The path of government spending

Matt Yglesias posts this chart, which I am happy to endorse, alternative scaling here, and related material from Veronique de Rugy here.

govtspending

The real problem comes about ten years out, due to aging. It’s still the case that, when it comes to fiscal issues, turning on a dime can be very difficult.  In the meantime, it may appear, at times, that not much is happening, but these will be a very critical ten years.

Comments

The alternative (log) scaling really is nice. Someone once remarked that the way to determine that you are in a bubble is that the asset in question was increasing faster than exponential (i.e dx/dt > exp(x))...or plotting it on a log scale and seeing if the price bends concavely.

Thanks, this is what I was going to say!

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This isn't adjusted for population or demographics. One of the few times a Mercatus chart looks better, which can be found in the Rugy material if you click through the sources. What you can see from that is the significance of Medicare when it is broken down and going forward. Bring on the death panels.

Here is one based on population:

http://research.stlouisfed.org/fredgraph.png?g=fuy

Looks different than the Mercatus adjusted for population and demographics. See Rugy above and search chart. Am out of country using IPad and have difficulties linking.

Bill, I highly recommend the link 'buddyglass' included below. I think this gets at your issue.

Is what it is showing that, controlling for population, but not age distribution, expenditures are falling despite increases in Medicare and social security.

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Wait... I know another chart that looks like this!
https://www.google.co.uk/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:USA&dl=en&hl=en&q=us%20gdp

I'm not sure what question this chart is answering. If we are asking "how much has the government spent?" then we need to adjust for inflation. If we are asking "how affordable is government spending?" then we need to look at how it compares with GDP. Can someone explain to me what this chart is supposed to show?

Seems to me that this chart shows that spending surges under republican administrations.

It takes a lot of spending and tax cutting to ensure big enough bathtubs for the rich to drown their money in.

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Or you could look at who controlled the House, which, you know, holds the purse strings.

A better lesson might be that divided government works best.

Its funny that spending is the house's fault under republican administrations but not under democratic ones.

If your implying that our current divided government is working, I would suspect you are smoking crack.

It's funny that blindly partisan jerks struggle with simple ideas. If there are enough of them out there, this country may be brought to its knees.

Note that Republicans controlled the House in 2000-06, which was prolly the most egregious government fail in my lifetime.

If you've been trying to suck money out of the government the past couple years, I can see why you think things aren't working. I interpret the recent flattening in the charts as positive.

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BD - "I interpret the recent flattening in the charts as positive"

Is this because you simply dont like government spending or because you think cutting government spending is expansionary policy? To think that after the recent European experiences seems crazy to me. You could stretch and make the case for Ireland, Estonia, but thats about it, and, that is even far from clear.

This obsession with debt is absurd. Millions of people are unemployed today, yet instead of that you worry about the possibility of a problem at least a decade from now. This is 1937 all over again. Why not borrow at the cheapest rates in a long long time to rebuild infrastructure we know has to be rebuilt anyway, all the while reemploying people who are out of work? Pettiness aside, I simply dont understand the obsession with debt problems decades from now, when millions of people are unemployed today. Get those people back to work and the majority of the problem withers away. At that point, we focus on the debt.

This is like a person having a heart attack worrying about whether they might get lung cancer some day.

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@RA,

It's not 1937. (I would say the same thing to the "you can't appease [insert unruly dictator]!" crowd. I swear, the 1930s are the hallmark decade for 'overlearning' the lessons of history.)

5.3 new private sector jobs since February 2010.

There are always millions out of work. Sad, but true.

If splashing money around like a drunken sailor is all it takes, why didn't the huge increase in real per capita government spending under Dubya save us from the Great Recession?

Ultimately, the private sector has to pay for the public sector. I know there are feedback effects back and forth, and these can be used to obscure this fundamental truth, but poor countries, without a developed private sector, do not enjoy the lavish public sector spending that rich countries do. The money just isn't there. If the ratio of public to private gets to big, uh oh. My simple worldview.

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'Or you could look at who controlled the House, which, you know, holds the purse strings.'

At a minimum, when it comes to military spending, I thought the only strings the House was aware of were puppet strings.

Or is it just gauche to note that more than half of all federal discretionary spending is on the military?

Maybe because that's one of the few true public goods.

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Oddly, a certain former 5 star general would disagree with you, having said this -

'Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense.'

Even more oddly, a single nation spends not only 50% of its federal government's discretionary budget on its military, it also spends 50% of the entire globe's military budget.

And somehow, this reality always finds its defenders.

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Curious what Germany would have looked like had the US launched a few fewer warships and built a few fewer guns.

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@Anon

I think you mean "if Russia had fewer people".

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All government spending is discretionary. Just because Congress uses its discretion to passively accept spending based on predetermined formulas, it doesn't mean they aren't exercising discretion.

