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Home Publications Blogs Beat the Press Republicans Are Not Telling the Truth When They Say that Government Spending Is Out of Control

Republicans Are Not Telling the Truth When They Say that Government Spending Is Out of Control

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Monday, 04 March 2013 05:46

It would have been helpful if the NYT had pointed out this fact in an article that included assertions from House Speaker John Boehner that spending is out of control.

"The president got his tax hikes on January the First. The issue here is spending. Spending is out of control."

In fact, spending as a share of potential GDP is near a 30-year low and is lower than at any point in the Reagan-Bush I administrations. The chart shows federal spending as a share of GDP and as a share of the GDP projected by the Congressional Budget Office in 2008 before it recognized the impact of the collapse of the housing bubble.

gov-spending-gdp-2013

Source: Congressional Budget Office.

It would have been helpful to remind readers of the actual path of government spending since many may not have not realized that Boehner was not being truthful.

Comments (24)Add Comment
Factotum
written by Robert W. Mann, March 04, 2013 7:29
Is it still the case that we are paying the lowest taxes of any Americans back to Truman, considering the re-institution of the 2% payroll tax and the sequester stuff? That is a very handy quote.
...
written by medgeek, March 04, 2013 9:14
I scream at the TV every time I see that orange faced liar say that "we have a spending problem." Yes, we do, but not in the direction he means. Government spending is too low considering the still-disastrous unemployment rate, our pressing infrastructure needs, the negative real interest rate on government securities, etc.
What's Missing
written by Jeffrey Stewart, March 04, 2013 10:19
Dr. Baker, do you think you could use a chart that showed government spending as a percentage of PGDP, since that's the claim you're making in your commentary?
Seriously?
written by Tracy Coyle, March 04, 2013 10:46
Your comment is that spending in 2012 as a percentage of the GDP predicted in 2008 for 2012 is at a 'record' low.

As long as you are going to pretend...just pretend 20 million unemployed are actually just on vacation and GDP is humming along at 5%....as long as reality is not an issue...
"Potential" GDP?
written by Paul Broni, March 04, 2013 12:11
Someone will have to explain to me why it's OK to look at spending relative to "potential" GDP. If I have the potential to earn $100,000 but I earn $50,000, that doesn't mean I'm doing OK by spending $75,000.
PGDP
written by Jeffrey Stewart, March 04, 2013 12:27
The budget deficit at PGDP is known as the full employment budget deficit or the structural budget deficit. It gives a more accurate picture of the amount of government spending that isn't influenced by decreases in RGDP. If the economy's output is at PGDP, tax revenues are higher and spending on automatic stabilizers such as unemployment insurance and food stamps that increase during economic crises are lower. Thus, it supposedly gives It avoids the fallacy of arguing that spending is "out of control".
We don't have a spending problem
written by John Q, March 04, 2013 12:42
...
written by Chris Engel, March 04, 2013 1:48
To the individuals in this thread preoccupied with the use of "as a share of potential GDP", let's ignore that for just a second.

And think long and hard about just how disastrous the systemic financial crisis was in 2008, and how there's obvious pain still around you because of it.

Now look at CPI data and government bond markets and note the near-deflationary status of our current price system.

Finally, ask yourself, given the above circumstances, whether this year, of all years, is the time to be complaining about "too high spending", when there's so many people left battered by the greed and banker-driven collapse.

And Jeffrey Stewart gives a good brief explanation as to why potential GDP is a useful measure to help offset the exaggerated move in response to a devastating recession (as automatic stabilizers coincided with a major drop in revenues from a collapse in output).
But, it's hard to ignore...
written by Paul Broni, March 04, 2013 2:01
Chris, it's hard to ignore the spending as a share of PGDP when that is the very basis of this column. Having said that, I understand that government spending can't be adjusted as quickly as the economy ebbs and flows. And in fact, it's more likely that government spending will go up in absolute dollars when GDP is on the skids because of reduced taxes and increased welfare.

