Day 2: What Does the Government Spend Money On? | Fiscal Policy Unit Plan Walkthrough

TL;DR

The federal government directs a large share of its spending to Social Security and health programs such as Medicare and Medicaid. The lesson evaluates whether government spends too much by examining spending relative to the economy over time, comparing it with other countries, and presenting arguments about waste, oversight, inequality, and popular benefits. Read on for a grounded walkthrough of federal spending and its major tradeoffs.

Transcript

all right welcome to day two of our fiscal unit plan this is the walkthrough video all right government spending day one we talked about government revenues where do they get their money from day two government spending what do they spend their money on so why don't you ask your students just to start right what do you think what what do you think ... Read More

Key Insights

• Government spending is primarily allocated to Social Security, healthcare, and defense.
• Mandatory spending is required by law and includes programs like Medicare and Social Security.
• Discretionary spending can be adjusted annually and includes defense and education.
• US defense spending has decreased as a percentage of GDP over time.
• The national debt is distinct from the deficit; the debt is the total amount owed, while the deficit is the yearly shortfall.
• US national debt levels are approaching those seen during World War II.
• Interest payments on the national debt are influenced by both the amount owed and current interest rates.
• Compared to other countries, the US has high debt levels, but some countries have even higher percentages of GDP.

Questions & Answers

Q: What does the federal government spend the most money on?

The bulk of federal spending goes to Social Security and health-related programs. The health category includes Medicare and Medicaid, while other spending areas include defense, relief programs, interest on government debt, and veterans benefits.

Q: Does the government spend too much?

The lesson does not take a position on whether government spending is too high. Instead, it suggests examining spending relative to the size of the economy, comparing it across time and countries, and considering arguments on both sides.

Q: Has federal spending increased over time?

Federal spending relative to the economy is described as generally fairly constant over time rather than showing a continuous major increase. There have been temporary surges connected to events such as the financial crisis and the government response to COVID.

Q: Why did spending relative to GDP rise during the financial crisis?

One reason was that the economy became much smaller, which caused spending to rise when measured as a share of GDP. The increase therefore reflected changes in both government spending and the size of the economy.

Q: How does government spending compare across countries?

Some countries spend more than the United States relative to GDP, including Canada and countries in Western and Northern Europe. Other countries spend less, so international comparisons provide context rather than a single verdict about whether US spending is excessive.

Q: What are the arguments against high government spending?

Critics argue that some spending is wasteful and that programs may lack sufficient oversight, checks, and evaluation. They also contend that money might sometimes be used more effectively by individuals rather than by government programs.

Q: What are the arguments in favor of government spending?

Supporters argue that spending can reduce inequality and provide assistance to low-income households. They also point out that major programs such as Social Security and Medicare are fairly popular.

Q: What do Social Security, Medicare, and Medicaid cover?

Social Security is described as providing money to older people. Medicare provides health insurance after age sixty-five, while Medicaid provides health insurance for low-income households.

Summary & Key Takeaways

• US government spending is dominated by Social Security, healthcare, and defense, with mandatory spending set by law. Discretionary spending, including defense, can be adjusted yearly. Spending as a percentage of GDP has remained stable over time, despite spikes during crises like COVID-19.

• The national debt is nearing levels seen during World War II, raising concerns about economic sustainability. Interest payments are rising due to increased borrowing and higher interest rates. The US economy has recovered well post-COVID, but debt levels remain a concern.

• Defense spending as a percentage of GDP has decreased over time, though the US still spends more in absolute terms than any other country. National debt levels are high compared to other nations, but some countries have even higher debt-to-GDP ratios.