Fiscal Trends: USA’s 250th (And the Government’s 237th)

Zachary BartschLeave a comment

We celebrate 250 years since the Declaration of Independence was signed on July 4th, 1776. That’s the day that we celebrate our country’s birth. So, it’s very American of us to celebrate the day that we merely declared independence (not the day that the revolutionary war ended). We simply said we were independent from the crown. Regardless, we celebrate 250 years as a people. BUT, our government is only 237 years old.  The current constitution replaced the articles of confederation in 1789.  So there are some caveats to the whole semiquincentennial thing.

An important distinction that is baked into the American pie is that we are not our government. Our government is younger than we are. Our government has a piggy bank called ‘US Treasury’. It can spend and borrow for the US national government. It can also impose tax liabilities on the population in order to service those outlays. Now that it’s the government’s 237th birthday, what’s its basic financial track record?

I like to think in the long run, for better or for worse, and I don’t like to get hysterical. So, let’s look at the full span of the 237 years – well – 235 years. The oldest annual data that we have is from Bicentennial Historical Statistics, which goes back to 1792. Below are the series for Federal Receipts and Outlays (revenue and spending).

The blue line is in nominal dollars and the orange line is the natural log so that we can see the changes in growth rates more easily. These aren’t inflation adjusted numbers, so we should expect to see some inflationary patterns. Long-run inflation was pretty stable prior to the 1913 Federal Reserve act and wee can see that reflected in both series. There was some drift upward in terms of revenue and expenditures. But the primary pattern was one of punctuated rises followed by plateaus. That’s a pretty standard ratcheting leviathan pattern. There’s a bump up for the big events in the first half of our history: the War of 1812, Civil War in 1861, and World War I in 1917.

Then, after the great depression and leaving the gold standard (mostly), in about 1933 we start to see the consistent positive trend in cash flows. In fact, it’s amazing how consistent the raw nominal series is.  We can see where World War II is in the series, but after that we appear to have traded punctuated increases for steady increases. Even the higher inflation rates of the 1970s look pretty muted and on trend (Btw, the blip in 1976 is a record-keeping artifact. There was a 3 month gap-period when the US government changed its fiscal year start/end). Even the new growth in total cashflows seems to be slightly bending downward and growing a little more slowly.

But rest assured, spending has exceeded revenues. Below is the long run deficit. I don’t take the log for this one since there are negative numbers. It’s hard to tell from the line graph, but the first big and persist swing in the deficit arrived after the Fed was established and the onset of WWI. The deficit hit $9 billion in 1918, which was 10x the prior peak of $0.9 billion at the end of the civil war in 1865. Notice that the above government revenues stayed flat or fell after 1920, but the outlays began trending upward before the revenues. The deficit doesn’t really start its long, steady march until 1932. Of course, for the past quarter century, the national government has been in a deficit mess (even if you measure the proportion of GDP).

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Expressionism Is To Cameras As…. Caity Weaver?…. Is To Writing?

James Bailey2 Comments

I don’t think it’s a coincidence that movements like expressionism, impressionism, and abstract art took off after the invention of the camera. Photorealistic paintings are impressive, but once they are duplicating what a camera does, they’re less interesting.

We’re due for similar movements in other fields to emerge as reactions to AI. Like writing in a way totally different from how an AI would write- ideally better than an AI would write, but even writing worse than an AI can be interesting if it is at least different.

It’s still early days for both AI and our reactions to it. But since the release of ChatGPT in 2022, what is the good new essay or book that you’re most confident was not written by AI, one that was written in an almost deliberately extra-human manner?

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Happy Birthday, USA

Jeremy Horpedahl3 Comments

For America’s 250th birthday, my present to all of you is this chart showing our economic history. Average income in the US has increased dramatically since the country was founded. This chart attempts to provide one, continuous series, using the best available income data and inflation adjustments (well, mostly continuous — before 1790 there are just a few estimates). Sources are listed at the bottom of the chart. The y-axis is a log scale.

Life Among the Geeks: Impressions from an Amateur Radio (Ham) Field Day

Scott BuchananLeave a comment

When visiting a large county park the other day, I noticed a sign for “Amateur Radio Field Day, Public Welcome.” I have always had great respect for amateur radio operators, for their technical prowess and for their service in emergencies when other forms of communication go down. So, I wandered over to see what was happening.

