Monday, December 19, 2011

The American Federal Debt

The President doesn’t control the economy, and should not be blamed for things out of their control. The deficit is however one the components of the economy where the president has lots of direct control. Even this controll is far from complete, presidents can be lucky or unlucky. For instance the deficit declined during the 1990s IT-boom when Clinton was president and was increasing rapidly when Obama took over following the 2008 crash, in both cases having little to do with their actions.

Though the debt numbers alone do not tell how much credit or blame the president deserves, they are interesting. Data from The White House 2012 President's Budget. Since the figure is for the end of the year and the President takes office one month into the year, they correspond well with tenure.

During 20 years of the presidencies of Reagan, Bush I and Bush II, the federal debt as a share of GDP increased by a cumulative 43% of GDP. During the 4 first years of the Obama presidency, it has increased by 36% of GDP.

This is how the Presidents rank in terms of development of the Debt/GDP ratio per year of tenure:

1. Clinton -1% per year
2. Reagan, Bush II: +2% per year
3. Bush I: +3% per year
4. Obama: +9% per year.

Friday, December 9, 2011

Social Expenditure bad measure of Spending

Ezra Klein argues that “A larger welfare state can mean a lower deficit”.

My main problem is not so much the argument, but that Klein is knowingly or not relying on a trick used by (who else) Paul Krugman, which is to define the welfare state as “Social Expenditure”.

Social Expenditure is a statistical category which sound as if it the welfare state, but in fact includes about half of non-defense spending. For instance education spending is generally not included in “Social Expenditure”. All spending causes deficits, not just the ones somewhat arbitrarily defined as social.

In the U.S, social expenditure is about 45% of total government spending. Even in Sweden, the country which spends most on social expenditure, the category nonetheless only includes 53% of total government spending.

Richer countries tend to have a higher share of Social Expenditure of total welfare state expenditure. It is therefore a trick to use “Social Expenditure” when you are talking about the welfare state. Instead of size of government, they use a sub-category of spending that tends to correlate with good outcomes more than overall government spending does.

But let’s stick with Kleins definition, for now. The last year for which the OECD reports “Social Expenditure” was 2007. Here is a correlation with the public debt that year. It is positive and weakly statistically significant (10% but not 5% level).

Countries that spend more have more debt. The same is true if total spending is used.


Another trick used by liberals is to use ”Government Purchases” (another sub-category) instead of spending. The left love spending, but apparently don’t like to use spending as a statistical variable.

Saturday, December 3, 2011

Evaluating Keynesianism three years after the crash

I have a new article in The American about why accepting Keynesian theory does not necessitate supporting Keynesian policy.
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