Saturday, July 30, 2011

Obama's spending in context

Paul Krugman has a good article up on his blog that points out something to keep in mind when we talk about federal spending. I don't have much to add to this because he makes the point clearly and concisely.

The fact is that federal spending rose from 19.6% of GDP in fiscal 2007 to 23.8% of GDP in fiscal 2010. So isn’t that a huge spending spree? Well, no.

First of all, the size of a ratio depends on the denominator as well as the numerator. GDP has fallen sharply relative to the economy’s potential; here’s the ratio of real GDP to the CBO’s estimate of potential GDP:

A 6 percent fall in GDP relative to trend, all by itself, would have raised the ratio of spending to GDP from 19.6 to 20.8, or about 30 percent of the actual rise.

That still leaves a rise in spending; but most of that is safety-net programs, which spend more in hard times because more people are in distress.

So if you hear conservatives or even liberals harping on spending and they use spending as a % of GDP as their measure be sure to remember this. Yes, it shows Obama raised spending. But much of it was to help people get through the worst recession in decades. And much of the rest was to help states so they didn't have to fire public servants like cops, firefighters, and teachers. THe other part of the rise in the GDP ratio is simply the fact that GDP dropped because of the recession.

Or if you don't want to remember that just remember that Bush and a Republican congress tore though a budget surplus in no time and left a sizable deficit for Obama to start off with. And anyone who thinks Obama should have cut spending for things like safety net programs when he came into office during a deep recession is a probably hopeless ideologue who isn't worth your time. Sadly that describes at least a few Republicans in congress and many conservative pundits. Perhaps if liberals were as forceful in their beliefs as those conservatives we could have gotten a bigger stimulus and we wouldn't be cutting spending while unemployment sits at 9%.

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