Saturday, August 6, 2011

The Obama Hockey Stick

Last night for the first time in history U.S debt was downgraded. The Left still denies that President Obama has a lot of responsibility for this situation, instead laying blame on Republican refusal to raise taxes on the rich.

As I have written previously, it is dishonest to give voters the impression that tax increases on the rich is a solution to the deficit. In the latest projection by the Congressional Budget Office, the ten year deficit is estimated at 13 trillion dollars. By contrast, Obama’s various tax increases on the rich will only bring in 1 trillion in the same period.

The 13 trillion dollar deficit which the President helped create and long terms entitlement deficits are the main reason why S&P downgraded U.S debt, not the 1 trillion in tax increases which Republicans prevented.

As a response to the economic crises and based on ideological conviction, President Obama decided to expand federal non-defense spending more than any President in recent history. This unprecedented expansion of government can perhaps be justified by orthodox Keynesianism. But we should not allow the left to deny the magnitude of expansion itself, which they are trying to do.

Let me illustrate how much of a departure from history the Obama Presidency represents in terms of spending. I will graph non-defense federal spending as a share of GDP since 1975.


What emerges is what I refer to as the Obama Hockey Stick, parallel to the IPCC global warming Hockey Stick. While federal Non-defense spending was quite constant previous to Obama, it has risen rapidly under his administration.

The 2008 crisis was used to justify the expansion of government. But if the expansion was merely temporary, it would not have caused the U.S debt to be downgraded. As the Presidents chief of staff said: "Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before." Using the crises as a pretext, the plan was to expand the size and score of government permanently.

Thus according to the latest CBO long term budget outlook, and using the Whitehouse own estimate for defense spending, non-defense federal spending is projected to be 19.6% in 2016, when the recession is projected to be long over. Spending in 2016 is projected to be 4 percentage points higher than the historic average, with deficits of 6% of GDP.

Bruce Bartlett, a former libertarian Reagan advisor who in recent years converted to hard core liberalism, has described President Obama as a “moderate conservative”. Most of Bruce Bartlett’s recent writing is about promoting Social Democratic European policies as a role model for the U.S. He writes:

“an honest examination of his [Obama’s] presidency must conclude that he has in fact been moderately conservative”

Paul Krugman makes the same argument here. (Unlike Bartlett, Krugman is at least honest enough to call himself a liberal, though he doesn’t consider the President one.)

Bruce Bartlett innumerate argument ignores actual spending data. Instead his hilarious evidence for conservatism is that just like famously conservative Massachusetts Democrats and Mitt Romney, Obama-care was enacted instead of fully socializing health (not a joke, Bartlett actually writes this). Bartlett’s other equally hilarious evidence is that Obama’s advisors wanted a stimulus twice as large, i.e. 2 trillion dollars.

Taking over the U.S health care industry and the biggest fiscal stimulus in human history is the evidence for Obama being a “moderate conservative”. Bartlett incidentally also does not appear to understand that Obama did not have the votes and popular support to go much further in either case. This reminds me of an old communist joke (just a joke, don’t interpret it otherwise):

“Lenin’s widow, Krupskaya, is telling a group of young Pioneers:
-Lenin was so kind to children! One morning, he was shaving near an open window. And then a little boy walked past. And Vladimir Ilyich looked at him as he was passing by… and then the boy went away.
-So where is the kindness here, Nadezhda Konstantinovna?” one of the kids asked.
-Don’t you see!? With his razor, he could easily slit the boy’s throat! But he didn’t! That’s how kind Lenin was”

Well Bruce, perhaps in today’s’ Cuba or 1968 Paris President Obama would be considered a “moderate conservative” and you as a “libertarian”. But in America expanding government by more than a quarter and doubling the long term deficit deficits is rarely what we mean by fiscal conservatives.

Why don’t you guys on the left stop pretending to be “conservatives” and “libertarians”, and just defend the left-wing policies you are advocating and the deficits your policies are causing?

UPDATE

Interestingly, some readers do not accept my uncontroversial claim that President Obama raised spending. Instead, they seem to accept the excuse that everything is due to the 2008 crises and therefore temporary.

Let me expand by showing you some data from the 2011 Congressional Budget Office Long-Term Budget outlook. (GDP numbers are not identical, in part since the BEA recently updated historic GDP). I also added a proper inflation adjustment to defense spending. 2016 projected Non-Defense expenditure is even higher than I first wrote.

The CBO anticipates that the economy will have recovered by 2016, with unemployment at 5.3%. If the expansion of government we observe is only because of the crises, surely Non-Defense spending will go back to its historic rates of about 16%. Right?
Wrong. Non-Defense spending is projected to be 20.0% in 2016.

I added the projected years to a new graph.


What makes this a Hockey Stick is not only the fact that spending goes up in 2009, it's that spending stays at those elevated levels.

In 2008, the CBO projection for Non-Defense spending in 2016 was 16.3% of GDP.

In 2011, after the crises and President Obama’s policy changes, the CBO projection of Non-Defense spending in 2016, when they predicts the economy has fully recovered, is 20.0% of GDP.

A small part of this is the crises itself; depressing GDP, though it appears the CBO projection of real GDP in 2016 (still assumed to be a recovered economy) has not changed much from 2008. I don’t know if they have re-estimated the cost of entitlements.

A significant component of the increase represents active policy choices by the President, such as expansion of education and social programs in his budgets, the Stimulus, the Health Care plan, and interest for the deficits that are financing current spending.