If I read you correctly, what you're saying is, "Now is not the time to worry about controlling spending; now is the time to worry about jobs."

If that's accurate, I could not agree more, but I will say that I do not think these jobs should come from the public sector. They need to be market-driven jobs. Problem is, how do we do that? I can think of only two ways at the moment: (1) Decrease the trade deficit and (2) get busy developing more energy here in the U.S. (specifically, let's find out ASAP how to handle fracking in a safe manner).

How would you propose to get employment up?
...
written by yan, March 04, 2013 2:28
Can somebody please answer a question I am confused.
Does entitlements (we all know are funded by payroll tax and have their own Trust) get money from the FED aside from the tax they collect? If not,why is it on the FED budget? Why is it the FED problem if they can only spend what is in the Trust? I understand discretionary items comes from Fed tax and should be in the budget.
Federal Spending by the numbers
written by yan, March 04, 2013 2:34
Jobs
written by David, March 04, 2013 3:07
But, it's hard to ignore...
written by Paul Broni, March 04, 2013 2:01
...
If I read you correctly, what you're saying is, "Now is not the time to worry about controlling spending; now is the time to worry about jobs."
If that's accurate, I could not agree more, but I will say that I do not think these jobs should come from the public sector. They need to be market-driven jobs.


The idea is to do what Bowles and Simpson themselves did: first get a public sector job, then get a [much more lucrative in their case] private sector market-driven job. What is wrong with jump starting the economy? Why, nothing! Future holders of market-driven jobs will pay taxes instead of being on public assistance, you should love it.
heritage foundationless
written by David, March 04, 2013 3:13
yan, thanks for pointing out how insane the heritage foundation report is. They seem to forget that W started two wars and reigned over the hugest financial bubble in history. They have no perspective and it shows.
So Jeffrey, PGDP is
written by Tracy Coyle, March 04, 2013 3:22
how we would like it to be, not how it is or a projection of what it is likely to be. Spending wouldn't be out of control if the economy were humming along and spending would be less because less would be spent on supporting the millions not contributing to the REAL GDP. But because in the real world, the GDP is barely moving (and the deflator is of course not being manipulated), the PGDP is a delusion supporting the fallacy that spending is not out of control...
...
written by Chris Engel, March 04, 2013 3:28
Paul,

(I've tried now three times to post a response but it keeps failing I think because it's too long, but i'll try this)

The public sector has contracted under Obama. See this historical comparison:

https://pbs.twimg.com/media/BEDXvPZCAAAbt77.jpg

The least we could do is replace those lost jobs and return public sector employment to its historical proportions. I presume you have some arbitrary ideological reason for dismissing any government growth and just want private sector job growth, but try and put that side for just a minute.

On that note, here's a chart showing recent contributions of both government and private sector to GDP:

http://s3.amazonaws.com/dk-production/images/18747/large/gdp_q4_components.jpg

There's no reason why government share should be dropping, when we can be spending more and adding more GDP and creating jobs. And considering inflation is not seen to be a risk at all (quite the opposite, we're looking quite Japanese right now), there's no reasonable argument against adding more stimulus right now.

We need large government stimulus to fill the output gap, boost inflation a bit, and spur job creation in both the public sector (for needed social programs throughout society) and the private sector (which will get spillover from growth injected anyway from government spending).
Employment
written by Tracy Coyle, March 04, 2013 3:58
Chris, nice employment graphic, but that is ALL government employees, including the state level. Federal employee counts are higher under Obama. Places like Wisconsin which had fewer students but increasing numbers of teachers NEEDED fewer state employees. (How many fewer can be debated and outside of this thread).

As for the 'share of GDP', if gov spending goes up 5% and it is only 24% of the GDP, and GDP goes up by 2%, the share of GDP by gov will go down significantly - but there is no cut in spending, no spending restraint.

