Discretionary spending over the next ten years

Drawing on Chris Edwards, Will Wilkinson relays the picture:

Believe it or not, some people are flipping out over this outcome.  Do read Will’s entire post.  And for Tea Partiers out there: is this the best the nuclear option can get you?  I’d say rethink your theory of public opinion.

For those who want it, a rescaled graph is here, it still goes up!


My theory of public opinion is that the most of the public doesn't have an informed opinion about the federal budget.


This, please. No trend, crap axis manipulation... when does it end?

I don't see what the big deal is. Use your powers of abstract thought to imagine what it would look like if the Y axis started at 0. Do you also find it misleading that the X axis doesn't start at year 0?

It might actually be quite illustrative if the X axis started a lot earlier, but you're right about mentally visualizing the non zero axis.

This chart would be better if it showed percent changes. It starts out at near zero, picks up to 1.8%, then increases beyond 2.2% before falling a bit in 2021. This is also in nominal dollars. Assuming inflation remains about 2.2%, this is basically a spending freeze for ten years on discretionary spending. Since labor costs are the largest component of most budgets, this is likely a pay and hiring freeze for a decade.

We all know, however, that non discretionary spending is the problem.

If revenue growth is strong, This could be moderately effective in reducing the deficit. But we're looking at tepid revenue growth for several years, and there's bound to be another recession in there somewhere.

I have read in my local NJ and PA newspapers about the effect of these Draconian cuts on the most vulnerable in society. Where is the shared sacrifice?

This is my favorite talking point of all time, because it describes accepting less of other people's money as "sacrifice."

Taxpayers are already sacrificing to the tune of more than $2 trillion per year.

If my math is correct it's a CAGR of 1.9% from 2012 - 2021. That's are very low number given historical inflation of 3%.

The graph contains one of the deadly sins of good data visualization. The y axis starts at $900 and runs up to $1,300. That makes it "look" like thr growth is meteoric, when, as Bryan points out, the actual CAGR is relatively low (1.9%). Now, one could argue that the CAGR needs to be lower, or that it needs to be negative, to shore up the long run fiscal health of the nation. But just eyeballing the graph would lead you to conclude that the CAGR is well above 1.9%.

If the y axis started at $1,040, and ran up to $1,240, it would look like even more rapid growth. But the numbers wouyld be the same.

It's reasonable to point out this feature of the graph, but that doesn't make doing the graph this way a cardinal sin.

For presentations to the lay public, it's probably usually a good rule of thumb to make the y axis start at zero, in order to avoid misconceptions about the scale of variation. For presentations among subject matter experts, it's probably a good idea to scale your y-axis to a narrow window around the variation of the data, in order to allow values to be read off as accurately as possible.

Even for presenations to the lay public, the y-axis-at-zero rule shouldn't be absolute. Would you prefer all graphs showing temperature vs. time to have their y-axis start at -273C, in order to accurately portray the tiny scale of variations in absolute temperature that humans concern themselves with?

OTOH, starting the graph at zero and comparing spending with and without the deal would also have the effect of making the cuts look more trivial, not less.

Yes, the growth looks faster this way, but the size of the cuts also look larger. I'd say it's a wash.

... and your a professional economist selling graphs like this ...

..........and "your" a commentator that needs to improve his English........

I would say that a lot of Tea Partiers probably care little for public opinion. I would think their best effort is likely to just keep the pressure on and force compromises out of everyone else little by little. Moving to the center is not going to advance their goals anyway.

Tea Party = "Spending is too damn high" Party.
wrt http://www.youtube.com/watch?v=x4o-TeMHys0

No way does it look meteoric to me. "Gently rising." The bottom line is that it goes up, not down. Very few are admitting that. Poking at the graph is a distraction from facing up to the basic truth.

Um, lower than inflation and GDP growth and population growth when all is taken into account?

Distraction from facing up to this . . . truth?

This is lying with Statistics.

Some people think spending is much too high now, and would prefer to see it fall 20% rather than go up 20% over the next ten years. Yes, even with inflation and population growth. GDP growth is looking dubious even if we don't drown the economy in debt and inefficient gov't spending.

People also seem to be forgetting what's going to happen to mandatory spending as it stands now.

Are the people who are forgetting about what's going to happen to mandatory spending the same as the people who think spending is too high now?

Probably not, since the one has implications for the other.

Have you ever seen a poll of Americans on the federal budget. Nothing is surprising.

Um, nobody care what you think about spending, Dave - the graph is a distortion.

I must have missed the optical illusion where it appears to go down. My fault, I'm sure, I never get those Magic Eye things, either.

For those unable to imagine the rest of the Y axis, Tyler has added another link. Enjoy!

TallDave - in real terms, it _is_ declining as has been explained to you above.

As explained below, the CBO does not budget in real terms.

This is discretionary spending - Medicare, Medicaid and Social Security are separate. So why should this spending rise with population growth?
And why should spending rise with GDP? Do you believe that government activities can never ever increase in efficiency? (I admit that history provides some support for this belief.)

Because what matters is that that economic growth outpaces growth in debt.

This will reduce down the Debt/GDP ratio. I have no idea why you guys are fixated on absolute numbers rather than percents and per capita, which is most important.

Yes, spending should not increase 1 to 1 with population, but it will increase with population growth. LIke I mentioned debt can grow with GDP, as long as its less, the burden falls. And last of course, is inflation - even if the government provides exactly the same services as it did last year, this year it will cost a little more. If we can keep the spending increase to below inflation, that is a real decline . . and a good thing.

The premise you guys are working with is that this is bad because the spending doesn't actually go negative in absolute even though by every other indicator it is still a debt reducing move. Sounds like you'd be happier to spend $1 less with 3% deflation than $1 more with 3% inflation. Ridiculous.

The baby boomers are starting to retire. The calls on taxpayers to fund their retirements and health care are going to go way up. While I am in favour of entitlement reform, I don't think we are likely to ever get these payments to zero, or anything remotely close.
So it's not enough for the debt servicing level to be falling as a percentage of GDP per se, I want it to fall even faster, to offset the coming soaring entitlement costs.