102 comments:

  1. Nice try. Looks impressive by choosing the right scaling. Have you ever read a book about how to lie with charts?

    ReplyDelete
  2. So how much of this increase is automatic stabilizers like unemployment insurance that any President would've faced with what Obama inherited? How much is the extension of those benefits?

    ReplyDelete
  3. Of course the scale as something to do with how it appears, but the numbers tell the story without reference to scale. Obama/Pelosi/Reed have undertaken a massive increase in the State and its reach into our lives.

    ReplyDelete
  4. Potential GDP is a more appropriate denominator, since that's what determines long-run solvency (compare with permanent income hypothesis). Also, you shouldn't just use federal spending, since this includes transfers to the states.

    Check out total government (federal + state + local) spending as a share of potential GDP. I predict you won't see a regime shift.

    The markets agree with me: 10-year yields on US bonds are at historic lows.

    ReplyDelete
  5. Let's postulate a McCain Presidency and an accompanying Republican majority in Congress. Would this number be higher or lower? Would they have let the Bush tax cuts expire? Would they have passed a smaller stimulus package or one that was more stimulative? Would they have continued the wars in Afghanistan and Iraq? Would they have extended unemployment benefits and provided additional temporary tax relief? Would they have cut the growth rate of discretionary spending so severely? On nearly all of these things, I can only suspect that a GOP majority would've run a greater deficit.

    ReplyDelete
  6. @Dick Brannin: How so? I'll agree that Obamacare increases the scope of government by mandating insurance and subsidizing middle-class healthcare. Besides that, where's the massive increase in the size of the State? I can't think of a thing that Obama's accomplished legislatively that doesn't have a far more intrusive precedent in 20th-century history.

    ReplyDelete
  7. What are your source data for the graph?

    ReplyDelete
  8. Essentially all (all but 0.37 of the 3.08 percentage points) of the increase between 2008Q4 and 2009Q2 (the vertical part of the hockey stick) is accounted for by the combination of increasing transfer payments and a declining denominator. This really does not represent "the expansion of government," as there was only a tiny expansion in actual government purchases. Much of the increase (as DRDR suggests) is the result of automatic stabilizers. (It's no accident that some measures of unemployment rose to unprecedented levels at the same time that federal nondefense spending did.) A significant part of the increase is transfers to state and local governments, which are not an expansion of government in any sense, and if anything only partly offset a contraction of government at the state and local level. It's an interesting chart, but it really doesn't show the expansion of government that it purports to show.

    ReplyDelete
  9. The chart, and the whole post, is utterly misleading. This guy uses the chart to show "how much of a departure from history the Obama Presidency represents in terms of spending". However, assigning spending of year 2009 to the Obama administration ignores that spending for that year was inherited from the Bush administration. I have to ask myself, is this pure ignorance or pure bad faith?

    ReplyDelete
  10. http://www.theatlantic.com/business/archive/2011/07/a-few-more-charts-that-should-accompany-all-debt-ceiling-discussions/242790/

    I have a question.
    If gdp goes from 15T$ to 45T$ in 8 years, and debt also too, then how we know who increased the debt? Debt/GDP remains same, but debt increase dramaticarry. I think that this graph hiddens or inclueds many important things.

    ReplyDelete
  11. oh boy, according to his CV, Tino has refereed for some of the top economics journals. If this post is indicative of his ability to judge papers, there must be some really low quality articles in those journals.

    ReplyDelete
  12. @Stephan: It would be a waste of space to include the blank space below .13 and above .2 because it does not include relevant data. The cuts are to clarify the data, not to distort it.

    @Neal: He cited bea.gov for his data.

    I am still very critical of why this is bad. Funding non-defense programs that enhance the quality of life in any country is critical. Education and care for the sick and old is not a waste, but an essential part of any society.

    Why did you not include times during and before the Vietnam War, or mention the fact that the legislature is the part of the government that has the power of the checkbook, not the executive?

    ReplyDelete
  13. 1. My source is already stated. Look at the picture.

    2. Look here to see that the expansion of government is permanent, not just because of the crisis.

    http://super-economy.blogspot.com/2011/04/does-united-states-have-revenue-problem.html

    As I wrote, the CBO expects non-defense spending of 19.7% in 2016, after the crises is over (unemployment expected to be five percent).

    3. Scaling makes it nicer on the eyes. I don’t “lie”, the numbers are right there in the graph and in the text. You still have a Hockey Stick, regardless if you scale or not.

    4. Potential GDP is a constructed measure. How do we know what part of the decline is permanent and what part is temporary?

    5. Expanding spending during a crises with money you no longer have (smaller GDP) is a CHOICE. Massive Keynesian polices which risk creating fiscal crisis are CHOCEs. If you make the choices, you have to accept the costs.

    6. State and Local spending is higher 2011 than 2008. If I include them, the increase will be higher. But the President does not control that, so he doesn’t have responsibility.

    7. It is pure nonsense to claim that 2009 spending was due to Bush. That year’s spending includes the stimulus. And even it was, why is expenditure 2016 projected by the CBO to be about 4 percentage points as as share of GDP than 1975-2008?

    You guys are obviously angry, but need to try harder if you want to claim the President did not permanently expand spending.

    ReplyDelete
  14. @Tino: Not angry at the slightest here. Although some of the comments sure do sound unfortunately angry.

    I have a technical problem with points 4 and 5. GDP is increasing. The rate bea.gov gives for 2010 is 2.8%.

    Also Bernanke and his "massive Keynesian policies" have succeeded in keeping inflation low, around 2.5%. I would argue that the rise of Thatcherism and Reaganomics has had a more financial and social crisis than Keynesian ever did.

    ReplyDelete
  15. How much influence did obama have on fiscal year 2009 starting october 1 2008?