And as for gov stimulus: the average job created by the stimulus cost $278,000. To cut unemployment from 20 million to 12.5 million would cost over $2 TRILLION a year more than we are spending now. And inflation...if you think we REALLY have 1% inflation right now, you don't shop for groceries.

How about this: for one year eliminate all Federal taxes and cut federal programs to 2009 spending levels. That would cost us 2.9T in additional debt. But $2.4 trillion would be freed up in the private sector, about 1.9T direct to consumers hands and another $500b to business. Do you think THAT would stimulate the economy?
...
written by Chris Engel, March 04, 2013 4:21
Tracy,

When we discuss the "public sector" it doesn't matter what level of government it is, I was responding to someone who wanted jobs not in the public sector (where jobs are being lost net) but in the private sector.

The feds can easily give funded mandates to the states which lead to jobs. So federal action spending can and does create state-level jobs. Doesn't matter if federal jobs have increased, it's the greater public sector jobs that are relevant if you're going to do a sectoral analysis.

Your math is wrong. If gov share of GDP is 24% and it rises 5% and GDP as a whole rises 2%, then the gov share of GDP will go up of course, not down. I don't think you understand the graph on the government and private components. The gov component of GDP has been shrinking, which is an adverse effect on GDP! It's not "as a share of GDP".

And your numbers on the stimulus are not universal and obviously would not be applicable in a new stimulus in a new environment, regardless of where you got it from. We're in a unique situation with really low interest rates where we can borrow long-term cheaply and stimulate with infrastructure and social spending increases.

Please re-read my post and the graphs and don't try and blindly set off a right-versus left political foodfight here.
Jobs first...
written by Tracy Coyle, March 04, 2013 7:18
Correct, it matters not where a government job is created if the federal government pays for it (funded mandate). But unlike a stimulus, ie, a jump start or short push, stimulus has turned into us just constantly pushing the economy. There is no getting off because as soon as we do stop stimulating, all those created government jobs stop also. We have had 4 years of trillion dollar deficit spending and the economy is (AT BEST) sputtering.

Even if I were to concede the point that the change in the deficit as a percentage of GDP was a reasonable benchmark to dispute 'out of control spending', the need to increase gov spending would reverse that 'trend'.

If you don't like the $278,000, feel free to use something different. I picked 7.5 million new jobs, we could easily pick 12 million (leaving 5% of the 163m workforce rotating in and out of employment as a target) and $125,000 per position cost would still require $1.5t more in spending.

What is unique about right now? other than we are in a solvency crisis verse a liquidity one that we have been throwing trillions at and ignoring the actual issues? Interest rates have been low for 5 years which is good because we have added $6t to the debt and scheduled to add another $4.5t on top of that over the next 3.5 years.

While the 'deficit' as a percentage of GDP might have been going down, the DEBT as a percentage has been going decidedly in the other direction.
Republicans
written by marty, March 04, 2013 8:17
Republicans are not telling the truth when they say......anything at all -ever.
...
written by Chris Engel, March 04, 2013 9:54
Tracy,

I was correct yet another falsehood in your latest comment.

There is no solvency crisis.

Monetary sovereigns don't have solvency crises.

Despite your folksy reference to me not shopping for groceries, inflation is dangerously flat right now.

The Fed creates reserves out of thin air. Dollar solvency is NOT at issue here (unless of some Congressional suicide pact of refusing to pay interest even though there's an operational possibility to do so).

The government is not a household, and can always produce dollars to meet obligations, inflation is the only risk, NOT solvency.

As for the stimulus figure -- if we pumped in about $1 trillion, the multiplicative effect would be sufficient to fill the output gap and restore somewhat full employment.

As for "actual issues" -- we're ignoring inequality that has been fueled by a broken system that has benefited the wealthy and connected since about the 80s. You are encouraged to read up on Dr. Baker's book "The Conservative Nanny State."

The debt will _always_ go up. Our monetary system relies on a system of debt -- all dollars are borrowed into the system -- first by the Fed creating reserves to buy debt, and then private banks using those reserves to create loans...so I'm baffled that you're fear-mongering on the debt, considering we've _never_ paid off debt. We've always GROWN output and MAINTAINED/INCREASED nominal debt.

