How does the government spend money? The government burdens the American citizens with many taxes, but where do these taxes go? How does the government spend these taxes? The article “Government Spending Spree” by Richard Daughty (2008) published in The Daily Beckoning says much about how the government spends all these money from the taxes. First, Daughty (2008) discussed the US$ 700 billion economic bailout. Does the government need to release this much money just to help in the survival of falling companies? The Federal Reserve is said to be anomalous with the leadership of Alan Greenspan.
The Federal Reserve created such amounts and credits and then spent them to buy stocks and bonds, to fund housing explosion, and lastly, to fund the growth of the government. In addition to this, the article also claims that the government spent too much on payrolls. It is normal to assume that government payroll pertains to the money used to pay government employees for their work. However, according to the article, the US$ 145. 5 million government payroll is made up mostly of expenses from contracting private sector companies. The real government payroll only amounts to US$ 25 million.
The rest are spent to some private contracts including maintenances, supplies, equipments, office spaces, pornography, storage spaces, and even private parking lots (Daughty, 2008). Finally, the article also mentioned the overspending of the Pentagon. Daughty (2008) quoted the Energy & Scarcity Investor newsletter which reported that 56. 6% of the Defense Department budget goes to contracts with private firms. This amounts to US$ 316 billion. This is much greater than what the department spends on weapons (Daughty, 2008). The points discussed in the article are agreeable and convincing.
The overspending of government agencies is just a reflection of the status of the economy of US today. The government spends too much, but when there is insufficient fund, the government increases their debt in order to suffice financial situations. The bailout is evidence. The Federal Reserve released this huge amount of money just to help the survival of falling companies. However, the problem is: did this really help the economy? The government just made a headache in its own part. It is like it gives away money just to shoulder someone else’s debt.
The result will be an increase in the debt of the government. At the same time, a big loss in giving away huge amount of money would be incurred, instead of using the money for better investments. Another is the overspending of government to contracts with private companies. The government should not rely on private companies as long as it can do the job within its own departments. Too much reliance on private companies only means that the government cannot do its responsibilities on its own. If the government cannot do its own work, then we better take the government out.
With all these spending sprees, it may boil down to as simple as this: in money spent, there will be money that goes to corruption. So, the 700 million dollar economic bailout is questionable. There may be corruption involved in the said bailout. The government payroll overspending is also questionable. There is a cycle of contracting, spending, and rehiring just to increase the government payroll. As this goes on and on, the multiplier, as said in the article, increases. This increase in the multiplier gives us an idea of how huge the government’s overspending is with regard to government payroll.
The actual payroll is said to be 22. 5 million. However, as accounted, the government spent millions of dollars just for the payroll. If we multiply 2. 5 million U. S. dollars by three, we get a whopping 67. 5 million U. S. dollars which is half of the total US government payroll that is listed. Lastly, there is also something fishy about the overspending of the defense department with regard to contracts made with private firms. Why does the defense department need to contract private firms in the first place? Most of us are unaware of most of the works in the defense department as they are confidential.
Thus, this defense department may be cooking something along with those private firms. Contracts with private firms are not bad when they are minimal. In the case of the defense department, a 316 billion US dollar contract with private firms means a lot. First, the said amount is greater than what the department spends on war weapons. What is the reason behind that? Why spend such huge amount with contracts with private firms? Second, the said amount comprises 57. 6% of the whole budget of the defense department. Why is it so? It is very intriguing and anomalous. Is corruption involved?
Due to the overspending of the government, huge amounts of money were not properly used and sometimes are not used at all. When budget is at its critical level and it is in danger of getting bankrupt, the government will then need to create money through the Federal Reserve in order to suffice the budget loss. Where will the Federal Reserve get the money? It is either from the people’s taxes or from borrowed money from other countries or other sources such as the International Monetary Fund or IMF. Increase in taxes will be used to generate huge amounts of money in order to suffice the budget deficit.
Consequently, the people will suffer from the burden of the overspending of the government. In other words, a hardworking individual will pay much bigger tax. This increase in tax expense would have helped the person in paying for his or her bills, food expenses, etc. On the other hand, if borrowing money is used as a solution, the economy of America will be the one getting the burden of the overspending of the government.
Reference Daughty, R. (2008, October 17). Government Spending Spree. The Daily Reckoning. Retrieved October 31, 2008 from http://www. dailyreckoning. com. au/government-spending-spree/2008/10/07/.