    ReplyDelete
  16. Rowe :

    Glad you are not angry!

    GDP is slowly increasing, but real GDP it is still below its peak. In the second quarter of 2011 it was 13.270 trillion, second quarter of 2008 it was 13.310 trillion. During the years where spending explodes, real GDP was below 2008 levels.

    Since someone raised the issue, according to the BEA State and Local Expenditure was 14.11% of GDP in 2008, 14.5% of GDP first half of 2011.

    ReplyDelete
  17. Per:

    The Stimulus alone increased the deficit by $200 billion in 2009.

    Furthermore, the 2009 argument is irrelevant to my point, which shows continued high spending in the second quarter of 2011, and projected to continue to 2016 and beyond. If spending only would have gone up in 2009, I would not have written this post.

    ReplyDelete
  18. Perhaps you can inform me of each law that Obama has signed that has substantially increased long term spending? I am only aware of the PPACA.

    An awesome graph would the same thing but without PPACA spending as a reference to this graph. I'm unaware of any other Obama legislation that would put so much as a dent in the graph above.

    ReplyDelete
  19. Where exactly did you go on BEA.gov for your data for the graphs? Looking to redraw them myself.

    ReplyDelete
  20. Nick:

    1.“National”
    2. GDP and the National Income and Product Account (NIPA) Historical Tables

    3. DOMESTIC PRODUCT AND INCOME

    4. Gross Domestic Product (A) (Q)
    (make necessary choices for GDP numbers)

    5. GOVERNMENT CURRENT RECEIPTS AND EXPENDITURES

    6.Federal Government Current Receipts and Expenditures (A) (Q)
    (make necessary choices for Expenditure numbers)

    7. National Defense Consumption Expenditures and Gross Investment
    (make necessary choices for Defense numbers)

    ReplyDelete
  21. Real state and local spending has fallen:
    http://research.stlouisfed.org/fred2/graph/?id=SLCEC96

    Potential GDP is based on the assumption that long-run employment will return to its past long-run mean. y = f(A,K,N). We know A and K, and we assume N goes back to long-run mean, so we can back out y_potential = f(A,K,N_longrun). What do you disagree with?

    ReplyDelete
  22. Rebel:

    The President and the Democrats in congress increased almost every social function of government in their budget, in addition to the stimulus and the Health care bill.

    Tiny Example
    http://www.boston.com/news/nation/washington/articles/2010/01/31/obama_budget_increases_nih_education_spending/

    There are many of these.

    Some of the growth is coming from continued entitlement and from the interests on the previous debt.

    Jonathan:

    Real State and Local Expenditure *spending* have risen (a little) according to the BEA, comparing 2011 to 2008, both in real terms and as a share of GDP. I put the share of GDP above.

    The numbers you cite is “Consumption Expenditures & Gross Investment”, which is a sub-component of spending, but does not for example include transfers.

    ReplyDelete
  23. You don’t know A, to start with. How much of productivity 2007 was a bubble? No one knows.
    You don’t know if N has dropped permanently or just temporarily.

    http://21stcenturywaves.com/wp-content/uploads/2011/07/us.jpg

    Even if it is temporarily, no one knows when we get to equilibrium. 10 years or 2?

    There is an advantage to actual objective numbers. Look at the way people question every detail. Do you think anyone who objects to my argument would have accepted using constructed measures of GDP which are completely arbitrary instead of actual GDP?

    ReplyDelete
  24. From the graph, it shows that the spending was raised (as a % of GDP) before Obama went into office. True?

    From the graph, it shows that Obama has maintained spending, not raised it (as a % of GDP), as you state above. True?

    Maintaining spending could be bad in its own way. But it's different than "raise."

    Spending was raised under Bush, and so far has been maintained under Obama.

    To be clear, we won't know for another 10 years if raising and maintaining spending (unemployment etc...) was a good idea or not. That's macroeconomics, an imprecise science indeed...

    ReplyDelete
  25. This comment has been removed by the author.

    ReplyDelete
  26. @Tino
    Sorry. Your chart is meaningless. Why not visit FRED and play around. Something like:

    http://research.stlouisfed.org/fred2/graph/?g=1sG

    I'm looking forward to your next post presenting a FRED Hockey Stick. Spending/GDP > Interestingly in a recession the denominator decreases and the numerator because of the automatic stabilizers (less tax revenue and more welfare spending) increases. Although I'm not sure whether this basics are part of the curriculum in Chicago anymore?

    ReplyDelete
  27. PS: I would love to concede to your point that spending increased dramatically under Obama but unfortunately it did not.

    ReplyDelete
  28. Stephan:

    Before you insult the University of Chicago, perhaps you should learn the difference between "spending" (which you wrote) and “Consumption Expenditures & Gross Investment“, which you link to. The later only includes purchases, and ignores most of what the modern welfare state does (such as transfers). I include everything.

    Yes spending is higher in 2016 because of “automatic stabilizers”…

    What I find surprising is that you guys try to deny Obama increased spending, instead of defending it.

    ReplyDelete
  29. Non-Defense Federal Spending (yearly rate):

    2008 Q.4 $2360 billion

    2009 Q.1 $2740 billion
    ..
    2011 Q.3 $3000 billion
    ..
    2016 (2011 dollars) $4425 billion

    Last number projected.

    ReplyDelete
  30. Just want to say bravo Tino. You have one of the best blogs on the internet that is relentlessly logical and fact-driven. Keep up the good work.