Government spending and national debt will perpetually go up in nominal terms, and it is sustainable and controllable, it is a feature of our current system. The sooner you learn this, the better off you will be in understanding policy.
I'm almost afraid...
written by Tracy Coyle, March 04, 2013 10:30
...to continue. I made no claim that the sovereign was insolvent, our financial system however was and continues to be so. If our debt and spending were moving in relative terms, apace, I wouldn't disagree with you, but the debt is climbing much faster. Is it ok to have 200% of GDP in debt as Japan? Obviously it CAN happen, I'm asking if you consider it irrelevant or of no general importance. Of course interest rates can be maintained at the current levels if the Fed and Treasury continue to desire it no matter how much damage it might do. (My parents, like many seniors have been dipping into principle for several years due to the fact they can't earn sufficient interest income.)

Are you suggesting $1t more than we have been been, suggesting a deficit over $2t per year - or is it a one time effort - or $1t over a period of time (years)?

As to inequality...I am not happy with it either. I'd be happy with the financial system being hoisted up and left out to dry.
There is a danger of deficits - that the interest payments
written by sk, March 04, 2013 10:57
become too onerous as a percentage of our total budget. That said, that is not a problem now. Investors are begging us to issue treasuries, even with the sky high price of bonds. So if we can borrow an unlimited (basically) amount of money with no adverse effect on the current obligation, why wouldn't you? This is not a morality play - the suffering is real and wholly preventable. Borrowing is very manageable relative to the size of the economy, and those who say otherwise are just not looking at the facts. If it weren't, inflation would be a huge problem - the demand for debt would go down. Our debt was downgraded - and it did not matter.

The deficit fear mongers have been totally wrong so far ...
...
written by watermelonpunch, March 05, 2013 3:43
cut federal programs


Okay, people remember that there were food riots during the Great Depression, right?

People died for lack of basic necessities.

Is that really the kind of society we want in the U.S. again?

Are we really wanting to go back to the dark ages?

While y'all are arguing about the deficit... People are unable to see doctors, unable to pay basic living expenses, unable to take their kid to the dentist for a toothache that can eventually turn into a brain infection.

Let's try to keep perspective here on what spending cuts REALLY mean.
We have bigger more frightening problems than potholes & closed bridges.

Real people get hurt when the most unfortunate people have their only life line cut off at the same time that people are laid off from jobs, making sure they have LESS chance of ever finding a job.

Odd how just fixing those bridges could actually get things back in the right direction, but lets leave them bridges out, & force people to go the long way around wasting fuel.

Let's ignore all of civilization's infrastructure.
Who needs a civilization?

The Roman Empire sure isn't missed.
I imagine the United States of America won't be either eventually.
Cutting the rind
written by Tracy Coyle, March 05, 2013 4:34
from watermelonpunch...

Let's cut $100,000,000 from the Travel Promotion Fund
Let's cut $733,000,000 from the national & Community Volunteer program
Let's cut $42,000,000 from the U.S. Institute of Peace
Let's cut $8,000,000 from the Navajo & Hopi Indian Relocation Program (going on since 1979....)
Let's cut $215,000,000 from the Neighborhood ReInvestment Corporation
Let's cut $142,000,000 from the National Endowment for the Humanities
Let's cut $162,000,000 from the National Endowment for the Arts
Let's cut $793,000,000 from the Export/Import Bank
Let's cut $30,000,000 from the African Development Foundation
Let's cut $368,000,000 from the Peace Corps

There is $2.5 billion for dental bills and school lunches.

We can go back to 2008 spending levels for Dept of Energy, Education, the EPA and the SBA, that will give us
and additional $53 billion for senior medical care and some food stamps.

Of course we CAN'T cut those right?

Yea...real people will get hurt cutting $100 million from Travel Promotion....

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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