Impact of Inflation
Comparing Budget Levels
It is widely understood that the value of one dollar in 1908 is not the same as the value of one dollar in 2008. This is because in most economies, including that of the United States, prices for goods and services tend to increase over time. This phenomenon, commonly referred to as inflation, has important consequences for long-term economic comparisons. For example, in 2000 the federal government's total budget was $1.8 trillion, more than 800% greater than the $195.6 billion spent thirty years earlier. Because of inflation however, it is important to recognize that every dollar spent in 1970 purchased far more than that same dollar thirty years later. Indeed, in this case, $195.6 billion in 1970 translates into about $828 billion in 2000. As a result, the overall increase in federal spending isn't 800%, it's closer to 100%.
When discussing the spending changes over time, inflation has a very real and observable impact. If a program spends $100 million one year, the next year that same $100 million will not go quite as far. This discrepancy is why economists distinguish between "real" value and "nominal" value. The real value accounts for the impact of inflation from year to year, while the nominal value merely reports the level as it existed or exists at any given time. The nominal value of federal spending in 1970 was $195.6 billion. The real value, in year 2000 dollars, was $828 billion.
Adjusting for inflation is an important step in any fiscal analysis, even a relatively short-term one. According to the Bureau of Labor Statistics, the inflation rate was a cumulative 6.4% from 2006 to 2009. Therefore, any program that did not experience a nominal funding increase of at leaset that much during that time must necessarily be spending at a lower "real" level, leading to negative real growth in spending. This is what is meant when analysts refer to funding that "fails to keeps pace with inflation."
For each program herein, this website reports the nominal funding level and the nominal percent change from the previous fiscal year, as well as the real percent change. Of course inflation rates have yet to be determined for 2010 and 2011. This website assumes a 1.4% inflation rate for 2010, and a 1.5% inflation rate for 2011.