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Thursday, May 31, 2012

Government Spending: "Sometimes Things Are Not What We Think They Are"

Here are some old posts from here and elsewhere that provide rebuttal to recent rebuttal (mostly the usual hacks twisting the data to "prove" that government has expanded immensely under Obama). It would be better for the economy if spending across all levels of government had increased temporarily to a signficant degree, so this isn't necessarily a badge of honor. But nevertheless the charge that Obama has used the recession as an excuse to increase the size of government doesn't withstand an honest look at the evidence:

Paul Krugman:

The Secret of Our Non-success, by Paul Krugman: ... Look at government (all levels) purchases of goods and services, that is, actually buying stuff as opposed to transfer payments like Social Security and Medicare. Here’s the past decade:
Obama, far from presiding over a huge expansion of government the way the right claims, has in fact presided over unprecedented austerity, largely driven by cuts at the state and local level. And it’s therefore an amazing triumph of misinformation the way that lackluster economic performance has been interpreted as a failure of government spending.

From this blog:

Per Capita Government Spending by President, Economists View: Via email:

Seeing the Krugman commentary comparing real government spending under Obama and Reagan made me curious about what it looks like if you express it in per capita terms?  In particular, how does the Obama period compare with other presidencies in terms of penury/austerity versus spendthriftness?
To compare presidencies, I did the calculation two ways.  One starts in the quarter before the president was elected (e.g., 2008Q4), the other starts in the first quarter of the presidency (e.g., 2009Q1). (The ARRA probably had some effect in Q1, but most of the change was simply economic conditions that the incoming president had nothing to do with, so I think I prefer the Q1 to Q1 method). Ranking since Johnson (starting in 1968), and using the first-quarter comparisons, and calculating growth under Obama through 2011Q4, Clinton is the most austere, followed by Obama.  The most spendthrift are (1) Nixon-Ford, (2) Reagan, and (3) Bush II. The figure is pasted below:


Michael Mandel:

The Government Investment Drought Continues….., by Michael Mandel: Sometimes things are not what we think they are. The conventional notion is that government has become more important under President Obama, while the private sector has stagnated. Yet in some ways the data tell a different story. Take a look at this chart.


The top (blue) line shows that private nonresidential investment has rebounded smartly since early 2009, when President Obama took office. Residential investment first dropped, and then mostly came back.
The real problem is government investment, which is down 8.3% since the first quarter of 2009, and still falling. In other words, government spending on infrastructure infrastructure, building, and equipment is declining, adjusted for prices changes.
This is just utterly bizarre. In a time when the economy is still sluggish, government investment should be the simplest thing to pump up. We need to modernize our infrastructure and bring government into the 21st century, and it’s just not happening.
Here’s another angle. This chart shows net government investment as a share of GDP.


According to this chart, net government investment is the smallest share of GDP in more than 40 years, and dropping.

Antonio Fatas:

Euro and US Coordinating Austerity, by Antonio Fatas: To add yet one more perspective on how significant the shift to austerity among advanced economies has been since 2009, I decided to add the Euro series to a chart from Paul Krugman's blog. This is real government consumption for both the US and the Euro (17 countries) area.

It is remarkable how the Euro area and the US display a strong coordinated contraction in fiscal policy starting in the first quarter of 2009 that accelerates during 2010 and 2011... No surprise that the recovery is not going as well as some thought and some countries are going back into recession.

Kash Mansori:

Government Job Destruction, Kash Mansori: Another jobs report in the US, another month where part of the private sector's job creation was undone by continued job destruction by the government sector.
The 15,000 additional jobs lost in April brings total job losses in the government sector since January 2010 to over 500,000. While the US has not quite been experiencing European-style austerity over the past two years, that's still a pretty tough headwind to fight as it emerges from recession.

Another one from Paul Krugman:

Four Fiscal Charts, by Paul Krugman: Here’s an exercise I did for my own edification... I wanted a simple answer to the people who always insist that we must be having massive fiscal stimulus because we have a big budget deficit; my answer is that the deficit is a result of the depressed economy...
Well, here’s a quick and dirty approach. ... First, most of the surge in the federal deficit is about plunging revenue. In the figure below, the “No recession” line shows what would have happened if federal revenue had grown 5 percent per year after 2007:
That’s about an $800 billion per year shortfall.
What about spending? Well, it is higher than you would have expected in the absence of the slump, by around $300 billion:
What’s that $300 billion about? Well, they’re mainly about the category CBO calls “income security”, mainly food stamps and unemployment insurance:
Income security spending is, of course, strongly related to the state of the economy. So are some other forms of spending — Medicaid, of course, but also things like disability insurance, where people on the cusp are more likely to seek the benefits if they can’t find work.
So basically, the federal deficit is all, yes all, about the recession and aftermath.
And meanwhile, there has been austerity at the state and local level (calendar years here instead of fiscal, but that’s not crucial):
So the reality is that we have deficits because the economy is depressed, but relative to previous policy we’ve been imposing fiscal austerity, not stimulus.

    Posted by on Thursday, May 31, 2012 at 09:56 AM in Economics, Fiscal Policy | Permalink  Comments (18)


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