This article analyses the changing nature of the federal government. Initially, the federal state was a concern in the provision of goods and services to the US citizens, but there has been a drastic change away from this role. The spending on goods and services provisions used to compose a huge amount of the federal government spending, in comparison with the proportion used on entitlement's spending. According to the article, the federal state has shifted away this composition from the previous function over time, and it has drifted towards increasing entitlement's payments to the households. (Taylor, pr.1)
Jessica Perez, Gabe Horwitz and David Kendall report this trend by looking into how the composition of the government spending has been changing since 1962. They observe that the household entitlements have significantly been increasing relative to the government spending on public investments. They back this finding by the fact that, in 1962, investment spending was two and half times what was spend on household entitlement .As per now, the spending on entitlements is three times higher than what is spent on public investments.
After a look on the United States proposed budgetary estimates for the year 2013, it was noted that there is what is termed as “mandatory spending” which comprise of the social security payments, Medicare, Medicaid and others like insurance for unemployment, etc. In 2011, the amount classified as “mandatory spending” was approximately $2 trillion. The proportion of social security payments is about three-quarters, which amounts to $725 billion, Medicare amounts to $480 billion and Medicaid totaled to $275 billion. Federal retirees’ payments ($124billion), insurance for unemployment ($117billion) and support for food and nutrition ($96billion). (Taylor, pr 2)
The change in government spending behavior, which is inclined towards persistent increase in entitlement's payment, has negative effects to the economy. The idea behind this reasoning is that, government spending on entitlements does not support the national economy growth as it does the federal investment spending. The federal spending for investments produces benefits to the country's national economy in the long run. This federal spending expands the capital stock of the national economy. The spending on investment can be categorized as assets that are tangible and of physical nature capital. This category provides benefits in terms of services for today and the future generations.
The other category takes the form of intangible assets. These manifests in the form of development, research and education and they yield future income. Thus, the federal spending on entitlement's payment constitutes that spending that does not yield benefits in the future. (Taylor, pr.3) As it could be deduced from the lecture on balance budget, spending of borrowed finances on consumption and investments yields low returns compared to the individual investments and thus results in crowding out to the future generations. Entitlements spending can thus be considered as the one that determine the burden of the future generations.
According to the saving and investment document, investment and consumption have been defined as follows. Investment is defined as “spending on goods or services whose value is not used in the current period”. Consumption, on the other hand, is defined as “spending to meet current needs”. Based on these definitions, we can categorize the various federal governments spending as either consumption or investment spending. The federal government spending that is meant to provide goods and services to the public falls under the category of the investment spending. The rationale for this classification is that public goods and services such as roads and educations yields return in the future. On the contrary, the federal spending categorize as consumption spending involves the spending for entitlement payments. Federal spending is qualified by their nature that does not accrue future benefits to the national income.
The trend observed in the shifting behavior of the federal government is likely to continue over time. Payment for entitlements is prone to accelerate in the future due the ever increasing number of the government servants who retire annually. This will lead into an increase in consumption spending in the future and turn debt burden to the future generations.
Taylor, Timothy. "CONVERSABLE ECONOMIST: Entitlements, Public Investment, and the Changing Nature of the U.S. Government." CONVERSABLE ECONOMIST. N.p., 2 Aug. 2012. Web. 12 Apr. 2014.