    ReplyDelete
  31. Sorry. I'm not alone. You have no idea what you are talking about:

    http://www.ritholtz.com/blog/2010/10/hey-big-spender/

    ReplyDelete
  32. Stephan: the issue for paying debt is obligations versus future income. The budget may have blown out under Reagan, but GDP also increased. The problem for Obama is that GDP is still way below trend. (Blame the Fed for that, btw: but Obama left positions on the Fed Board vacant without any nominees for months, so he is not blameless there either.)

    Tino: more excellent work, ta. (I am fascinated where all the complaining commenters think the debt downgrade comes from?)

    ReplyDelete
  33. Tino,

    It sounds like we don't disagree about the facts of the last few years:

    1. Total government spending (excluding transfers) has increased at a similar rate to the past.

    2. We have had a large decrease in GDP relative to trend.

    3. We have had a large increase in spending on transfers (basically social insurance programs).

    4. Therefore the ratio of total government spending to GDP increased dramatically.

    Please let me know if you disagree with any of these!

    Now I think our disagreement lies in our interpretation of these facts. You conclude from (3) that government spending policy has been dramatically different in the last few years than previously. I argue that essentially the same policy framework is responding to dramatically different circumstances.

    ReplyDelete
  34. (continued)

    One point in favor of my view is that, per your chart, all previous recessions saw increases in G/Y roughly in proportion to the size of the recession. Thus it's reasonable to think that a recession of unprecedented size would lead to an unprecedented (though temporary) increase in G/Y.

    One point in favor of your view is that the CBO baseline projects G/Y to remain high after we recover. I concede that this is a strong point, and I'm not familiar with the sources of the spending in the projection to say whether it is fair to attribute them to Obama. My guess is that they might have to do with long-term entitlements, but I will investigate further.

    Best,
    J

    ReplyDelete
  35. "What I find surprising is that you guys try to deny Obama increased spending, instead of defending it."

    Gigantic defense AND non-defense spending increases ironically came under a Republican President, and less strangely under a Democrat controlled congress. Do you deny these facts? Or is your purpose to rail only on Obama?

    Both parties should be blamed. Why does it matter if they're Republicans or Democrats or Tea Partiers? I see no reason why Republicans are somehow not a part of the issue. They control the House right now, and didn't make many cuts in the last deal. Why not?

    ReplyDelete
  36. I certainly agree that George W Bush has a huge part of the blame for our current fiscal crises. In many ways Obama is a continuation of Bush's worst tendencies.

    ReplyDelete
  37. “You have no idea what you are talking about”

    Not only are you ignorant (which is OK), your are unwilling to learn.

    I explained to you twice that “Consumption Expenditures & Gross Investment“ is not a full measure of spending, which we are discussing. Your response is yet another graph with the exact same measure? The fact that you are not “alone” in using an incorrect measure is not an excuse.

    According to the latest numbers Federal annual spending is $3,800 billion. Of this, about $1200 billion is “Consumption Expenditures & Gross Investment”. The rest is other stuff.

    Government consumption is a measure of stuff the government buys, such as teacher salaries and Tanks, but ignores things like Social Security, Unemployment Insurance, Welfare, Interest’s payments and a lot of other components that are not purchases.

    The liberals you keep linking to are either ignorant or trying to trick you.

    ReplyDelete
  38. If you cut off the chart before any Obama policies take effect, there is already an upward trend. The fact that federal nondefense spending stays high when you project into the future (e.g. the CBO projection for 2016) primarily reflects this trend that was already in place (which has to do with things like demographic changes and the rising cost of health care). Obama policies have added to it, but they are not the main explanation. Moreover, we're still talking largely about transfer payments. I'm not sure this is really evidence of a significant expansion of government: it doesn't take much additional government to print out more Social Security checks.

    ReplyDelete
  39. Federal current outlays less defence increased $640 billion in the 10 quarters ending Q22011 and nominal GDP increased $921 billion (a miniscule 6.5% in total) in the same time frame.

    As a rough approximation of the increase in outlays, 60% is government social benefits to persons (primarily social security, medicare/medicaid), 20% is grants-in-aid to state and local governments and 20% is interest payments on the debt.

    As pointed out by others there are issues with the GDP denominator and trend growth for social benefits predating Obama. The CBO estimates that automatic stabilizers are increasing the deficit by $330 billion in 2011, some of which must be attributed to outlays.

    My only contribution is the need to chart the primary balance, non-defence outlays less interest payments.

    ReplyDelete
  40. Two points here. First of all, the data in this chart should be uncontroversial. The CBO shows the same thing here, just in a different format with different scaling. Look at the first chart on the director's blog post and subtract defense from the 2021 number and you get just over 20% of GDP in non-defense spending. Tino is correct when he says that the CBO is saying that this cold well be the "new normal."

    Secondly, Tino - I think you made a huge mistake by tying this to Obama. To do so you are implicitly making a political argument, so the the responses you've gotten were all too predictable. Doing so muddled the very important message evident in the data itself, which is that our collective long-standing unsustainable practices are probably going to get worse. You imply that had someone else been elected President things might be different, but the drivers of this unsustainable growth and the causes of this new (and rising, actually) plateau span many Presidents and many Congresses, not to mention the American people. Playing the blame game, particularly in singling out one individual, is, to say the least, decidedly unhelpful.

    ReplyDelete
  41. This comment has been removed by the author.

    ReplyDelete
  42. This comment has been removed by the author.

    ReplyDelete
  43. Hello Tino,

    Great blog posting! But, it comes off a bit political - so, I'll respond in kind. The thrust of your assertion, as I understand it, Obama spurs unprecedentedly increased spending - so, why can't Dems defend that rather than deny it? Your support for this claim - CBO, 2016, 20% of GDP, hockey stick, etc.... etc.. All undeniable facts and projections, no doubt.

