
Healthcare,
Defense,
Welfare  and
Interest

In fact, these five items accounted for 87% of the total budget in 2000.  By 2011, they accounted for 89% of the budget.  Arguably, these are commitments and entitlements with no flexibility whatsoever.

I am not trying to justify this growth in expenditures, nor am I trying to argue for a reduction in these expenditures.  I am simply attempting to establish a common understanding of where the money is going.

Now let’s look at these same Federal expenditures from a different angle.  What percentage of the total do we spend on defense, or social security, or healthcare?  And how has this percentage changed from 2000 to 2011?

Federal line item expenditures as a percent of the total budget

		Year 2000	Year 2011	Change in Pct of total	Change in Pct of total
a	Social Security	25.11	21.53		(3.58)
b	Health care	19.69	23.83	4.15
c	Education	3.36	3.14		(0.22)
d	Defense	20.02	24.39	4.37
e	Welfare	9.84	13.11	3.27
f	Protection	1.57	1.56		(0.01)
g	Transportation	2.63	2.58		(0.05)
h	General govt	0.84	0.81		(0.03)
i	Other spending	4.47	2.67		(1.81)
j	Interest	12.47	6.39		(6.08)

As you can see, healthcare, defense, and welfare have risen dramatically as a percentage of total expenditures.  Social security and interest expense have fallen as a percentage of the total.  The other budget items have changed negligibly.

Perhaps the most interesting item is social security.  In total dollars, this item has risen 72%.  Even so, it has become a dramatically smaller part of the total budget in 2011 than it was in 2000.

And watch out for that interest expense item on row j.  If rates were to increase the windfall that the Federal Government has been receiving will disappear.

We now have a sound basis for understanding the trend in Federal spending.  This common understanding will be a foundation for future discussions.