And you are also assuming no government improvements in efficiency. We know that technology is improving, we know that other sectors of the economy over the decades have managed to find efficiency improvements to reduce their real costs. Why can't government? There's no inherent laws of physics that governments should always have to spend more to do exactly the same as it did last year - it's entirely plausible that the reason that government productivity keeps falling is that it's always been easier for them to raise taxes and/or increase deficits than pay the political costs of making efficiency improvements. But (see aging population), we're past that easy stage. The government should be finding efficiency improvements.

As for your comment about preferring deflation rather than inflation, I don't know where you got that from. I'm certainly no fan of hyperinflation, but that hardly means that I support deflation, after all, deflation will *increase* the cost in real terms of servicing debts. In my way of thinking, that's bad for the government accounts, not good. I think you need to do some more work to convince me of the truth of your hypothesis.

Why does it matter that it goes up starting with 2012? Especially if it goes up by a percentage less than inflation? If you add in 2010 and 2011 discretionary spending, isn't spending in 2021 still lower?

Yes. Apparently discretionary spending in 2010 was $1.3 trillion.

And if you add in 2000 to 2009 discretionary spending, it's gone up quite a bit, adjusted for inflation (and population). It is easy to play games with endpoints.

Certainly you can justify extra discretionary spending thanks to the recession, but surely the economy will be out of this recession by 2021? (Perhaps in the next one, of course.)

Discretionary spending for 2009 was $1.21 trillion and for 2008 was $1.114 trillion. Adjust those two years for inflation and population and I think they're both going to be higher than $1.234 trillion in 2021. I can't quickly find data for years before 2008.

Apparently discretionary spending in 2010 was $1.3 trillion.

So the stimulus and the TARP and the bailouts are the new normal, not one time things?

If you think the graph is not deceptive, then show it with the y axis beginning at 0.

Having a graph that begins at 900 and relies on eyeballs of the uniformed "is a distraction from facing up to the basic truth."

Show both graphs--one and zero and one beginning at 900 (or if you want, you could begin ay $1043.

Also, what is misleading from a single item bar graph is that the composition of the graph (that is, the mix of federal spending) is constant; in fact, SS and medicare will increase during this period--which is a great surprise, because NO ONE ever anticipated that the baby boom generation, which contributed to SS and medicare, would ever grow older. So, show it without SS or medicare.

Strike comment about ss and medicare re graph since graph refers to discretionary spending in title.

Boo hoo! This ain't no Keynesian disaster, sorry people.

Who is this "Keynesian disaster" comment directed toward? I ask because most of the people declaring that this is the end of Keynesianism that I've seen are conservatives because of the circumstances under which this bill was passed. On the liberal side I've mostly just heard cutting spending is bad right now because it'll make a bad economy worse. I can't recall seeing a liberal complaining about the bill because it was the death of Keynesianism, but that could be lack of exposure on my part.

Dick Durban for one: http://www.huffingtonpost.com/2011/07/31/durbin-debt-deal-keynes-deficit_n_914356.html

The graph isn't red enough.

I just noticed the X axis doesn't go to zero, either. For shame!

Objection sustained. A misleading graph does not become acceptable when it is produced by a smart person.

Did you mean Boo Hoo for the US?

Some Keynesianism unless you mean it as an illustration of fiscal drag

From Calculated Risk quoting a JP Morgan report:

"Impending fiscal drag for 2012 remains intact. The deal does nothing to extend the various stimulus measure which will expire next year: we continue to believe federal fiscal policy will subtract around 1.5%-points from GDP growth in 2012. Its possible the fiscal commission could do something to extend some measure such as the one-year 2% payroll tax holiday, though we think unlikely, as it would need to be paid for, which would be tough. If anything, the debt deal may add modestly to the fiscal drag we have penciled in for next year."

Here's the link: http://www.calculatedriskblog.com/

So you're actually defending an avoidably misleading graph? I'd say "rethink your theory" of how stupid your readers are.

Tyler it goes down in per capita real dollars. Not up. You are wrong, period.

The CBO scores budgets in nominal dollars, complain to them.

I don't think anyone budgets in per capita dollars.

The CBO can budget however it wants, it is misleading to suggest that an expenditure is going up over time without an inflation adjustment or a comparison to inflation. If you want to stick to CBO numbers, you could plot the grow rate of the tax base in nominal dollars.

The US population grows at about 1% per annum. Government expenses and revenues should grow similarly, cet. par. How would you account for this?

"The US population grows at about 1% per annum. Government expenses and revenues should grow similarl"

Says who? You are making the incredibly big assumption that spending levels are at an optimum level.

It is also an incredibly big assumption that spending should not increase with inflation and population.

Why should government expenses grow with population growth? Haven't you ever heard of efficiency improvements? (Of course, as revenues rise as the population and economy grows, and it's generally easier in the near-term to raise deficits than to increase government efficiency, we typically see government efficiency falling, not rising, but that's a bad thing, IMO.)

Well, make up your mind. Can the CBO score budgets however it wants, or is it misleading everyone?

No, gov't spending should NOT grow with population, it should be tied to economic production. That kind of thinking is how we ended up here, with total gov't spending at 40% of GDP and $1.5T federal deficits, and a doubling in nominal dollars since 2001.

@Anonymous Coverage Attorney

Does defense spending need to scale with population? Do we seriously need to scale up our defense spending based on the number of people in the US? If so... well, why? It's not like more people in the US mean bigger borders to cover or more aggressive enemies to defend against.

If not, why do you automatically assume we need to do this for all discretionary spending?

Not everything will scale up, but something will. Defense spending probably shouldn't increase b/c of population, but it probably should b/c of inflation. Whether you think it should because growing wealth might tempt others to take what you have is probably a judgment call. [But even with defense, I don't think that simple across the board cuts make sense. What makes sense is asking what do we want our military to do with limited resources. Is being able to fight two wars at once a reasonable goal? If one war at once is more reasonable, then we can decide what our forces should look like, and budget accordingly.]