There were maybe half a dozen large screened in gazebo type tents. In each gazebo there were one or two men seated before some radio apparatus on a table, with a couple other guys sitting in more of a spectator role, chatting away. Someone had used a potato cannon to shoot a fishing line over the top of a tall tree, which was then used to pull up a rope, which was then used to pull up a long antenna wire. There was also a tall standalone antenna mast, held erect by three guy wires staked to the ground.

What were these guys doing? There were mainly doing what hams mainly do, which is reaching out across the continent and across the globe, to make contact via radio with other amateur radio operators. Some were doing it by voice communication, using single side band (SSB) technology for more efficient transmissions. Some were using a computer interface to turn their transmissions into a digital format, which could be transmitted and received more effectively. The guy on the other end would have matching software to turn the numbers back into words.

And there was one guy doing it the old-fashioned way, listening to “beep, beep, beedily beep” Morse code coming in, and transcribing that to letters and numbers. The Morse code beeps can cut through radio clutter more strongly than voice signals, allowing more distant contacts with relatively low power. Which is kind of a bragging point.

The special thing about so-called short waves used by hams is that they can reflect or refract from the underside of charged layers high up in the atmosphere. Your signal can bounce off those layers and come back to earth hundreds or thousands of miles away. Before the Internet, this was actually a big deal. The only other ways to communicate back then with distant people were snail mail, telegraph, or long-distance telephone, which was super expensive and grid dependent. I put together a short-wave video kit around 1970, and it was pretty amazing to hear a station broadcasting from Ecuador, not to mention Radio Moscow. Voice of America and BBC short wave broadcasts helped to keep the ideal of freedom alive in Soviet occupied Europe for many decades.

The guys in the park (I didn’t see any women operators, although I know they exist) were enthusiastic and friendly. When I mentioned I have a grandson who seems interested in technology, a man pressed on me an envelope filled with electronic components, and a small circuit board, encouraging me to help my grandson solder the parts into the board to make a short-wave receiver for Morse code. I thanked him sincerely, but said I might wait till my grandson was seven or eight before embarking on this project.

I am something of a techie myself, with a professional career in chemical engineering. But I found myself far out-geeked by these gentlemen. They would be certainly eager to help in the amount of emergency, but that’s actually a very rare event. It seems much of the thrill is simply the technology itself. To truly understand antenna theory, and even to design and build your own radio, are marks of distinguishment in that crowd. What I found most interesting from a psychological point of view was that when they do connect with someone 1000 or 10,000 miles away, they usually do not stop to chitchat about things like, how’s the weather where you are, how long have you been doing this, etc. No, nothing of normal human interest, it’s just: dutifully log the other party’s location and call sign, and move on to make the next contact.

My takeaway: as I’ve done maybe once a decade, I peered into my soul to assess whether I wanted to invest the time and money into pursuing this hobby. I could crank up my aging brain to pass the technical exams required to get an amateur radio operator’s license. But to set up a working short-wave radio and antenna, and get proficient at using it, would take a lot of effort. And in the Internet age, reaching out and touching someone on a different continent in real time just is not the rush that it used to be. As a responsible citizen, the emergency preparedness aspect is of interest to me. However, there is a newer, alternative class of radio called GMRS, which I think may be more realistic for most emergency situations. My encounter the other day with the hams did cause me to reengage with GMRS, and I may write a blog post about that in the future.

Rural Americans benefit the most from immigration

mdmakowskyLeave a comment

This is a near-perfect policy experiment showing us, once again, that immigration is not only a net gain for all, but an absolute gain in the rural communities that have become the most politically resistant to immigration.

🗣️ Published today in @aeajournals.bsky.social. Ethan Lewis and I use a visa lottery, as a nationwide randomized experiment, to test the effects of foreign labor on US firms and workers. doi.org/10.1257/app….A concise summary from @nber.org —> http://www.nber.org/digest/20221…

— Michael Clemens (@mclem.org) 2026-06-26T16:49:16.587Z

Further summary:

Video on You Wouldn’t Steal a Car

Joy Buchanan2 Comments

The brilliant content creator economist Matt Hill has posted a video “How Piracy Accidentally Created AI” to the @EconNerds channel on YouTube.

The video is so funny (and smart!) that I encourage you to sit back and watch it all the way through. Around minute 2, he gets to the topic of online piracy.

