Government spending

A little perspective on the debate over government spending. In Fiscal Year 2011 federal government spending is about $3.7 trillion, or roughly 24.7 percent of GDP. That's high - the average for 1971-2010 is about 21 percent. This is why Republicans are making such a fuss about getting spending under control.

At the same time, tax revenues are currently $2.2 trillion or 14.8 percent of GDP. That's low - the average for 1971-2010 is about 18 percent. So it's ridiculous for Republicans to say "we don't have a revenue problem, we have a spending problem." We have both problems.

Why has spending increased so much during the Obama Administration? Well, most of the increase was a result of the recession and financial crisis: TARP, unemployment compensation, food stamps, etc. have all contributed. But I think that when Republicans talk about runaway spending they're thinking of the government programs that fall in the category of "nondefense discretionary" spending. Roads, education, environment, all of those special programs that were part of ARRA like green technology investments. But let's look at that spending. Here's the data from the Congressional Budget Office:



The red line is nondefense discretionary spending from 1990 to 2012 (the 2012 figure is from the President's 2012 budget proposal). From 1990 to 2008, nondefense discretionary spending rose at an average rate of 5.3 percent per year. The solid green line on the graph shows this trend. Spending jumps above trend under the Obama administration. But all of the increase is in 2009 and 2010 and reflects the temporary spending under ARRA. Nondefense discretionary spending in 2011 was only $3 billion higher than it was in 2010, and the President's budget calls for no increase in 2012. By FY 2012, if Congress were to pass the President's budget as proposed (not very likely), spending would be just about back to the 1990-2008 trend line (the dashed part of the green line).

This actually overstates the spending increase under Obama because the 2009 budget was passed in 2008 when Bush was president. I've attributed it to Obama here because some of the spending under ARRA went in the FY 2009 budget, but some of the increase in 2008-09 was probably Bush's doing, not Obama's.

So where's the spending crisis? As Paul Krugman shows, a big chunk of the increase is in the category of "income security" - food stamps, unemployment compensation, and so on. But Republicans have wisely, I think, framed their arguments in terms of spending in general, not programs like food stamps. I don't imagine that threatening to default on our debt unless Democrats agree to cut spending on food stamps would poll very well.

Of course there's also the issue of entitlement spending (Medicare, Medicaid, Social Security). But the increase in spending on those programs is not Obama's doing, it's a decades-old structural problem. It's important to do something about these programs, but I'm going to suggest it's not a good idea to cobble together a solution four days before a government shutdown.