    However, at this point, I think we all agree ... it all started with Bush. So, I would restate your position, so that I can make my own assertions. Obama inherits unprecedented spending increase under economic crisis - why does he chooses to maintain those levels into the future. I'll defend that brother!

    Well, you quoted the answer, "You never want a serious crisis to go to waste." (Feb, 2009, R. Emanuel). We're Demarcates - what do you expect? Republics go to war to stimulate GDP - we help the needy and the poor. In the end, you tell me what Keynes would have said about a dollar spent on killing a person versus a dollar spent on improving a person's health. Yes, a gross generalization but you get the point.

    Look, Americans are getting older, they're leaving longer, etc... Tino, somebodies got to pay for that... it's either that or cat food for gra'mama. We don't want that in America ... do we?

    I've got a better quote for you, "If you spread the wealth around, it's gonna be good for everyone." (Oct 2008, B. Obama) Obama to Joe the Plumber while on the campaign trail

    Tino, you're an economist, you know "redistribution of wealth" goes both ways. It would be disingenuous to pretend otherwise. You've seen the recent data on the income gap. Republicans were in charge and they had the distribution going one way. Now Demarcates are up to bat and we're going the other way. It's that simple. I don't make more than $250K per year. Like I said, somebodies got to pay. I don't need to defend that - I just support it!

    ReplyDelete
  44. Great article. I love the oh-so-typical denial responses.. they really make the article!

    ReplyDelete
  45. I agree with notsocommonsense in that the initial post sounded quite political, hence my calling the author out for his refereeing of high-impact journals. When you mix economic analysis with political accusations (particularly in last graph of original post), it becomes much harder to believe that the source is trying to be objective.

    ReplyDelete
  46. Tino
    In his last comment, Andy is right. Just don´t try to be the "anti-Krugman"!

    ReplyDelete
  47. As others have pointed out, most of the "expansion" is due to off-trend GDP and automatic stabilizers. Some is due to the stimulus, which was temporary and included tax cuts and state aid.

    If you don't agree, which pieces of legislation, specifically, do you think increased government spending permanently?

    ReplyDelete
  48. I am in agreement with many of the more reasonable posts on this discussion. As multiple people have pointed out, the rise in proportion GDP being spent is largely due to:

    A. Reduced denominator
    B. Increased spending for unemployment and other social transfers
    C. Some one-time spending increases in the form of stimulus, etc.

    The numerical increase is summarized quite nicely in this post:
    http://www.eatnails.net/?tag=bush
    Most of these increases would have happened under any president, Republican or Democrat.

    The problem, Tino, is that you are making a very politically-charged and intellectually dishonest statement by attributing the continued increases in non-defense spending to Obama's policies. Those future increases are specifically due to growth in entitlement spending, not any Obama-specific policies. Obamacare may contribute to increased governmental spending in the next decade, but the vast bulk of non-defense spending will be due to an aging population utilizing established entitlement programs such as SS, Medicare, etc. If you want to focus on Obamacare and specifically point out the future cost of this program, that's a fair criticism, but blaming Obama for the entire increase in future entitlement spending is rather misleading.

    If you are truly concerned about the long-term growth in government spending, than you must realize that entitlement reform is required to bring down spending in the long-term. Obama recognizes this and offered entitlement reform during the debt ceiling negotiations. The question to you is whether you will accept a modicum of tax increases to achieve this decrease in spending?

    ReplyDelete
  49. 1. To repeat:

    The Stimulus was Obama’s choice, not something you can assume away.

    The Health Care plan was Obama’s choice.

    Not addressing entitlement was Obama's choice.

    Obama has in addition to all of these increases other spending programs by hundreds of billions of dollars.

    “automatic stabilizers” have little to do with spending 2016, though the current cost adds to interest payments.

    2.

    “you are making a very politically-charged and intellectually dishonest statement”…“the vast bulk of non-defense spending will be due to an aging population utilizing established entitlement programs such as SS, Medicare, etc”

    The CBO specifically estimates the effect of Aging on increased spending; it is 0.6% of GDP until 2016. It is not the “bulk” of increase in non-defense spending.

    You at least acknowledge that spending is going up, which is the point of my post. Lastly of course I make “political” arguments, this is a political blog.


    3. “Obama recognizes this and offered entitlement reform during the debt ceiling negotiations. “

    President Obama *initially* demanded a “clean” debt ceiling increase, which means zero entitlement reform.

    The President on office for 2.5 years, and during this period added to entitlement spending, instead of reforming it.

    The President passed his own budget earlier this year, with no entitlement reform.

    ReplyDelete
  50. Last I knew, the health plan was supposed to decrease the deficit, precisely because of its cost controls, including the so-called death panels. Laying all of the blame for Medicare's unsustainability on Obama seems like a stretch.


    Most of the increase in Medicare isn't from the aging population, it's from healthcare cost inflation. Pushing for allowing Medicare to negotiate with drug companies for lower rates has been a democratic priority for a while. The point is, Obama has tried to address the issue, just as Republicans have, but the vision is different. The difference has led to gridlock and more of the status quo, which has greater costs in the future built into its structure.

    ReplyDelete
  51. Obama's impact on 2016 spending is much smaller than you say, as is obvious to anyone who understands what policies have actually changed over the past 2.5 years. The correct estimate for the 2016 non-defense spending number under pre-Obama policy is 18.6% of GDP.* The projection under Obama is 1 point higher, and that is almost all due to Obamacare's increases in Medicaid spending and healthcare subsidies. The broader spending increases you allege do not exist.