I was thinking more along the lines of social safety net. More people on WIC, for instance, can lead to some saving via economies of scale (I guess) but also more children needing food, and more case files to be monitored to reduce fraud. In insurance, techology allows for adjusters to handle more cases, but there is still a point where the insurer loses money to fraud if the adjusters have too many cases to keep track of.

According to About.com

Discretionary spending in FY 2010 was $1.3 trillion, or 38% of total spending. More than half ($815 billion) was security spending, which includes the Department of Defense, overseas contingency programs and Homeland Security.

Non-security spending was $491 billion. The largest departments were: Health and Human Services ($84 billion), Education ($64.3 billion), Housing and Urban Development ($42.8 billion) Justice ($27.6 billion), and Agriculture ($25 billion). (Source: OMB, Table S-11)


I'm unclear whether or not the military figure includes or doesn't include Iraq and Afghanistan. Clearly the military figure is linked to inflation (if oil goes up, fighter jets don't fly on empty tanks). The other side is clearly linked to population (adding 3 million people means more crime, more food being grown, more housing units etc.). Efficiency is not an automatic savior here. A more efficient Justice department may prosecute more people per prosecutor, for example, but that means more spending as you have more convicted criminals in the justice system. A faster computer system to apply for crop subsidies may mean the agriculture department may be able to lay off some data entry clerks....but if 300 more farmers decide its not so bad filling out the paperwork to get a modest subsidy there goes your savings.

Food and housing units are matters for the private sector, not government.
I agree that efficiency is not an automatic saviour, noticeably every study I know of that has looked at government spending on a programme has noticed falling efficiency over the decades. An efficient justice department may successfully prosecute more people per prosecutor, that allows the option of decreasing time spent in prison, while still maintaining the deterrence effect against crime (stabbing one's toe only hurts for a moment, but because the linkage between action and pain is very immediate, even the very stupidest of us rapidly learns to avoid doing it intentionally, excepting some dire circumstances).
As for increasing efficiency with agricultural subsidises, that's the easiest way to get savings. The subsidises should be cut entirely, achieving over 100% efficiency savings (along with the direct savings to the government, the farmers will be spending their time doing something more useful to society than filling in forms applying for the subsidies).


I think a point is missing here. If you're going to have housing subsidies or crop subsidies their cost is a function of population. If population increases 1% per year and your total nominal spend increases 1% (assuming 0% inflation) then you're holding spending level. Otherwise you're cutting. Now if you want to propose a bill to abolish subsidies entirely then go ahead.

There is no inherent reason why housing or crop subsidises should be a function of population. The government could make them a function of income inequality, or a function of rainfall, or a function of the precession of the equinoxes, or etc, and thus have them vary independently of population. Or, in my preferred option, it could eliminate them, entirely. It may be that as a matter of law, housing and crop subsidises are a function of population, but we are not talking about a law of physics here, this aspect of the world can be changed.

Taking your hypothetical case of a 1% rise in population, 0% inflation, and a 1% rise in spending, I would call that a rise in spending. After all, it's gone up by 1% in real terms. You are certainly free to use language how you like, but I think your proposed terminology, where rises in real spending are called "keeping it level", and what I would call keeping it level is called "cutting" is confusing, and I notice you haven't made any argument why it would be in my interest to adopt such a set of definitions.

Not being a member of the US congress or Senate, and indeed not being a US citizen or resident, I don't know how I would propose a bill. I'm taking part in this debate because it interests me intellectually.

They aren't a function of population. Spending, for example, on crop subsidies doesn't go up 1% just because the overall population goes up 1%. It goes up based on those that apply for whatever the subsidy program is who meet the qualifications. The question is assuming you're going to keep the program what is the best way to estimate its cost ten years out? For many things population growth plus inflation is probably the most efficient way to draw a baseline.

An efficient justice department may successfully prosecute more people per prosecutor, that allows the option of decreasing time spent in prison, while still maintaining the deterrence effect against crime

1. Prosecutors cannot change the sentencing laws simply because they claim their increased prosecutions have produced more deterrence.

2. The above is probably wishful thinking, more efficient prosecutors would not only prosecute more people per unit of time but also seek more aggressive sentences.

3. More importantly we are missing a measure of utility. Suppose a group of 'more efficient prosecutors' suddenly break up a lot of credit card identity theft rings saving the economy $1B per year....but this team consumes $300M in added spending (factoring in both the cost of the prosecutor, courts, appeals and prisons). Society as a whole is $700M better off. But the Federal Budget is $300M worse off making eliminating that division a tempting way to 'fix' a budget hole. Even if you consider that the Fed. gov't nets maybe 25% of GDP in taxes, the budget is still $50M worse off for the program ($1B in avoided costs times a tax rate of 25% = $250M to the Feds less $300M in costs....not that the CBO or anyone could possibly forecast at this level of precision).

Boonton: They aren’t a function of population.

Good, I am glad I convinced you of that. And I admire your willingness to change your mind when presented with evidence you are wrong.

It goes up based on those that apply for whatever the subsidy program is who meet the qualifications.

This depends on how the relevant law is written. For example, the government could write it along the lines of as "total spending on this programme will be x, to be divided amongst successful applicants according to the following rule..." Indeed, the government could write it as total spending being obliged to be reduced by a set sum each year. (IANAL, so the exact wording might need to be slightly different).

For many things population growth plus inflation is probably the most efficient way to draw a baseline.

Nope, adding in population increases the risk of an arithmetical error and risks giving the casual observer the false impression that spending has to rise with inflation. This makes adding in population less efficient than just calculating it as constant in real terms (obviously, sometimes we do have better information, eg we can estimate the number of people over 65 in 2020 reasonably accurately now, and in those cases we should use it, I only object to adding in population growth to normal government spending).

As for the criminal law:
1. Yes, prosecutors can't change the sentencing laws. The govenment can. I'm talking about the government as a whole system here. Yes, prosecutors might seek more aggressive sentences, but that doesn't mean that the government has to grant them.
2. Yes, there may be good arguments for, in any single case, increasing government spending on something. What I was criticising was the idea that government expenses necessarily grow with poulation growth. In your case of the more efficient prosecutors, the government could decline to spend any more money, and just take the gains in prosecutions achieved with using the existing pool of money more efficiently. There is no law of nature obliging government spending to keep rising in every single case.