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"discretionary" is doing all the heavy lifting in that last sentence.

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Well, my point was supposed to be about how numbers are presented (in this case misleadingly) rather than party political point scoring. But for the record: yah boo! Republicans suck!

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This chart should be titled: "In Defense of John Boehner"

Or maybe Dingy Harry. No budget = continuing resolutions = hold spending constant.

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I think the title should be "Hello... Deficits Surge Under Republican Administrations and Slow Under Democratic Administrations"

Note the upticks from 1980 - 1990 (republican), the slow downs from 1990 - 2000 (democrats), the uptick from 2000 - 2009 (republican) and the only decline on the entire chart (democrat).

Who are the big spenders?????

If the president determined all federal spending levels, you'd have a point, except congress plays the largest and most significant role by setting budgets. So lets look at these upticks ignoring other extraneous factors:
1980 - 1990 (largely democratic congress, uptick)
1990 - 2000 (republican congress for much of it, slowdown)
2001 - 2009 (one party rule by republicans, there be dragons)
2009 - 2011 (one party rule by democrats, looks like an uptick too)
2011+ (the "Grand Obstructionist Party", as many partisan lefties like to call them, enters the scene. Massive slow down)

The big spenders? A party with unchecked power are the biggest spenders.

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As long as "total expenditures" is a cash-based, or quasi cash-based figure, we aren't going to get far by looking at this chart.

Once we include non-cash items, such as the annual increase in entitlement liebilities, the conversation can begin.

government taxing authority blah blah blah cash basis hand-waving blah blah blah governments aren't households yada yada

facts - blah blah blah; science - blah blah blah; education - blah blah blah; research and development - blah blah blah; climate change - blah blah blah;

None of that crap matters because tax cuts on the wealthy, deregulation on the banking industry, and discriminating against homosexuals is always the answer.

Ladies and gentlemen- Rip Van Winkle awakes, not up to speed.

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Well, there is also this perspective - via calculated risk, with accompanying graphic at http://2.bp.blogspot.com/-9I76C7fG0Uk/URFrzEyOGvI/AAAAAAAAYUE/_QXguWW4W18/s1600/DeficitCBO.jpg -

'Here's a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it's falling now without a coincident recession.

To be specific, CBO expects the deficit to shrink from 8.7% of GDP in fiscal 2011 to 5.3% in fiscal 2013 if the sequester takes effect and to 5.5% if it doesn't. Either way, the two-year deficit reduction — equal to 3.4% of the economy if automatic budget cuts are triggered and 3.2% if not — would stand far above any other fiscal tightening since World War II.

Until the aftermath of the Great Recession, there were only three such periods in which the deficit shrank by a cumulative 2% of GDP or more. The 1960-61 and 1969-70 episodes both helped bring about a recession.'

http://news.investors.com/blogs-capital-hill/021213-644063-chart-should-embarrass-deficit-hawks.htm

Notwithstanding the above, CBO also projects GDP growth of 3.4% next year. That's pretty far above my estimate, how about yours? CBO projections have their uses, but the "CBO says the deficit is shrinking way too fast" school needs to take the weirdness of their models into account. http://cbo.gov/publication/43914

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ooohh, chart day!

here's a relevant one from this week: http://www.federalreserve.gov/newsevents/speech/yellen-figure3-20130211.jpg

text recommended too: http://www.federalreserve.gov/newsevents/speech/yellen20130211a.htm

But back to the long-term, which seems to be the implicit point of the post: I find discussion of the level of government spending unhelpful when not tied to some objective (absolute or relative). I agree with Bill above that the Medicare/health care is our most pressing long-term fiscal challenge. I would rather push for a Watson solution (weed out the 'waste' from mis/un-diagnosis and give health care providers tools to reduce guess work and help patients with compliance), of course reforming malpractice, and addressing the multi-payer mess would help too. NONE of that is guaranteed with across the board cuts in funding. In fact, I bet we end up with even worse responses, like let the new medical staff go, reduce costly investments in technology, etc.

Interesting charts. It appears the 'crowding out' is already starting to bite.

No. It's about the magnitude of the discretionary fiscal policy being less in this recovery ...

"However, discretionary fiscal policy hasn't been much of a tailwind during this recovery. In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries, as exhibit 3 indicates. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits."

... goes back to the question of how appropriate deficit reduction to combat long-term fiscal problems are right now (or in the next few years).

Yes yes, I understand the Augustinian mantra preached by the profession. The Economist, for example, has been talking about how we need to straighten out our finances, but not yet, since 2009.

Connect the dots- discretionary funding squeezed, but even with this year's tax increases, we're running an 'unaustere' $850 billion deficit. How dat happen?