    * First adjust the CBO's 2008 spending projections for their new projection of 2016 GDP. That change in denominator brings the pre-Obama spending projection for 2016 to 17.6%. Then add 1% in additional interest payments from the accumulated cost of pre-Obama "automatic stabilizers" to get 18.6%. (Details for the interest projection: The 2011 CBO projection for 2016 interest is 2.8%, 1.3 points higher than the GDP-adjusted 2008 CBO projection. Let's round the stimulus up to $1 trillion. The interest at 5% is $50 billion, or 0.25% of projected 2016 GDP. So that leaves the approximately 1% increase in interest payments attributable to the recession under pre-Obama policies.)

    ReplyDelete
  52. Let's just be a little simpler than the other comments. The Federal budget process splits spending into mandatory and discretionary components; discretionary spending is that which is authorized by the Congress via appropriations bills (or continuing resolutions) each year. Giving Obama and the democratic controlled Congress an entire 2 year period as a bloc, it is still the discretionary spending that is directly controlled by policy for that short a period of time. And if you graph non-defense discretionary spending (Table 8.8 of the OMB Historical Tables) as a % of GDP (good old NIPA 1.1.6) you get no hockey stick. That picture is right here.

    http://johnatrisk.blogspot.com/2011/08/budgetary-shenanigans.html

    ReplyDelete
  53. 1. I knew someone would make this argument:
    Even if you belive Obama’s Health care plan lowers the *deficit*, it still raises *spending*

    2. Tim: I consider interests spending on past spending spending, as I write in the text. Similarly the interests for the Bush tax cuts is included in the figure of how they effect the deficit.

    I didn't get a big difference adjusting for past projections of GDP, I wonder why our estimates differ.

    ReplyDelete
  54. I think you're missing my point. You can't just take the CBO's 2008 projection of 2016 spending/GDP (16.4%) as given. To compare pre-Obama policies to the current projection, you need to adjust for the huge recession that the 2008 CBO didn't see coming (e.g. they projected real GDP growth of +2.8% for 2009, while the most recent estimate is -3.5%). Even if the economy is recovered by 2016, the level of GDP will be lower and there will be extra interest to pay from the cost of the 'automatic stabilizers.' That brings the projection of pre-Obama spending policies to 18.5% or 18.6% of GDP in 2016. I think you owe your readers an update.

    ReplyDelete
  55. Tim:

    1. I stand by what I wrote.

    There is a “small” change in expected real GDP from the 2008 projection to the 2011 projection, but it doesn’t change the results much.

    In 2008, the expected nominal GDP in 2016 was $20540. Expected GDP-inflation was 16.1%, so expected real GDP in 2016 (in 2008 dollars),
    was$ 17.7686 billion.

    http://www.cbo.gov/ftpdocs/89xx/doc8917/01-23-2008_BudgetOutlook.pdf

    In 2011 (let’s use your January numbers), expected real GDP (in 2008 dollars) in 2016 was $17379 billion.

    (Nominal $19362.39, inflation in GDP price index 2008-2016 11.4%).

    http://www.cbo.gov/ftpdocs/120xx/doc12039/Year-by-YearForecast_110125.xls

    A small difference. Thus I wrote “A small part of this is the crises itself; depressing GDP”

    I think this result makes sense, why would 2016 GDP change much, since the projection assumes full recovery in both cases.


    2. Regarding interest rate, you want to exclude large parts of it from spending, I don’t. If the government spends more money than it has, borrow a lot and has to pay interests, that is a burden on the taxpayer which as to be taken into account. Because of higher interest, for the state not to expand and for the deficit not to go up, fiscal some adjustment must be made to the budget.

    This are the choices in reality as we face them. If your interest costs go up and you don’t adjust your budget accordingly, you are being fiscally irresponsible, and you are expanding goverment.

    You want to remove interest rate from Obama’s spending, but you (correctly) want to include it for the Bush tax cuts.

    It is clear from my text that I include interest costs in spending. If you want to disregard much of it from spending, that is a philosophical difference, not a mistake.

    3. Thanks for the correction regarding the cost of the Bush tax cuts! I have fixed it.

    ReplyDelete
  56. 1. I see, you're right. I was getting mixed up with inflation, I think. So adjusting for GDP forecasts only brings the 2008 projection from 16.4% to 16.8%.

    2. I think we're still missing each other here. I am not excluding interest costs from Obama's spending - they are included in the 19.7% 2016 spending number.

    What I am saying is that when you want to talk about the hypothetical 2016 spending under pre-Obama policies, you need to include the increased interest costs from financing the recession deficits (lower revenues and higher automatic spending on safety net programs). A fair estimate of this increased interest cost in 2016 is 1% of GDP. So the final projection of 2016 spending under pre-Obama policies is 17.8% of GDP, well above previous trends due only to the effects of this huge recession.

    3. Thanks for the update! I really appreciate your responses.

    ReplyDelete
  57. Neat graphs. I color-coded them based on which party controlled President and Congress. See my blog post at:
    http://aconservativeteacher.blogspot.com/2011/08/graph-non-defense-spending-relative-to.html

    ReplyDelete
  58. Have you tried color-coding it by whether the economy is in recession? That might be more informative. For bonus points, color it by depth of recession.

    ReplyDelete
  59. Color-coding. Sheesh.

    Tino is AWOL (pun intended).

    Nothing quite like ignoring the first and second derivatives.

    I was sent to Washington to change the trajectory of government spending.