That said, I am inclined to agree with you that there are strong pressures against efficiency gains actually being achieved by the government. Indeed, right the way through, I have been noting that the opposite occurs in reality. I am not optimistic about the chances of governments actually finding these efficiency gains. But on the other hand, at some point investors will stop lending more money and the government will have to make some tough decisions to do some combination of raising taxes/cut programmes entirely/force efficiency savings to be found. It's only a lack of political willpower that stops the efficiency gains from being converted into actual lower prices, there's no law of nature that says that they're impossible.

Could you please resize the graph so the axis starts at zero, rather than 900?


And show it in real, per capita dollars?

Can I pay my 2021 taxes in their 2011 constant-dollar equivalent? Or do I have to use nominal dollars?

Probably CBO scores budgets in nominal dollars for a reason.

You are welcome to happily recieve your wage in fixed nominal dollars for the next whatever dozens of years.

Probably it does not matter how CBO scores budgets. What matters is economic essence. And when an economist presents a graph designed to distort the aforementioned essence in layman's eyes, it's sad.

The correct answer is no. All real transactions are in nominal dollars.

Probably it matters if you're graphing CBO projections and spending in nominal dollars.

If CBO gave an estimate in inflation-adjusted dollars, it would then not be showing the actual amount to be spent in those years, so that would arguably be misleading as well.

I can see the argument for using real dollars, but not using them isn't inherently misleading.

The graph shows that real per-capita spending on "discretionary" programs will decreases at a modest rate over the next ten years. Whether this is a good or bad idea as a policy perspective, Tyler is right that it is not a Keynesian disaster, and that is an important point to make.

However, that is obviously NOT the message that the graph was meant to convey. The average person will take from the graph that we are going crazy with out-of-control "discretionary" spending, and we need to cut it right now to get our fiscal house in order. The average person won't adjust for inflation or population growth, probably won't remember that entitlement spending is growing much more sharply over the same period, and might not even notice that the y-axis starts at 900. The average person wlil be seriously misled by this graph.

So I agree with those that say that Tyler should not be promoting this graph.

The average person does not read MR.

True, this was only a small cut in the rate of growth, but remember this was only one debt ceiling vote. There will be more.

I do think the Tea Partiers' focus on the BBA is misplaced. What we really need to do is get off this godforsaken baseline budgeting bullhooey.

Especially since the BBA is certain to make government larger as increasing "innovation" is employed to get around the restrictions.

Anyone want to make the claim that the California balanced budget requirements and caps on taxes and the supermajority vote to hike taxes has made California government spending smaller or better in any dimension that looks at the totality of California government spending? (ie, smaller/better in terms of growth rate, efficiency, fairness, positive impact on the economy,...)

And can anyone argue that Republicans respected weaker forms of budget balancing law enough more than Democrats to convince anyone that a BBA wouldn't be filled with all sorts of tricks and traps to make government bigger by hiding costs like bodies under the rug so the budget becomes a graveyard of rotting corpses?

How did a "balanced budget" that increased the debt every year get transformed an operating deficit of 141B into 561B, a nearly 4X increase in operating deficit in just two years while the fiscal conservative budget wiz Mitch Daniels was in charge of the Bush budgeting?

And this was during a period when a law required a "balanced budget" to remain balanced by requiring any spending increases or tax cuts be match with offsetting spending cuts or tax hikes, and Republicans were the ones seeking an override of the law, so they would easily seek overrides on any BBA when in power.

debt figures from usgovernmentspending.com
2001-2000: 5769.89-5628.70=>141.18B; 2003-2002=>6760.02-6198.40=>561.62B

On the other hand, what business operates without a baseline budget? Name the CEO and BOD that would accept their compensation be negotiated and voted on each year with the shareholders demanding the baseline start at $1.

Assuming we can get Congress to vote to eliminate baseline budgeting, how do we prevent future Congresses from reversing that position?

We make election to Congress punishable by death.

What does your theory of public opinion say about a minority of a minority party's accomplishments after only the first of a series of staggered elections (i.e., the Move-On/Daily Kaus party's exploits between 2004-2006, the Tea Party in 2010-2012)?

Why no data from Reagan, Bush, Clinton, and Bush ?

This looks like a case of quantum facts - by failing to look at the inconvenient facts, they can be viewed as anything you want them to be, just like you can claim Schrodinger's Cat is alive or dead to suit your argument, as long as you never look.

By the way, after looking first at usgovernmentspending.com, I determined that it is impossible to determine an objective view of the data presented because discretionary spending is so nebulous, and in reality not discretionary, that no one ever separates it out that way.

My guess is the FAA inspectors of runways and the money to repair runways is discretionary, implying that spending can be ended without real impact, which is like saying "repairing your car is totally discretionary spending" as if burnt out tail lights, dragging mufflers, non-functional brakes are acceptable by law, because after all, safety inspection stickers are discretionary.

"Discretionary spending" is a category that is entirely about the Congressional process that results in the appropriations, and only little to do with how necessary the spending is.

And for Tea Partiers out there: is this the best the nuclear option can get you? I’d say rethink your theory of public opinion.

If you think that any other tactics were likely to get more, then I'd say rethink your theory of public option and what's politically possible.

The Clinton surpluses and spending cuts/slowing in growth were obtained following a nuclear option and government shutdown. When else have cuts actually occurred?

The government shutdown was bad for *Republicans*, but it was pretty good for cutting spending.

Again, this is very weakly evidenced. The GOP held the House and Senate with minimal losses.

People tend to rememeber the MSM narrative and forget the facts. Years from now we'll still be hearing how the Tea Party nearly made the gov't default on interest payments.

The GOP held the House and Senate with minimal losses.

This is true, IIRC but the party underperformed in 1996 (Presidential as well as House and Senate) compared to what historical models would predict. I'll grant it's weak evidence.

Perhaps I should say that *regardless* of the effect on Republicans, it was good for restraining spending increases.

So to my mind, the evidence is that the only time recently that spending was restrained, it was preceded by one of these kerfuffles.

