The non-existent spending boom

The non-existent spending boom April 28, 2011

One of the great myths out there – a myth used to justify gutting social safety nets – is that there was a huge spike in government spending under Obama, and this is behind the huge jump in the government deficit. You can even see traces of this false reasoning in the arguments of Msgr. Charles Pope, (my rebuttal is here). This position might appear ubiquitous, but it is wrong. In truth, the deficit was cause by the recession, largely because revenues collapsed. Of course, those who want to blame spending point to a 4 percentage point increase in the ratio of government spending to GDP since 2007. This is big, right? Well, yes, but – as Krugman shows with his characteristic insight – this is because the denominator collapsed! If we actually look at what happened to spending itself, this is what we see:

In other words, the only forms of spending that grew much faster during the recession years were those items directly related to the recession. “Income security” is shorthand for the social safety net –  unemployment insurance, food stamps, SSI, refundable tax credits etc. These items all surged because of the severe recession and huge spike in unemployment. This was exactly what was supposed to happen. But why does the spending myth prevail?

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  • MM:

    Good stuff, I must say. Like everyone else I assumed spending had been spiraling out of control.

  • Charles

    Excuse me, but weren’t refundable tax credits – some truly for income security, but most, as all tax credits, for favored constituencies, and unemployment insurance – those 99 weekers – part of Obama’s economic agenda? How can you ignore them by shuffling them into another column amd then dub that column above reproach? Or ignore the suggestion that as a society we should squirrel away, or at least refuse lavish future commitments, in the good times so we can afford it in the bad times?

  • Charles

    And this is only proof that Keynesian economics is in existence. Government programs expand in a recession? I’d hope so – they were designed that way. (Well, from these numbers we can’t be certain actual government programs expanded. It only measures their costs which could have been assumed by salaries, benefits and administration of the programs). What we do not know is whether it serves its or society’s goals. We don’t know how effective an administrative-burdened, fraud-exposed program operated according to policies proposed within a politicized climate and by workers whose procedures and job stability (and thus, loyalty) are determined by actors distantly removed from the service population. And even if we can find comfort that it’s enough for how – we still haven’t accounted whether the program has a net positive benefit towards the future. Or whether we’ve set them (or their families or neighbors) up for worse outcomes during the recovery or next recession.

  • Blackadder

    We need to distinguish here between the cyclical deficit and the structural deficit. Government revenues have fallen because of the recession, which is making the deficit bigger than it otherwise would be. However, there is also a large and growing structural deficit, which is being driven by increases in entitlement spending. This later problem is what the Ryan Plan aims to solve. You may not like the Ryan Plan (personally I am not a huge fan), but unless something is done to address the structural deficit problem soon we are likely to end up with something even worse than Ryan from both a conservative and a progressive perspective.

    • That “structural deficit” you mention was greatly aggravated by GW Bush’s turning record surpluses into record deficits through tax cuts and unpaid-for wars (and the resulting added interest payments on the national debt). Absent his tax cuts, and if he’d paid for his wars from tax increases, the current and future fiscal situation would look a whole lot better. There’d be challenges, yes, but we’d have a whole lot more options.

      This was, I’m convinced, deliberate. Expand medicare, but prevent any attempt to moderate drug prices with the government’s bargaining power, to make it as expensive as possible in the out years…to nicely set up the argument you always wanted to make: “Gee, we’d like to help those people, but we can’t afford it.”

      Yes we can afford it. It will require sacrifice from us all (including the plutocrats your clients, Blackadder) but we can do it.

    • Kurt

      Government revenues have fallen because of the recession, which is making the deficit bigger than it otherwise would be. However, there is also a large and growing structural deficit, which is being driven by increases in entitlement spending. This later problem is what the Ryan Plan aims to solve. You may not like the Ryan Plan (personally I am not a huge fan), but unless something is done to address the structural deficit problem soon we are likely to end up with something even worse than Ryan from both a conservative and a progressive perspective.

      BA, thank you for those comments, which are helpful to the discussion.

      Yes, it is important to distinguish between cyclical deficit and the structural deficit. And yes, the structural deficit is almost entirely due to mandatory spending rather than any claimed “spending binge” of the last two years.

      While I think there are good policy reasons for eliminating earmarks and Mohair subsidies, those actions are not going to solve the structural deficit problem.

      Like you, I am not a fan of the Ryan Plan. I have my own thoughts on Social Security and Medicare reform (and tax increases are not off the table in my thinking). But hysteria about a phony spending binge does not help in getting us to the place where we can have an intelligent discussion on that. I appreciate your efforts to move us to that point.

  • I don’t have anything to add to the discussion, but I do have a request. Could you add a share widget to the bottom of your posts? (If you look at my blog, you’ll see what I mean.) I’m going to tweet this, but it would be so much easier to do if you had that widget.

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