Friday, April 29, 2011

Not so fast

John Taylor called Obama a big spender and unleashed the progressive chorus. Krugman (among others) went after him twice (see here and here).

Here's Taylor's graph (clic the pic for a more glorious image):

It's clearly true that spending automatically rises in (after?) a recession and that has something to do with the bulge around 2009.

But Taylor's beef with Obama is that spending never falls back down in the out years, even though growth is projected to be pretty robust.

Krugman sez that's just due to mandated spending increases and would have happened no matter what. But people, look at the CBO budget projections from 2007 shown in the graph below (clic the pic for a more glorious image):

They show spending out to 2017 at around 19% of GDP, and the trend, if anything is down.

All the automatic spending increase stuff Krugman talks about was known about when these projections were made, so I am not sure how it can be that Obama (and Pelosi and Reid) have / are not proposing a significant expansion of Federal spending!

We are talking about permanently raising Federal spending by 2-3 percentage points of GDP in ways that were not foreseen in 2007.


eightnine2718281828mu5 said...

All the automatic spending increase stuff Krugman talks about was known about when these projections were made

The CBO's 2007 projection didn't predict a 16% fall-off in revenue in 2009/2010, so, obviously the 2007 CBO projection didn't take into account the coming recession or the spending due to automatic stabilizers.

2007 2,568.0
2008 2,524.0
2009 2,105.0
2010 2,161.7

eightnine2718281828mu5 said...

2007 actual vs 2021 projected (as % of gdp)

SS 4.2 5.3
Medicare 3.1 4.3
Medicaid 1.4 2.5
Net Interest 1.7 3.3

(total increase of 5% of GDP)

So, Social Security is up. That has nothing to do with Obama, who hasn’t changed the program at all; it’s just demography, the baby boomers retiring.

Medicare is also up. Obama actually cut funds from Medicare, a fact trumpeted by Republicans. Nonetheless, projected spending is up, both because of demography and because of rising health costs.

Medicaid is up. Some of that is due to the expansion in the Affordable Care Act, but much of it is just more demography — most Medicaid funds are spent on the elderly and disabled — plus health care costs.

And net interest is up because of recent and current deficits, largely the result of the Great Recession.

The bottom line is that using 2021 projections to claim that Obama has massively expanded government is nonsense. The whole reason we’ve been having a debate about entitlements is that spending on those programs was projected to rise dramatically even under pre-Obama policies; the fact that they’re still projected to rise says nothing about what Obama did.

And the actual facts on spending — facts, not misinterpreted projections — still say that there has been no big expansion in government under Obama.

eightnine2718281828mu5 said...

They show spending out to 2017 at around 19% of GDP, and the trend, if anything is down.

eightnine2718281828mu5 said...

re Taylor's chart:

Probably because the chart glosses over several important issues. The House Republican budget, as the Economist notes, uses excessively optimistic forecasts. Additionally, the Republican budget proposal shifts some of the costs of Medicaid onto the states, by replacing the current system with a set of block grants that will reduce federal spending. This may or may not be a good idea, but the net effect is merely to reduce federal spending at the expense of the states.

To simplify: reducing the federal budget deficit by an amount and increasing the aggregate of all state budget deficits by the same amount does not demonstrate fiscal rectitude.

To claim, as Taylor does that, “…the House budget plan, with spending in the same range, approximately balances the budget with no increase in taxes…” is misleading. John Taylor should know better.

Cupcake said...

Very nice and impressive article you have posted. Its very helpful, i have read and bookmark this site and will recommend it to more other peoples