Hmmm, interesting argument, but shouldn't Clinton have done better than a plurality given the state of the economy?

But I agree heartily with the rest. Here's my favorite graph, which illustrates your point nicely:


(warning: graph is NSFTWCITROTYA)

Although, I hasten to add the second part of your statement is entirely accurate -- if you look at a graph of spending over time as a % of GDP, there's a distinct flatness in the 1990s.

Post cold-war defense cuts played a role; who thinks the next decade will be as peaceful as the 90's?

Re: "who thinks the next decade will be as peaceful as the 90′s?"

It depends on whether you think you have an obligation, duty or interest in intervening everywhere in the world as the worlds free policeman.

It can be real peaceful to you if you let others fight each other. Hell, this attitude might even encourage our "allies" to do their own defense, and maybe they can have more that 58% of their discretionary budget be wasted on defense.

The trendlines point that way. Broadly speaking, the richer and freer everyone gets the less they kill each other.

This. Lacking a Balanced Budget Amendment or similar mechanism to bind future Congresses, threatening government shutdown (which is all the current "nuclear option" actually is) under divided government has been and remains the only repeatedly successful way of cutting or at least slowing the growth of government budgets, state as well as federal.

The surpluses were obtained after raising taxes!

Discretionary spending doubles over the decade starting next fiscal year? Awesome - thanks for the graph!

Everyone defending truncated axis, please read the above comment.

The graph is the graph and as Tyler and the other commenters from the link note this really wasn't much of a cut at all. The cuts will need to be imposed on a year by year basis in any event through the budget and appropriations process. The whole thing can be undone by future Congresses/Presidents so it this makes folks feel good right now, so be it. The big one is a year from this December when the Bush tax cuts are scheduled to disappear. Of course this will be the key issue on which the presidential election will be fought and I think Obama realizes this and will get his pound of flesh (or ounce, who really knows) at that time. If the full cuts lapse, the deficit really doesn't look to bad going forward. As a liberal I was pretty apoplectic about what went on until I really started to think about how it can all play out. Still it would have been more interesting to see the 14th amendment strategy invoked. It probably would have been successful since it's not clear that there would be any parties who would have standing to sue.

If the full cuts lapse, the deficit really doesn’t look to bad going forward.

But hasn't President Obama sworn not to let the full cuts lapse? The portion on the rich as defined by the President is only some one-third to two-fifths of the money, IIRC.

Still it would have been more interesting to see the 14th amendment strategy invoked. It probably would have been successful since it’s not clear that there would be any parties who would have standing to sue.

Would you have been equally interested if a Republican used it in order to auction off government land and other holdings? Surely that's at least as constitutional as issuing more debt.

Looks to me like the other commenters are right. Real discretionary spending is basically going to be flat over this period, meaning that it will fall as a share of GDP assuming that we grow somewhat over the next decade. The chart is very misleading for that reason. If my income goes up over the course of a decade and I'm spending about the same number of real dollars on luxuries, I'd say I cut my spending on luxuries during that period.

What would be a more truthful picture would be a graph showing government expenditures and government receipts (the difference showing a deficit), with an extension showing what receipts would be absent the Bush tax cuts.

For those who wanted more deficit reduction, why didn't they accept the grand bargain of $4 T.

Deficits must not be an important enough of issue to them rather than taxes.

What would be a more truthful picture would be a graph showing government expenditures and government receipts (the difference showing a deficit), with an extension showing what receipts would be absent the Bush tax cuts.

All Bush tax cuts, or just the ones that Obama doesn't want to extend?

For those who wanted more deficit reduction, why didn’t they accept the grand bargain of $4 T.

Because there was no Obama grand bargain. There was Bowles-Simpson and the Gang of Six, but Obama's "plan" was never more than a speech.

That must be what Eric Cantor says.

Real courage to hold out for less deficit reduction because taxes were in a larger package.

Real intransigence is insisting that the politicians you are negotiating with break their election promises.

Realer intransigence is signing a pledge to be intransigent.

That tells you that real politicians who have to live in the real world shouldn't make ironclad promises in the first place if they result in bad outcomes..

How about this: What if AARP or some senior group went to every congressperson and asked them to sign a pledge not to cut social security or medicare?

Would this be a strategy you would endorse. Why or why not?

As you can see, commitment strategies work both ways.

People who play the game of chicken, each driving the car at each other, could each have a commitment strategy to lash the steering wheel to the armrest their car and see if the other blinks. If both have commitment strategies, neither can swerve and neither will have a car or a life at the end of the game.

Well, I'm not Eric Cantor. I wish that Bowles-Simpson had been adopted. But President Obama was just as scared as the House Republicans to actually back that plan.

President Obama's vague rhetoric without a specific plan is just as cowardly as those who call for a Balanced Budget Amendment without simply submitting a balanced budget. It's easy and painless to have these broad goals-- making the specific cuts involves pain and upsetting various groups.

Bill, you're a wacky partisan. I disapprove of much of the Republican stance, and I would rather see Bowles-Simpson adopted.

However, that doesn't mean that I can't find the Democratic Party position worse, or criticism their tactics. It would be nice if you could response without a tu quoque.

John, If you can't address an argument, at least you can call someone a name or do an ad hominem.

Here is what the chart would look like with the appropriate y-axis:


Do look at Josh's graph.

I am ashamed to say I didn't check out the graph -- I really didn't expect it here.

No the appropriate axis is in real, per capita dollars

No. The issue is whether the overall budget is being "cut" as the general voter understands that term, and that means the nominal, absolute amount of the budget, period. If you want to examine other questions then use other terminology.

Way to plot a very clear histogram (sarcasm).

To me this whole discussion is completely bone-headed. The sensible approach is to realize the government does important things, that these things cost money, that the government should be doing other important things, which also cost money, and the government may be doing less productive things, and that money could be better spent doing something else. Then you try to build your coalitions and win support for the things you think should be there, and to get rid of the things you think shouldn't. This gives some outcome and then you set taxes to pay for it all.

Instead you have swarths of people who come with preconceived notions of what percentage of GDP government should be, or what rate of growth it should track, based on nothing but some vague feelings of I don't know what.

