Sunday, January 29, 2012

Is this what austerity looks like?

The graph above shows Federal spending (in blue) and State and Local spending (in red). The gray shaded area is the NBER's dating of the last recession. The numbers are NOT adjusted for inflation

Federal spending is still than 30% higher than it was in January of 2007. State and Local spending is still around 12% higher than it was in January 2007.

Is this really austerity?

Can government spending really never come down? Isn't it over 2 years since the end of the recession?

Aren't all the people talking about fiscal drag and government spending cuts slowing down the recovery just arguing from accounting identities like they yell at the right wingers for doing?

Can we really run a trillion dollar deficit and bemoan austerity simultaneously?


Andrew said...

I made a graph similar to yours, but (since I couldn't figure out how to turn them into real dollars) put in the CPI and normalized everything to 100 in 2007. You see state expenditures tracking the CPI pretty closely in recent years and federal expenditures exploding, as in your graph.

Spending won't come down. Does that mean our only hope is to have very strong GDP growth for many years, combined with "fiscal restraint" sufficient to grow spending a lot slower than GDP?

SheetWise said...

"Can we really run a trillion dollar deficit and bemoan austerity simultaneously?"

Of course we can -- as long as no serious economists show up and spoil the party.

Remember what the Queen told Alice when she chose not to believe impossible things.

Queen: "When I was your age, I always did it for half-an-hour a day," the Queen smiled. "Why, sometimes I've believed as many as six impossible things before breakfast."

Politicians understand the Queen, the rest of us simply need to keep the faith.

"Every time a child says, 'I don't believe in fairies,' there is a fairy somewhere that falls down dead."

-- Peter Pan

wintercow20 said...

I sincerely believe that the mental model of austerity has now become "the level of government spending that prevails when NGDP is below trend." In that case, then yes, the $1 trillion deficit would still be emblematic of austerity.

Anonymous said...

Why did you not adjust these figures for inflation? Other calculations, such as contribution of government spending to real GDP, have shown large decreases in the last decade.

Anonymous said...

Anonymous at 3:28: Adjusting for inflation and population growth still shows steady increases punctuated by very short downward blips. Looking at government spending as a fraction of GDP shows an ever larger increase; the federal government jumped from the ~20% of GDP it had been for most of the post-war period up to ~25% of GDP.

john personna said...

Well, we've had the automatic, safety net, expenditures kick in. Were there an equal-dollar shift from schools to support for families, would that be austerity?

Anonymous said...

How unusual that a libertarian (or conservative) would post absolute numbers as proof of something. No adjustment for inflation, population growth, spending as a percentage of GDP? Typical.

Goyo Marquez said...

Well… I think the MMT guys would ask your question this way: Can you grow and economy without increasing the money supply? Milton Friedman's answer was no.

Andrew said...

The reason he didn't adjust for inflation is that FRED doesn't have inflation-adjusted series available. You would have to download each series, along with the CPI, and deflate it yourself. Likewise with population-adjusted figures, etc.

So hit Angus for laziness if you want, but I don't think it was anything sinister. At least he very clearly states that they are nominal values.

Shawn said...

Stimulus + Austerity = An unstoppable force vs. an immovable object.

On a semi-related note, TV executives would not sign off on programs like these unless there was audience demand for them:

The Walking Dead

Doomsday Preppers

The Colony

Doc Merlin said...

"Can we really run a trillion dollar deficit and bemoan austerity simultaneously?"

Yes. The brits are even moaning louder than we are, and they haven't cut spending either, their "austerity" consisted of mostly raising taxes.