spending

U.S. Budget Proposal Analysis Tool (spending)

/ Jim Luke

I missed this when it came out Feb 1, but an alert student pointed me to it.  The NYTimes has an excellent interactive visual breakdown of the U.S. Federal Budget spending.  It very graphically shows where the money goes and how much.

Link: http://www.nytimes.com/interactive/2010/02/01/us/budget.html

A couple of notes.  First, the graphic shows only spending and transfer payments (outlays).  It doesn’t show offsetting receipts. For example, Social Security payments are one of the biggest categories shown. But Social Security doesn’t contribute to the deficit.  Social Security taxes, which aren’t shown, more than exceed payments made.  Similarly, but on much smaller scale, postage sales which help offset cost of the postal system aren’t shown.

Second, it’s tempting to think that programs eliminated would result in a equal deficit reduction. For example, it’s tempting to think that if $400 billion in programs were eliminated then the deficit would drop by $400 billion.  Not so. You have to consider the macro impact on overall GDP and employment of cutting the program.  Cutting $400 billion in programs might (or might not) actually worsen the deficit if the cuts result in net an overall reduction in aggregate demand and employment.  That’s because the resulting drop in tax collections would offset the supposed savings from cutting the spending program.

Obsessing on Deficit When Unemployment Is 9% Is Silly

/ Jim Luke

From Alan Blinder via Brad deLong (bold emphasis mine):

Alan Blinder: The Economic Silly Season Is Upon Us: ‘Debt ceilings’ and ‘job killing’ spending are two dumb ideas. Obsessing on the deficit while unemployment is at 9% is another:

Our country seems mired deeply in the silly season…. The silliness comes in at least four parts. The first is the debate over raising the national debt ceiling…. The increase in the debt each year is simply the difference between total expenditures and total receipts, both of which come from the annual budget. If Congress wants a smaller national debt, it must either spend less or tax more…. [N]either party can just command the national debt to stop growing. Some people see the debt ceiling as a way to force spending cuts that Congress would otherwise refuse to make. Maybe. But it’s a clumsy and risky way that, among other things, could endanger the credit-worthiness of the United States government if our inability to float new debt made it impossible to raise needed cash. And for what purpose? To accomplish something that Congress has the power to do anyway?

The second element of silliness is the belief that the American public stands solidly behind rapid and large budget cuts. Sure, and they also want better weather…. The public wants smaller deficits, lower taxes and less spending in the abstract. But when it comes to specifics, it finds few spending cuts that it likes….

The necessity to choose among various spending cuts and tax increases brings me to the third element of silliness—the one that seems to afflict only Republicans. How many times have you heard Speaker of the House John Boehner (and others) refer to “job-killing government spending”? That phrase has become an official GOP mantra, on a par with “death taxes” and “death panels”—and it’s just about as truthful…. [T]he government should be a smart steward of the public’s money…. [But] when there is so much unused capacity and so many unemployed people hungry for work, “job-killing government spending” is oxymoronic. Virtually any type of spending, public or private, will create jobs.

The final element of silliness is… the popular notion that we need deficit reduction urgently, right now, even though the unemployment rate is still 9%…. The federal budget deficit is on an irresponsibly unsustainable path…. We need to both restrain spending and raise more revenue—and by large amounts. But not right this minute, because doing either would shrink the economy. Despite recent increases, Treasury borrowing rates remain low. There is no evidence that investors are fleeing the dollar. Our economy is still in desperate need of more demand.

There Was No “Stimulus” Spending in Aggregate

/ Jim Luke / 2 Comments

One of the claims that Tea Partiers, Republicans, and conservative/neo-liberal economists have been making for some time is that “the stimulus has failed”. They conclude that Keynesian economics and economic policies are failures.  Since, like most claims of Republicans and other politicians, these assertions are usually repeated uncritically by the news media, it’s close to becoming accepted “common wisdom” that the stimulus failed.  It’s not true, though.  What happened is that Keynesian stimulus was never tried.  Yes, U.S. federal government spending temporarily increased for 2 1/2 years.  But the so-called “stimulus” bill of $780 billion passed in Feb 2009 wasn’t all a stimulus spending bill. Much of the money, approx. $380 billion IIRC, was tax cuts.  People didn’t really spend much of those tax cuts because they were paying off debt with the money. That’s not a Keynesian stimulus spending program.  Keynes pointed out that tax cuts are a weaker way of stimulating spending.

But most important is that the additional spending was over 2 1/2 years, and it was only federal spending.  It was completely offset by cuts in spending at the state and local government level.  In aggregate, there was no stimulus spending program. It’s now over anyway.  What people are doing these days is confusing the increased deficit with increased spending, ignoring the fact that the deficit is so big because tax collections are down. Tax collections are down because too many people aren’t working.  And firms won’t hire those people because nobody (including aggregate government) is spending enough.

Paul Krugman notes:

In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.

What’s extraordinary about all this is that stimulus can’t have failed, because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending. Here’s total (all levels) government spending over the past 10 years:

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Looking at this graph, if you didn’t know there had been a “massive” stimulus, would you even have suspected that there had been any stimulus at all?