If you have some new idea for how to implement centralized auditing that helps identify how each department can perform its functions for less money; great, let's hear that. I see no reason to believe that across-the-board cuts are an effective way to accomplish this. At least given that no one seems to have any clear grasp of to what extent if any government agencies are using more resources than are necessary to perform their functions well.

"The sensible approach is to realize the government does important things, that these things cost money, that the government should be doing other important things, which also cost money, and the government may be doing less productive things, and that money could be better spent doing something else"

Unfortunately "important things" is in the eye of the beholder. You may think the Department of Education is doing god's work, I may think that there is little evidence the money has been well invested. Even if a political program is well executed it will almost always be accomplished with less efficiency than a private sector alternative. One of the reasons the infrastructure stimulus spending was slow and ineffective was the requirement it adhere to the provisions Bacon-Davis Act. Any money spent by the government becomes politicized, held hostage and immune to market forces. It's just a huge patronage system for whoever is in control.

I agree "important things" are in the eye of the beholder. But you get what democracy gives you, and then you have to pay for it.

I think this "efficiency" talk is a red herring. Obviously we're not asking the govt to make cars, for example, because making cars is something we expect the market to do better. We do ask the government to fund roads, and that's because we think this is better. Intelligent people disagree about who can do some things better, like provide universal education, health care, retirement, and so on. But again, we have to live with what democracy gives us, until we can convince a majority coalition that our perspective is correct. I don't know what all the right answers are but I think people who think it's obviously always the private sector are naive.

But my point is just none of this involves a target tax rate or fraction of GDP or growth rate or anything. I think that's stupid. It would be akin, I think, to business school teaching you should spend X % on marketing, Y % on manufacturing, Z % on management, etc. I think it's quite obvious that the optimum values for these things vary from industry to industry, and from time to time. And so it is with government. It depends on what you ask government to do, which itself depends on the social context (time). It might be natural for government to grow just like it's natural for the fraction of revenues spent on management to grow; or perhaps there's innovation and suddenly you want to lay off half your management -- or eliminate or unite government agencies. But these are questions about programs / objectives / functions, not questions about target expenditures.

It's almost surely more natural, from the point of view of the taxpayer, and from the point of view of economic growth (which you seem to be admitting is, generally speaking, most efficiently done in the private sector) for government to shrink. As I've stated elsewhere in these comments, it's pointless to get lost in the weeds of trying to centrally plan the future, to try to figure out how much defense or other kinds of spending we will need in ten or twenty years. What we can do is design constitutional constraints, that will reign in the growth of government and its debt, but that can be overridden by supermajorities in case of urgent need.

Figuring out what government programs work, and which don't is getting "lost in the weeds" because that is "centrally planning for the future"? It is better to set up artificial constraints that stop people from getting their democracy all over your ideology because that's "more natural"? Please tell me you're getting paid to post this shit.

Check out the U.S. Constitution. We're a republic, not a democracy. Our system of government is about dividing and controlling the coercive powers of government in order to protect rights. It is not about the mob rule of majorities voting to loot minorities.

Republic means we don't have a monarch, citizens entitled to vote have ultimate control over the government, and power is mostly (but not necessarily exclusively) exercised by representatives elected by voters. So, yes, genius, democracy is in there. You can even find that democracy stuff in the Constitution, but you would have to actually read it, instead of just parrot whatever you heard Rush Limbaugh say. Notably, "republic" doesn't mean that the government can't tax you and create Medicare because that violates your rights.

'But my point is just none of this involves a target tax rate or fraction of GDP or growth rate or anything. I think that’s stupid."

No doubt, although I'm sure someone would make the case that irrespective of the services being provided, exceeding some level of tax as a percentage of GDP would become counter productive and ultimately shrink the economy. Certainly you will never reduce government to it's essential size by starting with the proposition, you get 20% of GDP-- now what should we do with it.

" But you get what democracy gives you, and then you have to pay for it."

From my perspective this is a big issue. We've constructed a Federal Income Tax system that doesn't charge a good chunk of the population for the "services" they are getting. I think everyone who's working should have to pay some Federal Income Tax, even if it's 1%, just so that they are continually reminded that the services aren't free, or "other peoples money." Democrats are fond of saying that when you poll people they don't want the government services cut but I'll bet the question is never framed "if you had to pay an extra $500 per year in order to...." the sentiment might change. And if it doesn't, fine, at least we'd agree that the service is worth paying for and we would all contribute to footing the bill.

This is one of those proposals that sounds good at a first glance.

The problem is however that benefits and costs of programmes are typically disproportionate. A government employee employed by a programme gets all of their salary from it, a private company getting a subsidy typically gets a large sum of money from it. The taxpayer paying for the government employee and the subsidy though is only paying a relatively small component.
So the government employee and the private company have lots of incentives to run ad campaigns and hire lobbyists, or go demonstrating, against any cuts to the programmes that benefit them. The taxpayer has very little incentive to argue for any specific cuts - each programme costs very little individually, and said taxpayer has a job, and a family, and a household to run, and would like to get some exercise in and catch up with friends too and maybe squeeze in a hobby as well. So the taxpayer is at an inherent disadvantage. And once we start exploring borrowing to pay for programmes, we're talking about the future taxpayer, some of whom are too busy demanding that Daddy play catch, or doing somersaults in Mummy's tummy, to lobby against government spending.

Which is why politicians seeking cuts tend to go for sweeping broad-based cuts, with the intent of setting the lobbyists against each other.

The far more important way the graph is misleading is in suggesting that future Congresses are actually bound to these numbers. Although to be fair Wilkinson does observe that it represents a "hand-waving, non-binding promise."

Yes. I was told we would see cuts. For me cuts in a budget means that the "after" number is smaller than the "before" number. Also, this is all a joke. Almost none of the "cuts" will go into effect until a new Congress and President comes into office. In other words, the current Congress promised that some other guys in a couple years will do.

Honestly, I am starting to understand cap-and-trade a lot more. This whole deal with carbon credits which could be obtained by changing your future plans had never made any sense to me. But now I understand. This is how they do budgets in Washington. They make up a number that is higher than today's number. Then they make it smaller (but still bigger than today's number) and then they tell us that they have just saved money. To me that sounds like lying.