"we’re running an ‘unaustere’ $850 billion deficit"

Are you saying it is impossible to be "austere" when running a budget deficit? Claudia's chart implies significant cuts are taking place.

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Yes Steve, I am saying that a government with an $850 billion budget deficit is not practicing austerity, period. The fact that I even have to clarify this tells you all you need to know about the state of economic thinking right now.

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But it seems like spending is what matters in terms of austerity... if government spending doesn't keep up with inflation then you are cutting something right? If you are consistently running deficits then you'd think at some point that spending is baked into the economy.

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Assume high medical transfer payments...

That our only problem is (maybe) medical transfer payments because it has already crowded out everything else that isn't old-age transfer payments or sabre-rattling isn't a future problem, it's a past, present, and future problem.

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Where is GDP? I suppose a Tea Partier would show what government spending was in 1776.

Heck, I was wondering there the inflation adjustment was - and back in 1960, our coinage still used silver.

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Good posts. Seems like an obvious story. This country appeared to get its act together during the Reagan-Clinton era, stemming the exponential growth in spending ("the era of big government is over" Bill Clinton. Sigh.)

Makes me want to punch Dubya in the face.

I blame 9/11 too. Suddenly, any thought of fiscal responsibility became soooo small-minded.

Not a Dubya fan here either but I do think he takes too much blame for the problems of the 2000s.

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I made some transformations. Namely looking at real per capita spending instead of total nominal. You get this:

http://research.stlouisfed.org/fredgraph.png?g=fwY

What I notice is this:

1. Spending increased at a roughly linear rate from the mid the mid 1960s to the mid 1980s.
2. Spending stayed roughly flat from the mid 1980s to approximately 2000.
3. Spending grew tremendously from 2000 to 2011.
4. Spending has been decreasing since 2011.

I was surprised at how flat it was over the course of Reagan's last term, then Bush Sr's term and both of Clinton's. I guess you really can blame Bush. (Or Congress during Bush's two terms).

+16 trillion!

Elaborate please?

It was a lame attempt at comedy on my part.

I thought your comment and graph were the best things on this thread.

Ah, sorry. My humor detector is broken. :( I thought the reference to the $16T debt was intended to be a criticism of my implication that Obama is not, in fact, uniquely culpable for our current debt/deficits.

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+1 for your graph, which is probably contains better information than the original post

Which, of course, raises the question of why this wasn't close to the graph put up by Yglesias in the first place? Seriously, adjusting for population and inflation was the very first thought that occurred to me, if I were truly interested, and then I might make a final adjustment for economy size.

I'm sympathetic to viewing spending on a per GDP level because a larger economy probably does require somewhat more spending. My graph ignores "managing a larger economy" as a possible (legitimate) driver of spending. A larger economy has more activity to regulate, more lawsuits, etc. The problem with viewing spending purely through a "per GDP" lens is that pegging spending to economic activity is entirely arbitrary. If GDP doubles why should we automatically consider it reasonable for federal spending to double? Etc.

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Three other observations:

To get back to "Clinton era" levels we'd need to cut about 28% of current spending.

However, to get back to "pre-recession Bush Jr. era" levels (*) we'd need to cut only 14% of current spending.

(*) which most Republicans seemed to be okay with, at the time Or were at least "okay enough" with to not complain vocally about or run someone against Bush Jr. in the 2004 GOP primary.

Without spending a lot of time on the numbers, I think we could reach 14% worth of spending reduction by cutting defense by a third (which would take us back to the ~3% GDP level of the 1999-2000 time frame) and then cutting SS/Medicare by about 10%.

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There is a Keynesian slight of hand to all of this, growth in the 2009 and 2010 period was massive. All this shows is drifting back toward trend. Since we had fiscal stimulus in the past we should bake it in?

Btw, I say 2009 and 2010 because TARP creates an illusion in these graphs since the money disbursed in 2008 was repaid.

These graps also demolish the idea that fiscal stimulus matters. Federal expenditures flat, federal expenditures booming, it's all been the same over the past four years.

Final point: the republicans lost in 2006 and again in 2008 because they were perceive as too profligate. The democrats lost the house in 2010 because ey were still too profligate. It took three tries but the electorate eventually got what it wanted.

More than demolishing fiscal stimulus, it helps Somner's case: Monetary policy can make fiscal stimulus irrelevant. Fiscal stimulus would probably still make a difference if, say, we closed the fed and pegged the dollar to a commodity, or made the monetary base constant.

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I think you need to look at the log scale.

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Don't worry about Medicare. Obama will save us.
You can have all the morphine and hospice you want.
Hip replacements and expensive drugs and surgeries .... eh, not so much.
But that sweet, sweet morphine will be free.

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To me federal spending is only a problem because it is mostly wasted.

http://un-thought.blogspot.com/2011/09/why-eliminating-deficit-is-easy-but.html

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