The Biblical-proportion deficit predictions we've been hearing about are based on spending targets, but more importantly, on receipt targets. If spending is more than budgeted, the deficits will be larger, but only if receipts come in as expected. If receipts are greater than expected, then the deficits will be smaller than predicted (that was the Reagan-era phenomenon). If receipts are lower than expected, then the deficit will be larger. If both are off, such as spending being more than budgeted, and receipts are less than predicted, the deficit death spiral will be enormous.
And that is exactly what is happening, at such an accelerated rate that the economy is contracting... for the first time in decades and decades.
In September 2008, many people saw the writing on the wall, and began preparing for a Democratic-controlled Congress and a Democrat in the Oval Office. Unlike the Carter dormancy period (the months leading up to his win and the months before he took the Oath of Office), business had no experience with which to forecast how a Democratic Congress and President would behave. This time, we knew.
In those months before Carter took office, it was as if no one could see that the train wreck was about to happen, but this time, especially since Obama's Chicago-style ideology was clear to anyone who'd read more than one book in their lives, businesses (and individuals) had a warning of the future train wreck.
Business began shedding workers immediately, and moving their investments/cash in preparation. The only thing that has been surprising is how quickly the train wreck occurred, and how large the death toll.
This was a much bigger train, and the conductor wasn't simply asleep at the wheel, he was purposely running the engine at full throttle.
Measuring the Galt Effect
Going Galt is one way that individuals and business owners can signal their disapproval of the Federal government's handling of the economy, and their ideas for programs/spending. For many, however, Going Galt has not been an ideological choice, but a choice imposed on them. Anecdotally, we can read the horror stories from people who are unemployed, or business owners who have seen their business receipts drop off the cliff, forcing them into a Galt-state. But these are only anecdotes and don't present an accurate picture of just how Galt the economy has become.
What we can do is look at Federal receipts. That is not anecdotal, but a dipstick measurement of how much money the Feds are taking in, which is about as accurate a measurement of the Galt-by-Choice or Galt-by-Fiat we have:
Source: BizzyBlog (When Will the Press Catch On to Uncle Sam’s Collections Meltdown? April 22, 2009).
I linked to a similar graphic from BizzyBlog before, but the March and April data were not shown. What the table proves is that receipts have fallen off a cliff, and with it, the accuracy of the previous deficit predictions. What raw numbers don't illustrate is just how severe the drop is. Here is that same percentage data shown in a line graph:
Comparing 2007-2008 to 2008-2009 we can see that the collections (although currently lower) were trending about the same until April, when the trend-down in receipts collection went on full throttle:
May is not expected to be any better.
There are a thousand reasons why Federal receipts are down, but the one that is most interesting is the attitude towards government effect. Our attitude about how our government is doing can be good or bad, depending on how we side on the issues. If we feel that government is doing a good job, we're more likely to prepare our tax returns and calculate our withholding based on an optimistic outcome (taking fewer risks). The reverse is also true: when we believe that the government is doing a bad job or mishandling our tax dollars, we will take riskier deductions on our tax return, as well as calculate our withholding in such a way as to prepare for a bad financial year (to hold back as much cash as possible), or with the intent to starve/punish the beast.
Whether intentional or not, the beast is being starved. If the Federal receipts continue to hemorrhage, the deficit predictions will be wildly understated. Unlike you and me, where we would reduce our spending in the face of lower receipts, the government, especially this government, will do no such thing.
Based on this alarming trend, one would expect the OMB and CDO to revise their deficit predictions and for the press to report on it with all the vigor of Chicken Little.
Don't hold your breath waiting for that to happen.
Update: Welcome Dr. Helen and Instapundit readers! (Thank you Dr. Smith and Mr. Reynolds .) Oh, and a Freeper link, too. This should get interesting.
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