Tyler, from a quick look at your favorite sources of information (NYT and WP) I conclude that they are fully engaged in a fear-mongering-on-spending-cuts campaign. Be aware: You may not receive your check at the end of this month (NYT claims that states will not get federal funds so they will have to cut services). Hope your family will be fine.

Please send them your chart and challenge them to stop playing as servile accessories of their fraudulent clowns.

Today 95 Democrat and 66 Republican Representatives decided that the Economic Apocalypse, that Obama had supposedly scheduled for tomorrow, August 2nd, is a yawner and voted against the budget deal. I agree with them.

I don't see how the y-axis starting point is such a problem. How hard is it to do ( 1200 - 1000 ) / 1000? If you cannot do that in your head you are innumerate! Go back to your public school and demand a refund.

The true problem is that a time series that grows at a parabolic rate was not graphed on a logarithmic scale. Here is a left-wing lunatic that should lose the right to make powerpoint and excel charts, and the ability to copy/paste other people's charts. Talk about a dishonest use of a graph!


I won't be satisfied with cuts until I see entire programs eliminated. Take your pick: direct farm subsidies, trade adjustment assistance, public housing or community development, high speed rail, TSA, economic development administration, etc.

Spending caps and and pay freezes aren't enough. Cut programs, reduce the list of subsidies and tax expenditures, cut federal employees. Actually shrink government.

How about 66% of our "defense/homeland security" budget? Why do we need to be the world police?

I don't think 66% is feasible, but I wholeheartedly support ending the wars, reducing the standing army, reducing the number of civilian employees, closing more bases, operating fewer aircraft carriers, and cutting various weapons/vehicles programs. I think we can get defense spending down from the current $720B to less than $500B.

Well, Becon, don't look for it in this bill. Defense is on the table only for the first two years (for equal sharing as between other programs (even though 66% with DHS of the budget, not 50%); after that, for the remaining 8 years, there is no sharing obligation.


Unfortunately, while cutting the budget in general is very popular, but cutting particular programs is rather unpopular and stimulates the lobbying of a focused constituency, which is far more effective than lobbying of a diffuse constituency (this is basically public choice 101). As a result, to succeed in cutting the budget one must proceed via the popular general constraints, of a constitutional nature that bind future Congresses to make particular cuts.

I agree.

Many argue (and maybe rightfully so) that general constraints ignore the growing population and leave the government underfunded and understaffed to serve the public in its assigned functions. If we're going to continue operating thousands of departments and thousands of subsidies/expenditures/grants, then I think the critics of general constraints are right. We are doing a disservice to the public by offering a thousand poorly functioning/funded agencies.

I don't have a solution. I'm just lamenting the reality of it all.

Government programs have almost always been astronomically underfunded and understaffed versus what would be needed to achieve the astronomical aspirations of the people who support them. With the possible exception of some very simple programs like Social Security, there is no way to come remotely close to making them efficient and it is tilting at windmills to try.

If we put strong (constitutional) constraints on future federal budgets, many of these departments will be eliminated or merged, their functions privatized or turned over to states or localities, but to worry about these details now is to (1) play a losing game against focused lobbies, (2) pursue unachievable efficiency goals, (3) pretend to be prophets who can centrally plan the future, and (4) lose sight of the forest for the trees.

>is this the best the nuclear option can get you?

With the current retard we have as President? Yes. Yes it is.

Wait-- I thought Dubyah was the retard? Did we make the same mistake twice?

I guess it turns out raw intellect and the dulcet tones of a master orator are no substitute for experience.

So your opponent was an imbecile and you couldn't do any better? You do see how that doesn't really work in your favor in this instance, right?

What is wrong with you people? No wonder your political system is this dysfunctional if some of the smartest econ nerds get this riled up over a simple graph. The graph may not be ideal but that's not the point. The point is that spending goes up whilst people are talking about 'draconian' cuts. The American definition of a cut is unique in that cuts are defined as spending more than previously but less than wished for. That's the issue here and not whether the Y-axis was drawn by some student from a Detroit public school.

There was a choice made in how the graph was drawn, don't ya think.

I don't think it was by accident.

So, what does that tell you.

It tells me you don't realize these are CBO numbers.

Oh, I should have used Tea Party numbers.
It's just that both Republicans and Democrats use CBO numbers for the reason that your comment illustrates: you can create a separate universe where only your base 6 numbers are counted.

No one complaining about this graph ever complained the size of the cuts was exaggerated using nominal dollars.

What does that tell you?

US Defense spending was about $800 billion in 2009, which is more than double the 1989 Cold War peak ($341 billion) and over 8 times what it was in 1945 at the peak of World War II ($94 billion).

That claim about defense spending is ridiculous because it's based on a silly way to use numbers (total nominal spending), and the graph in this post uses numbers in the exact same way. As ed and others have pointed out, of course you'd expect total nominal spending to go up over time in a country with inflation, population growth, and productivity growth.

Some people would assume that growth of government must keep up with growth of the economy. Others would not. Even if you did, you still wouldn't expect this growth to be called a "cut".

US Defense spending was about $800 billion in 2009, which is more than double the 1989 Cold War peak ($341 billion) and over 8 times what it was in 1945 at the peak of World War II ($94 billion).

How does that match up when you take inflation into account? I think I can remember when comic books cost a dime, and candy bars likewise. So by the five-year-old metric we've had around 1000% inflation in my lifetime.

Anyway, by Parkinson's Law, bureaucracies tend to expand at about the same rate no matter what. And the US military is a bureaucracy, so why would that not apply to them?

In a way we're better off to let them expand at the same rate no matter what, because if they have to have a war to expand the budget, they will have a war.

You can still buy candy bars for a Bit-dime (0.1 Bitcoins).

US Defense spending was about $800 billion in 2009, which is more than double the 1989 Cold War peak ($341 billion) and over 8 times what it was in 1945 at the peak of World War II ($94 billion).