    Mission accomplished without the tea-partiers' mantra of expansionary fiscal consolidation. Oops, the consolidation is operative, the expansion is not.

    ReplyDelete
  60. This comment has been removed by the author.

    ReplyDelete
  61. Dear marmico:

    The graph you cite to deny reality still shows that government is growing by 4% annually.

    Also, the graph uses *nominal* increases since 1956 as a baseline.

    Sheesh.

    ReplyDelete
  62. Nope, I didn't color-code it by stupid things like you suggested- I simply looked at who was in control of political power at various times in our history.

    Sometimes data and reason yield interesting results- whether it is a Republican or Democrat President doesn't seem to matter as much as Obama just being the worst President ever, but it does matter if Democrats are in charge of Congress, because when they are, the amount of money spent on non-defense spending increases while the GDP decreases (or both at the same time).

    Based on this 30 year data trend, voters should react by throwing Democrats out of Congress, and Obama should not only lose his office, his very name should be used as a replacement for 'worst President ever'. At least that is what the data suggests.

    http://aconservativeteacher.blogspot.com/2011/08/graph-non-defense-spending-relative-to.html

    ReplyDelete
  63. Sheesh

    Your entire argument is nominal outlays divided by nominal GDP. Outlays ex-defence is a red herring.

    Sheesh! Nominal GDP (the denominator) declined by 2.5% in 2009, the first negative print since 1938.

    Nominal GDP in Q22011 is $15 trillion. It has increased by a whopping 5.3% since the Q42007 cycle peak. Trend extrapolation suggests it should have increased to at least $16.5 trillion today which makes total outlays relative to GDP Reagan-era-esque.

    Don't let a 1930's style depression denominator stand in the way of your analysis.

    ReplyDelete
  64. marmico

    More obfuscation to make the indefensible claim that spending under Obama is “Reagan-era-esque.”

    1. Nominal spending since 1956 is not a reasonable benchmark, since this period had much higher inflation, population increase, GDP increase than we have now.

    Your numbers mainly serve to confuse readers. I guess that is the only way you can “prove” your point, that Obama is “Reagan-era-esque”, since your claim cannot be defended using reasonable ways to measure the size of government.

    Why don't you Obama-supporters defend the President’s policies as they are, rather than try to deny them using more and more ridiculous methods? Doesn't give the impression of having ideological self-confidence.

    2. If the economy doesn’t grow, but you choose to continue expanding spending as fast as you did during the growth years with borrowed money, you expand government, and you create a fiscal crises. That is why spending as a share of GDP is the correct measure, and the standard measure used by economists, rather than your third derivative or 1956 nominal spending.

    3. The “third derivative” of spending is meaningless if you are still expanding expenditure by 4 percent per year. Clearly the “third derivate” has not come down sufficiently for the government not to expand in relation to how much money the U.S has. Your data only serves to obfuscate this reality.

    4. As I have pointed out several times, I in addition use data on 2016, when the economy is assume to have recovered. You can’t blame everything on the crises.

    5. Defense expenditure as a share of GDP has increased during Obama as well, from 5.2% of GDP 2008 to 5.6% of GDP second quarter of 2011. I don’t include defense expenditure since it is volatile and since much of it is temporary. If I did, spending would go up *even more*, just like including state and local government.

    ReplyDelete
  65. US economic data
    http://www.econoside.com/

    ReplyDelete
  66. 4. As I have pointed out but you refuse to acknowledge, the difference Obama has made to 2016 spending on public services is only 1.9% of GDP, not the 3.4% you sloppily claim.

    ReplyDelete
  67. Well Tino if you are concerned that a 20 basis point increase, some of which was the ARRA stimpack, in defence spending relative to GDP between Q42008 and Q22011 is volatile and confusing, all the power to you.

    Is there something in the water in the Windy City that makes its denizens think that bullshit baffles brains.


    Cyclically adjusted (aka automatic stabilizers) outlays are not materially higher in the 2009/10 period than in the Reagan 1985/86 period. Further, with the BEA's recent downward GDP revisions, the CBO will revise adjusted outlays lower.

    You could look it up at the CBO.

    Why don't you take Kasriel out for lunch. He can explain to you a second derivative; that if outlays are increasing at a slower rate than nominal(N) GDP and revenues are increasing at a higher rate than NGDP, then the deficit relative to NGDP will...

    In order to maintain your political position, you must disaggregate legislative action from the business cycle.

    For instance, take SNAP. Now the Obama administration increased payments and made eligibility easier. That is legislation. But the number of recipients has dramatically increased such that total outlays have doubled. What percentage is cycle and what percentage is legislation?

    There are many hungry people that live within 2 miles of your campus, Tino.

    Now perform the same analysis for every single line item in the budget and report back. Or alternatively, just rely on the CBO.

    ReplyDelete
  68. Tim:

    I have already responded to you. You want to remove response to the recession from spending; I don’t, since it is in fact spending.

    marmico:

    You are just ranting now. If I include defense, that just makes the increase in spending larger, strengthening my point, and weakening yours.

    “if outlays are increasing at a slower rate than nominal(N) GDP“

    Which they are not. They increased substantially faster than nominal GDP for years, and are now projected to increase more or less at the same rate, never going back down to what they were before the crises. The abnormal crises spending level will become the new norm. All of this is illustrated by the graph; which would have saved you much confusion.

    ReplyDelete
  69. What an empirical Ph.D defence of your dissertation, Tino.

    The Road to Kasriel for a lesson in second derivatives.

    Did you get hot under the collar, blowhard?

    If I include defense, that just makes the increase in spending larger

    Bullshit.

