From CBO head Doug Elmendorf. I focused on the 7th slide, comparing 2012 with 40-year averages. The figures are as a percent of GDP.
| Category | 40-year average | 2012 |
|---|---|---|
| Net Interest | 2.2 | 1.4 |
| All other spending | 7.9 | 9.1 |
| Defense | 4.7 | 4.3 |
| Social Security and Medicare | 6.2 | 7.9 |
| Revenue | 17.9 | 15.8 |
Pointer from James Hamilton. I hope Mark Thoma will link to me here, because he is forever linking to posts that spin the fiscal data in a way that is very different from how I see it. What stands out to me is this:
Where is the austerity in the budget, i.e., the biggest shortfall in spending from the 40-year average? It is in “net interest.” It is definitely not in domestic discretionary spending (the “all other spending” category).
The “austerity” comes from low interest rates, which cause interest payments to be low. Think about that.
I note that yesterday’s employment report showed that the first four months of 2013, under “austerity,” were much better than 2009, under “stimulus.” I know that other things were not equal. They never are. Any macroeconomist can argue that he is always right, because the interpretation of data has so many degrees of freedom.
Why is looking at declines in spending against a 40 year average the right measure? I think most people think of austerity as “we are spending less than the last few years,” not “we are spending less than the last few decades.”
Most people that I encounter use the plain English meaning of “austere”, which is a severe reduction of spending to the minimum possible level. In that sense, the U.S. government is in no way experimenting with austerity.
Federal spending is very high in the U.S. right now. It’s higher than in the Cold War. It’s higher than in World War II.
Ummm…. we’re missing an entitlement program here.
Memory says Social Security, Medicare, and Medicaid together run to about 1.7 trillion in spending, for 11-12 % of GNP. Your chart shows 7.9 % just for SS and Medicare. Medicaid is funded by the federal and state governments, but is state-administered, which presumably explains its exclusion.
Here’s my little guess: That 9.1% of GNP for “all other spending” includes 500 billion bucks for Medicaid. Medicaid, like Medicare, was established in 1965. Since it began, it has generally risen at about the same rate, costing about 80% of what Medicare runs. So, if SS & Medicare have risen 1.7% of GNP in your chart, it’s reasonable to think Medicaid has risen by 0.7-0.8 % of GNP, explaining much of the rise in that “discretionary spending” figure.
Nice post, and I’ve seen similar counter-evidence on austerity in the Eurozone (based on aggregate figures).
Many people seem to define austerity as anything that falls short of all stimulus, all the time.
Best counter example: Britain. Counter to what P. Krugman tells us they have been raising taxes and still spend more than before. Still you call it austerity.
However isn’t your shot against stimulus a bit cheap. After all could have well taken this much time for the tickle down to take effect. Would the sequester really work instantly. Of course the burden of proof imo would be on the keynsian side.
A test question: “What level of spending would constitute adequate stimulus? What level of spending is NOT austerity any more?”
(The inverse qustions of “What level of spending is a practical minimum?” and “What level of spending is clearly austere?” are also fine questions to ask of those on the right.)
I suggest you will find that for many commentors, the answer is always “more” – that if federal spending reached 100% of GDP, they’d be arguing about how to get to 105% of GDP, and conjuring up schemes for why that could somehow work.
So a good test question for all sides is “define enough with a number”…
Bryan:
Or, more to the point “define ‘austerity’ in some way that isn’t circular”.
One needs a reference against which it is to be measured, but a 40 year average is not a particularly good one. Any of these may be subject to a trend in spending or in need which would make such a comparison frivolous. And 2012 while not in recession, is hardly a robust vigorous economy with full employment like most of those 40 years. If all other spending had increased from 4 to 12% over the period, 9% would be frugal. Though defense is down, it is probably profligate given the change in threats over the period or may have always been. Though Social Security and Medicare are up, who would say that is anything but normal given an aging population. Revenue may be down, but how much is due to the economy and how much profligacy?
Your point is important and, in fact, your interpretation is very generous. I would say that nearly constant numbers for spending as percent of GDP counts as significant *growth* in spending. If someone really wants to claim a “shortfall,” they should at least be able to point to (inflation-adjusted) per-capita numbers.
It is useful for economists to sometimes analyze things in terms of % GDP. However when talking politically about budgets I’d suggest it is important to look at actual $ figures because using GDP builds in an automatic assumption of spending increases, just as “baseline budgeting” does in general. In real $ terms there has only been a minor change and we are above where we were at a few years ago.
If you look at spending in $ per capita terms, then you see the myth that the media has gotten away with that GOP politicians have moved far “to the right” and are proposing radical cuts.. rather than in reality only minor tinkering that still qualifies them as advocates of huge government spending. As this page points out:
http://www.politicsdebunked.com/article-list/federal-spending
” The Federal government spent 3.7 times as much per person in 2011 as it did 50 years ago in 1961 when Democratic hero JFK was in office (adjusted for inflation). If Kennedy were around to propose his level of spending today he’d be denounced by the mainstream media as a radical extremist. State and local governments combined spent 4 times as much per capita. “