Every day I hear some very serious chinstroker caterwauling about runaway government spending. Just today, I heard Rep Boehner intimate that the debt ceiling is a legitimate tool to wield against the alleged spending threat.
Me…I just don’t see it. And that’s because it’s not in the numbers. Like the imminent inflation, interest rate spikes, and Greek-like implosions these scolds endlessly warn us about, it’s just another DCPM (DC phantom menace).
The table shows spending, revenues, and deficits as a share of GDP, along with the unemployment rate stuck in there to give you a sense of the business cycle, a crucial factor here which the spending freaks ignore.
Spending rises as a share of the economy starting in 2008, along with the unemployment rate, an automatic—and highly desirable—function of the safety net kicking in, along with stimulus outlays in 2009, all in the interest of offsetting some of the damage from the Great Recession. Revenues fall, also expected and desirable, because that’s what happens in a progressive tax system when incomes take a hit (it’s actually another form of stimulus).
Spending came down a bit in 2010 and again last year, to 22.8% of GDP—remember, 21% is about the historical average. So, really folks, what’s the big freakin’ deal on the near-term spending side?
And look at that unemployment rate…does that look to you like it’s signaling us to move towards austerity?…like this would be a fun time for a debt ceiling fight?
As a card carrying CBPP employee, let no one accuse me of being soft on the deficit…we ultimately have to pay for our spending, and that’s why I’ve ceaselessly advocated in these pages that getting on a sustainable budget path in the medium term must occur through tax increases and spending cuts (the longer term spending challenge is very much wrapped up with health care costs). But the fact is we’ve already cut spending by $1.5 trillion over 10 years, and we’ve done nothing yet on revenues.
In fact, if any column in the table is flashing red (other than unemployment), it’s the revenue column. Since 2009, revenues are up only 0.7% of GDP while spending is down 2.4%. That’s the largest three-year spending contraction since the mid-1950s. The 3.1% of GDP decline in the budget deficit since 2009 is the largest three-year drop since the 1940s. To be fair, it’s also the case that the increase in the deficits up to 2009 were historically very large as well. But they needed to be.
So if you want to find a rationale for jamming the nation into recession, you’ll need to find a reason other than profligate government spending. It’s just not in the numbers.
PS: I did some of my own caterwauling about this point months ago, looking at real outlays over the past few years. See figure at the end of this post.