    ReplyDelete
  70. Marmico:

    You must be really smart, since you talk about derivates. Though apparently not smart enough to actually understand them in this context, but hey, nobody is perfect.

    Defense Expenditure BEA (excluded from the graph)

    2008
    $737.8 billion, (GDP $14291 billion) = 5.2% of GDP.

    Latest quarter reported in graph:
    $830.6 (GDP 15,004 billion) = 5.6% of GDP

    But I really liked the “bullshit” comeback, not only was it classy, but fact-devoid arguments are always the best ones.

    ReplyDelete
  71. Latest quarter reported in graph: = Second Quarter 2011.

    ReplyDelete
  72. Embarrassing post, pathetic defense.

    ReplyDelete
  73. There are an awfull lot words here, and maybe I missed it, but why does Obama get charged with "automatic" increases for things like food stamps ?
    weren't those laws on autopilots programmed before Obama took office ? (mostly...)

    also, I think your intro is a bit weasely; as I read the SnP press release, failure to work together was specifically cited (and, anyway, who gives an ***K about the prostitutes (not to strong a word) who let GS sell NINJA securities as AAA ?

    PS: most of the future deficit is healthcare, and this is not an economic issue, it is a technolog issue, when technology starts making healthcare cheaper (my personal guess, as a scientist in th field, 20 years) the problem will be solved

    ReplyDelete
  74. "Did you get hot under the collar, blowhard?"

    "Bullshit."

    "Embarrassing post, pathetic defense."


    I love the smell of burning ideology in the morning...

    ReplyDelete
  75. I don't want to remove automatic responses to the recession from spending. On the contrary, I want to add it to the pre-Obama alternative, which is not 16.3% in 2016 but 17.8%. That is, from the recession alone, with no policy changes after 2008, spending in 2016 would be above the previous high on your graph.

    But you want to pretend that this historic recession has no effect on medium-term spending, that the entire increase is attributable to Obama.

    ReplyDelete
  76. New CBO estimate for 2016 non-defense spending: 19.0% of GDP. That's right, just 1.2 points higher than what it would be under pre-Obama policies. But your post still says the difference is around 4%.
    http://www.cbo.gov/doc.cfm?index=12316

    ReplyDelete
  77. Hi Tino, all. I charted the differences between the 2008 and 2010 budgets on my blog (www.eatnails.net/?p=99) using data from CBO. I tried to make it a balanced look. I used straight dollars, not inflation adjusted or percentage of GDP, since neither cost of living, nor GDP moved much in 2 years.

    It appears most of the increased spending is medicare, medicaid, social security and unemployment insurance, with an unexpected (by me, at least) increase in the Department of Transportation budget and fairly modest increases in most other categories.

    ReplyDelete
  78. Putting ones political persuasions or postulations on the cause of the “hockey stick” change aside, the calculated change by t-test is statistically significant (no matter what scale one wishes to use on the y-axis of the chart). Therefore, the use of “hockey stick” and “departure” are mathematically accurate descriptors of the data represented.

    ReplyDelete
  79. bingo

    Judi Online Terpercaya A significant part of the increase is transfers to state and local governments, which are not an expansion of government in any sense, and if anything only partly offset a contraction of government at the state and local level. It's an interesting chart, but it really doesn't show the expansion of government that it purports to show.

    ReplyDelete
  80. online bingo

    บอลวันนี้Why don’t you guys on the left stop pretending to be “conservatives” and “libertarians”, and just defend the left-wing policies you are advocating and the deficits your policies are causing?

    ReplyDelete
  81. Thanks for your posts, I am looking forward for future posts. Certainly I have become a big fan of yours and waiting for new posts. Your blogs are like risk free day trading. Please share new post on your blog that would be very helpful for me and other visitors.

    Scott

    ReplyDelete
  82. The quality of information that you are providing is simply marvelous.
    loans

    ReplyDelete
  83. Your blogs are totally worth giving time and energy.
    unsecured loans online

    ReplyDelete
  84. Great blog you people have maintained there, I totally appreciate the work.

    unsecured loans online

    ReplyDelete
  85. The people not reading your blogs are missing out a lot of quality contents.
    discount loans here

    ReplyDelete
  86. I consider this the finest blog I have read all this hour.

    online pharmacy affiliate

    ReplyDelete
  87. I feel ecstatic I found you website and blogs.
    dwi charges

    ReplyDelete
  88. I beyond dubiety revalue your articles and blogs
    dui attorney

    ReplyDelete
  89. I would simply say to you all “awesome information”
    payday advance lenders

    ReplyDelete
  90. I’m glad to find so many useful and informative data on your website.online payday loan companies

    ReplyDelete
  91. The couple that owned the farmhouse with the summer kitchen moved to a home with electricity and central plumbing long before I arrived. The physical challenges of the house with the summer kitchen were beyond them as they aged. plumbers diamond bar ca

    ReplyDelete
  92. Your listing are progressing with days dungeon it up guys.
    usedcarloancalculator.net

    ReplyDelete
  93. I have got the superb information from these blogs finally.
    online payday loans direct lenders

    ReplyDelete
  94. I read this post fully concerning the difference of latest and former stuff, it is awesome article.
    payday loans online

    ReplyDelete
  95. Hi, I really need the information more as you have provided in this valuable blog. loans

    ReplyDelete
  96. Appreciate you guys you are doing a really terrific job.
    accident claims

    ReplyDelete
  97. I really Appreciate your article content and also you represent with a graph its really good new representation to publish a blog .


    Ice Hockey Stick & Ice Hockey Gloves

    ReplyDelete

Google Analytics Alternative