Thursday, August 25, 2011

Federal Spending Update

The WSJ has a fine editorial today on the growth of Federal spending (see my related post below).

They report, on the basis of a Congressional Budget Office update, that the Federal government will spend an all-time record this fiscal year (which ends Sept. 30) -- $3.6 trillion dollars. That will be almost 24% of GDP.

The Journal article includes this chart, which shows the tremendous increase from 2008, and how the new level of Federal spending is looking more like a permanent new track rather than a temporary increase due to stimulus. All of this is consistent with my post below.

Also, it is interesting to note that the Select Committee on Deficit Reduction is charged with coming up with deficit reductions of $1.5 trillion over the next ten years -- that is, $150 billion per year.

Note well: $150 billion is 4% of fiscal year 2011 spending. 4%!!!???? All of this to get a 4% reduction in spending. Amazing.


Anonymous said...

Sorry, but this doesn’t stand up to the lightest scrutiny. We are on a new track because we are still recovering from the recession. It has very little to do with any discretionary spending by government. Not including non-distributed offsetting receipts, spending in 2009 increased by about 600B over 2008. The bulk of that (500B) was non-discretionary spending caused by more payouts for unemployment, social security Medicaid and Medicare, the Bush bailout and other non-discretionary programs. These additional costs are caused by people being out of work and increased costs for returning soldiers. What do you want Obama to do, lie down in front of mail trucks so that unemployment, college tuition, and entitlement checks don’t go out? Most of these costs are not going to go down until people are back to work. Receipts also went down by over 400B and they have not come back. There you have about 1,000B of the deficit. Even Larry Summers says this is a "jobs and growth deficit".

Obama did increase discretionary spending in 09 and 010 by 100B or about 9%. This is about the Bush average for his entire term and less than Bush’s increases following the bust (12.5%). Given we went through the Great Recession wouldn’t you have expect even higher discretionary outlays?

So how about giving a fair and balanced account of what really is going on: the country is struggling with unemployment which reduces government income and raises entitlements. Obama is following a limited stimulus approach.

If you don’t believe me look at the CBOs own figures:

Please try to be fair. It’s bad enough that the media cooks the books to be sensational. We can’t have educators doing it too.

Robert G. Hansen said...

I wonder if you read my post below and looked at the actual numbers from the budget documents? You bring up tax revenues and the deficit, which was not my point -- I was talking about spending. Also, I look at the White House projections for years beyond 2011, and I don't see any ramping down of the new overall level of spending. My fear/belief is that many of these stimulus programs will get permanently built into budgets.

Anonymous said...

I can’t tell whether you are unaware of the message of the WSJ article or not. You might be innocent or you might be disingenuous. Did you read the last paragraph of the WSJ piece?

The real story told by the CBO report is that the federal government is still pursuing a very loose fiscal policy, despite lamentations from Democrats and the Keynesian economists who populate Wall Street. The best that House Republicans have been able to do so far is to battle Mr. Obama and Senate Democrats to a draw, delaying tax increases until 2013 and preventing even larger spending increases. To really control Washington's appetites, the voters are going to have to back up their message in 2010 with reinforcements in 2012.

The rest of the article is a bit more even handed, but the main point is that Obama’s spending is out of control. That raises the issue of what type of spending is out of control. If you want to be political about it, you could also ask who is responsible.

According to the GAO, total spending in constant dollars increased by about 686B from 2008 to 2011. By far the largest part of this (68% or 486B) is mandatory spending. Much of this is for costs associated with high unemployment and care for veterans. Defense spending increased by 17% (118B) and non-defense discretionary spending increased by 14.6% (100B).

Why didn’t these numbers come down after 2009? You make a big case out of this in your earlier post though to be fair; you do wonder how much is related to the stimulus bill. It probably would have been a good idea to check before you posted your blog, but I am sure you are busy with your administrative duties. For your information, the answer is the stimulus accounts for almost all of the increase.

Non-Defense Discretionary spending in real dollars:
year spending stimulus spending w/o stimulus
2008 469 0 469
2009 513 53 460
2010 582 112 470
2011 569 63 506

As a point of comparison, Obama is much thriftier in spending non-defense dollars than GW Bush (3.5%/year), better than his father GHWB (2.9%/year), similar to Clinton (1.8%/year) and not as thrifty as the master himself, Ronald Reagan (-1.8%/year).

If you wanted to summarize spending under Obama quickly, you would say: 1) costs grew because of high unemployment, 2) continued growth of military spending, and 3) economic stimulus spending.

Who is to blame for this mess? How did we get here? As you point out, the bulk of the additional spending came under Bush. George W. Bush increased total discretionary spending in real terms by 6.45%/yr (budgets 2001-2005) and 3.24%/yr (2005-2009). These increases are on par with the Great Society era.

So who should the WSJ “reinforcements” dislodge? The data suggest they should throw out George W. Bush. Unfortunately, I think the data are being slanted to make the story about Obama’s spending. Some people want to blame him for administering the stimulus bill and the increases in non-discretionary spending. They use the common understanding that the stimulus was just in 2009 to imply that he raised spending in 10 and 11. Others who are confused by the spending increases have added to the fray. I assume you are in this latter group.

Obama might have withdrawn from Afghanistan sooner to bring down military spending. Perhaps he should have been bolder, but the problems we face are not of his making. Our deficit problem will go away when people are back to work. How can we best get them back to work? Now that’s an issue for an economist to ponder.

muebles en castellon said...

Thanks so much for your article, very effective piece of writing.