The 4 minute mark is where I am featured to explain my paper with Bart Wilson: You Wouldn’t Steal a Car: Moral Intuition for Intellectual Property (SSRN link)

The @EconNerds channel on YouTube has over 100 engaging videos like this to help you learn economics. You can also find Econ Nerds updates on X/Twitter

I summarized our findings in a previous blog “Summary of You Wouldn’t Steal a Car,” but Matt’s video is more fun and quite technically accurate, so now everyone can just watch it.

What the Fed Knew, and When

Zachary BartschLeave a comment

I’ve recently gone back and started listening to the archived episodes of the ‘Macro Musings’ podcast hosted by David Beckworth. The show started in 2016. At that time, there was still a sense of malaise after the 2007-2008 Great Financial Crisis (GFC) and the slow recovery that followed it. We were also in a prolonged low-interest rate environment.

A recurring theme is whether the Fed should have engaged in expansionary policy earlier than they did in response to the GFC. There are multiple ways to answer. It’s not helpful to say ‘knowing what we know now’. The Fed didn’t have that opportunity. It’s a little bit more helpful to say ‘if the Fed had a different target or different tools’.  The target and tools are higher-order policy decisions and changing them can be helpful in the future. But they typically can’t be changed with the flip of a switch. After all, the 2% inflation target itself rolled out over the course of decades.

The most awkward/damning question is “Given the target, tools, and data that the fed actually had, did they make the right decision?”. If the answer is ‘no’, then that warrants a serious investigation of individuals, groups, processes, etc. I don’t mean a legal investigation. I mean the decentralized kind in which public and expert trust can be affected.

A concept that Beckworth often mentions concerning Fed culpability/performance during the GFC is the problem of data revisions. Currently, we know what the revised data says about NGDP, inflation, employment, etc. But the Fed only had the contemporary numbers and immediate revisions. In a world where economic growth is lousy or stellar in a range of 1-3%, small revisions can matter a lot. For example, below are the 2001q1 NGDP revision values over time.

Revisions occurred twice by 2002q2, revising NGDP down by more than 2%. Subsequent revisions raised the value on record to nearly +3% of the initial estimate, before settling at a less elevated value. Sheesh! In a world where a 1% swing is a big deal, how can we possibly expect the Fed to succeed at managing aggregate demand?

Things are not so scary as they might seem. The Fed doesn’t much care about revisions to an individual quarter. Rather, they care about the direction of change over time. Whether future revisions increase GDP by 2% is unimportant. What’s important is whether one period’s value is lower relative to the earlier value. That’s the relevant difference that tells us how the economy is changing.

Now, in 2026, our current understanding of NGDP during the GFC follows the below pattern starting in 2005q1 (lest I omit important pre-trends). NGDP growth had weakened in 2007q4, turning negative in 2008q1. Weak growth resumed in 2008q2. Then we had near-zero or negative growth for the next five quarters. Of course, we’re now approaching twenty years later, so we have the huge benefit of hindsight and revisions. Keep in mind that the contemporary numbers aren’t available until the subsequent quarter. By the yard stick of NGPD, the Fed should have been loosening by Q3 or certainly Q4 of 2008 if they cared about supporting total spending. Maybe as early as Q2 is they were especially sensitive.  

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Greenspan’s Unknown Ideal

James Bailey1 Comment

Alan Greenspan died this week at age 100. He was the Federal Reserve chair during my entire childhood.

But since I wasn’t really following markets and macro at the time, I don’t think of him in terms of monthly announcements about interest rates. What I find most interesting now is the winding personal and intellectual path he took to become a long-serving Fed chair.

He studied clarinet at Julliard before later getting economics degrees at NYU. He supposedly attended the famous 1944 Bretton Woods conference that organized the post-war international monetary system- but as part of an orchestra, not as a monetary economist. In 1966 he coauthored “Capitalism: The Unknown Ideal” with Ayn Rand, where he argued against antitrust and consumer protection laws and for the gold standard. This may be why my intro macro professor Bobbie Horn always referred to Greenspan as “Ayn Rand’s boy toy”.

His advocacy for the gold standard is striking given that just two years later he would join the campaign of Richard Nixon, who took the US off the gold standard in 1971. Then Greenspan would go on to chair the Fed in the now-standard discretionary manner while making, as far as I can tell, no attempts to move it back in the direction of a gold standard.