That claim about defense spending is ridiculous because it's based on a silly way to use numbers (total nominal spending), and the graph in this post uses numbers in the exact same way. As ed and others have pointed out, of course you'd expect total nominal spending to go up over time in a country with inflation, population growth, and productivity growth.

Why would you expect defense spending to go up with population, productivity growth?

Indeed. One would in fact expect defense spending to go up or down with the defense spending of potential enemies, and according to the presence or absence of actual war. Which may not bear much relationship to one's own population or productivity growth.

Three reasons for defense spending to go up with wages and population
1) Baumol's cost disease: Soldiers pay goes up with prevailing wages, not soldier productivity because we have to pay soldiers for their opportunity cost of labor.
2) We have more stuff, live longer, and are richer, so we should demand a higher quantity of the public good of national defense. No one thinks it odd that environmental spending goes up when we get richer even though clear air is a public good
3) Spending (or at least defense outputs) by our allies declined significantly, so if we want the same quantity of defense we have to spend more.

One Eye, Re your comment: "Spending (or at least defense outputs) by our allies declined significantly, so if we want the same quantity of defense we have to spend more."

Why do you suppose that happened and is increasing our defense spending the answer to it?

Baumol’s cost disease: Soldiers pay goes up with prevailing wages, not soldier productivity because we have to pay soldiers for their opportunity cost of labor.

Given the prevailing unemployment rate, the opportunity cost of soldiers' pay is not high.

Many of them would be unemployed if they lost their military positions.

Except, of course, that they get preferential treatment for government jobs etc, because they are veterans. I guess that preferential treatment increases their opportunity cost to stay.

Why? Wouldn't productivity growth imply lower spending, all else being equal, as the government got more efficient at doing the things it did in the past?

(Of course every study I have come across indicates that government productivity has been going down over time, but I'm inclined to think this universal tendency is because it's politically easier to raise-taxes/increase-borrowing/pass-feel-good-laws-that-impose-more-bureaucracy than actually improve productivity - so I'm all in favour of leaning back the other way, hard).

The graph is fine. The average MR reader != the average man, and MR shouldnt write like we are. That being said, I think the very simple point being made was we hear the "the sky is falling" meme from a significant part of the commentariat about the cuts, but in fact what should be remembered is that they arent actually "cuts." They are simply reductions in the planned rate of growth. The merits of that point are another argument of course, but i think it is a valuable point to remember in all these conversations. Every "cut" we talk about is actually just a smaller increase than planned.

So, what you are also saying is that the deficit meme was also fiction, since it was based on the same projected spending.
That's interesting.

How would you get there from my post? I am simply stating that projected cuts are not actual spending decreases, just smaller spending increases. Im not saying anything mind blowing here...

John, Simple. The argument made for deficit reduction was that projections showed that the deficit was getting out of control.
Now you say projections are meaningless when they are acted upon, but not when they are made.
As the Greek philosoper once said: "No man differs more from another than he does from himself at a different time". This was a really fast change.

"I’d say rethink your theory of public opinion."

I am not for sure what you are implying but I think it amounts to something like. Public opinion won't tolerate spending cuts. This may be true. If so, the tea party will be soundly defeated in the republican primaries or the next election. As far as rethinking. What is to rethink. They want spending cuts. Not, spending cuts unless they can get something else, just spending cuts. Either they will get public support for this goal or they won't.

As far as, "is this the best the nuclear option can get you?" The tea partiers aren't even a majority of Republicans. Still, they managed to change the entire debate about the debt ceiling from an automatic blase event to one of national importance.

Granted, all they got for it was a typical establishment song and dance, which is exactly what they would have got without the debate. Either the debate wins them converts or it doesn't. Clearly, they have to get larger if they expect to implement real change.

Still, it hardly makes sense that not fighting for their position will make it likelier to happen which is the only other alternative. Didn't you hear the Democrats whine that Obama wouldn't fight? Few tea partiers have this problem since nearly the entire media insisted they were crazy for sticking to their guns.

About the only strategy to the whole platform is deciding what other baggage they will tolerate with any particular candidate. In other words, what other factions of the Republicans should they be associated with. (the religious right, the neocons, etc.) Since the tea party is soo decentralized these factions already overlap, and it is unlikely this will be planned out but rather be more of a matter of personal charisma and the records on spending of the individual candidates.

It is not clear that the tea partiers are a large enough faction to pick the republican presidential candidate. I would say that Romney is not a tea partier, and he is currently leading the pack. Time will tell.

I'm kinda amazed how many people are acting like this is the first time in history anyone has drawn a graph starting at coordinates other than (0,0). This isn't even the worst offender, as the Y axis is clearly marked and the exact numbers are actually *written over each of the individual bars.*

Is it a misleading, at first glance? Sure. But here's the thing -- almost every graph is at least a little misleading. If you've made it this far in life and haven't learned to carefully check the axes, I don't know what to tell you.

I assume everyone objecting made the same complaint about the CBO estimates of the spending cuts, which would be similarly exaggerated using nominal dollars.

What I find hilarious is that some of the same people who've been complaining also want Cowen to invent a future inflation rate and use it to deflate the nominal spending cap.

At 5% nominal GDP growth, works out to a 25% drop in spending as a percent of GDP over the period shown. Unfortunately can't post a graph in comments.

The purpose of the GDP is to make everything look small by comparison. Thus, as Americans work half the year to support their corrupt, unresponsive, inefficient local, state and federal governments (and a growing army of retired government workers), people like you point at the GDP and tell them what a bunch of slackers they are.

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Is there a graph that incorporates inflation appropriately that advocates of that position would suggest?

Also, we are spending a lot of electrons over whether this is a microscopic increase in spending or a microscopic decrease in spending. Isn't the larger point that relative to the debt it's a microscopic change? If this is the end of the world, what would people be saying about a $4T-$6T "grand bargain" type arrangement that would actually bend the curve? Are people really complaining about the horribleness of the deal or are they complaining about the politics that accomplished almost no spending cuts but didn't require equally insignificant tax increases? Guys, there's a lot more substantial discussion to be had. This is not a big deal along any axis I can see.

This is about the dog that did not bark in the night.

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