While it’s unclear whether Greenspan’s unusual path improved his ability as a Chair, it was at least possible then to reach the office by his somewhat unusual path. Since his 1987 appointment the path to the highest appointed offices narrowed to include only more conventional candidates. Randy Barnett and Josh Blackman noted this in a 2015 article on the Supreme Court:

earnest, platinum-résumé’d law geeks have their eyes set on “the Big Bench,” so they keep tidy lives because they think they might someday face a confirmation hearing. It is an unfortunate reality today that to be a judge, you cannot hold vehement opinions prior to the nomination and confirmation process.

I see similar forces at work in economics, where the 50 economists who have a shot at being Fed Chair and the 500 who think they do all hold their tongues. But what does that mean for the kind of Fed Chairs we get?

the truth about SCOTUS-wannabes who “trim their sails” and limit their potential based on a fear of a future confirmation hearing: Such persons lack the character a justice needs…. “Courage is a muscle. You develop courage by exercising it. Sitting on the fence is not practice for standing up.” Imagine what it takes to live your whole professional and personal life as a “justice-in waiting.” These SCOTUS-wannabes spend their careers seeking the approval of others, in the hopes that one day they will be nominated because of their friendships across the political spectrum. 

Barnett and Blackman argued that this should change, and I think this is now in the process of changing again:

Such willfully “stealth candidates” should be disqualified from consideration for the Supreme Court…. We need jurists who are fearlessly committed to the rule of law, reputation be damned…. Paper trails are an asset, not a disqualification.

Would You Pay $4,000 for Filet Mignon and a Flight to London?

Jeremy Horpedahl1 Comment

The Atlantic has a great article about the history of the Boeing 747 aircraft, which is slowly being retired by airlines. Lots of fun details in the article about the plane itself and about that era. The author is also conscious of the fact that flying was expensive back then, and that a lot more people fly today (though in part, the 747 was a cause of mass flying). Still, the tone of the article is nostalgic for the era, in addition to just being a nice obituary for a marvel of engineering and luxury.

But just how much more expensive was flying when the 747 was introduced? The article doesn’t exactly tell us, though they do give some inflation-adjusted figures on the cost of building the planes. They do give us some hint of how luxurious flying was, even in coach: “on a 1970 Pan Am flight from JFK to Heathrow, a coach-class passenger would have enjoyed filet mignon.”

Sounds nice! But expensive. In 1970, a roundtrip flight on Pan Am from New York to London was $420. First class was $750. To put those numbers in context, the average wage in 1970 was $3.40, meaning it would have taken 124 hours of work to buy the coach ticket, and 221 hours to buy the first class ticket. The average wage today is $32.31, meaning that the coach ticket is the equivalent of almost $4,000 today, and the first class ticket is over $7,000. Filet mignon is nice, but not $4,000 nice.

Today, you can buy a coach ticket from New York to London for around $800. Of course, there is no one single price today, as there was in 1970 (something that frustrates buyers, to be sure), but I’ve searched multiple websites in different months, and you can generally get a direct flight for around $800 in economy class (often cheaper if you don’t have a direct flight). Today most airlines have multiple upper classes for international flights, not a single first class, but on American Airlines you can generally get a business class ticket to London for around $4,000 and a first class ticket for a bit over $5,000 (both direct flights from NYC).

In other words, for the same amount of work as buying one coach ticket in 1970, you could buy five tickets in 2026. Or, if you desire that luxury, you could also buy one business class ticket today, for roughly the same amount of hours worked as the coach ticket in 1970. Business class seats today take about half the hours of work as a first class seat in 1970, and an international first-class ticket today takes about 75% of the hours worked in 1970 as a first class ticket (American Airlines Flagship First class is a truly luxury experience, probably better than 1970, even though there is no piano bar on the plane).

The decline is much smaller than the decline for coach seats, but it is still a decline. But that is an important point: the biggest gains from deregulation and competition in air travel and the non-rich, who mostly weren’t flying anyway. Is the experience as good as 1970? Of course not, and The Atlantic article stresses this point repeatedly. You won’t get filet mignon, you’ll probably be in a cramped seat, with a frustrated flight attendant. But you can afford it, which for most middle-class families is probably the most important fact.