December 09, 2007
The Administration Finds Fiscal Restraint
From the White House OMB on Saturday:
Statement by White House Office of Management and Budget Director Jim Nussle
According to news reports today, House and Senate Democratic leaders are nearing agreement among themselves on a mammoth omnibus spending bill, two-and-a-half months after the end of the last fiscal year.
Although the Administration has not seen the legislation, according to press reports it would include 18 billion in additional domestic and emergency spending above the President's budget. When added to emergency domestic spending Congress already included in the Defense Appropriations bill, this so-called compromise would result in more excess spending than even the Democrats' original budget included.
This is not fiscally responsible. Our economic growth and job creation cannot be taken for granted, and Congress should not burden taxpayers with billions of dollars in additional wasteful spending.
Press reports also suggest that the Democrats in Congress believe this excessive spending is the price for providing a fraction of the funding requested for our troops in the field. Instead of trying to leverage troop-funding for more pork-barrel spending, Congress ought to pass responsible appropriations bills and the funding for the troops our commanders say they need to build on their battlefield successes.
If presented a bill like the one described in today's press reports, the President would veto it. If Congress insists on sending the President a budget-busting bill they know he will veto and that will not become law, they should also pass a continuing resolution that keeps the government running and provides the troops in the field the funds they need without disrupting the operations of the Department of Defense and the lives of hundreds of thousands of its employees and men and women in uniform.
While I am in favor of fiscal responsibility, I have to confess that a look at the time series data on Federal expenditures (government consumption and transfers) seems to suggest that the Administration has had a rather late conversion to spending restraint, or at least restraining spending of a certain sort (see ).
Figure 1: Federal current expenditures as a share of nominal GDP. NBER-defined recession shaded gray. Dark dashed vertical lines indicate the beginnings of Clinton and Bush terms. The light dashed line indicates the beginning of the Democratic Congress. Source: BEA, NIPA Oct. 30 release, Table 3.2, and author's calculations.
Posted by Menzie Chinn at December 9, 2007 05:56 AMdigg this | reddit
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Tracked on December 10, 2007 09:23 AM
Going by the chart, it would seem that the current administration found fiscal discipline sometime in 2003 (after the early 2003 peak, expenditures would seem to level off, at least until 2007 when the Congress came under new management.)
It might be interesting to add population to the mix, as one would expect spending to be proportional to this factor - something similar to this approach, which uses the U.S.' national debt along with GDP and population (recently updated here.)
Posted by: Ironman at December 9, 2007 06:10 AM
Going by the chart, it would seem that the current administration found fiscal discipline sometime in 2003
and that is the time to suspect the denominator in Fed Spending/ GDP, right?
Or you figure it could be my memory --forgetting the wonderful, long-awaited and so cherished, return to that Golden Era: The Fiscally Disciplined Months of 2003?
Just as the military adventure kicks off? Just as reports (Intelligence Estimates...for the suspects --you know who I mean) begin to surface about 12M illegal aliens?
Nice troughical illustration Menzie...every OMB release should be required to have one.
Posted by: calmo at December 9, 2007 11:34 AM
Well, better late than never. Or, it's about time. Can't do much about past profligacy.
Posted by: Rich Berger at December 9, 2007 02:32 PM
Actually, it is not as bad as I thought. Most of Bush's Presidency has had a lower lever of spending/GDP than Clinton's entire first term.
It would be nice to stay under 0.20, but Clinton did not get there until the very end either, and it was already rising back by the time he left.
Posted by: GK at December 9, 2007 02:52 PM
But, Bush has been forcing the next generation of taxpayers to pay for his expenditures interest included.
Posted by: Jack at December 9, 2007 04:10 PM
GK is right; W has probably averaged about 20.5% and Clinton was not below that level till sometime in 97-98.
Posted by: Rich Berger at December 9, 2007 04:14 PM
Rich Berger and GK: Not only are the levels important, so are the gradients. Under Clinton, the spending to GDP ratio was declining, while under G.W. Bush, it has been rising. But the main point I wanted to make is that the Bush Administration had no qualms about incurring multi-trillion dollar liabilities such as Medicare Part D, but worries about a few billions on SCHIP.
Posted by: Menzie Chinn at December 9, 2007 05:43 PM
As if Clinton's spending wasn't going towards the next generation. Grow up.
What happens when Hillarycare 2.0 comes, and pushes spending to Euro-style welfare levels?
Posted by: GK at December 9, 2007 07:35 PM
GK: I don't know. I'm still trying to figure out the PDV of our Iraq adventure (including direct fiscal costs on-budget, yet-to-be-incurred reset costs, unaddressed medical costs, VA costs, opportunity costs associated with the failure to stabilize Afghanistan, opportunity costs associated with diversion of resources away from DoD transformation, etc.).
Posted by: Menzie Chinn at December 9, 2007 07:48 PM
Regarding health care reform, I don't see the problem with large increases in taxes to support universal care. We are already spending in the neighborhood of $6000 per capital per year which is twice what other countries are spending to provide universal care. It is mostly a hidden tax paid through private insurance plans, company plans and pension plans. A new tax would replace the hidden taxes and simply extract the same amount of money but spend it in a more efficient federally run Medicare-type plan.
Posted by: Joseph at December 9, 2007 11:37 PM
This bit "the PDV of our Iraq adventure...[ those relevant and untabulated] opportunity costs..." really did me in reconsidering the housing boom and the unfolding mess.
That near decade of "irrational exuberance" that saw capable minds steered into RE related heisting instead of acquiring an education and making a real contribution --that is the major human resources opportunity cost.
The minor one being the cost of a less than exemplary role model provided by the WH. Although his approval ratings are lousy (the published 30% is the industry's vain hope), the underlying message one absorbs in any case is that might is right and there is no penalty for irresponsibility. Not only do foreigners learn to fear us,--we learn that this mode of interaction is the way to get ahead (lookit McCain an see if it ain't pitifully so). As a role model, w is a seed bed for a lot of future years of sociopathic behavior. Hence an extremely high maintenance president that future generations will pay for.
Posted by: calmo at December 10, 2007 12:37 AM
Looking at the chart again, it is interesting to note how expenditures as a % of GDP decline sharply after the 2003 tax cut kicked in - GDP growth explains most of that.
Posted by: Rich Berger at December 10, 2007 03:55 AM
"As if Clinton's spending wasn't going towards the next generation. Grow up"
GK, it wasn't. Grow up. Clinton was getting us surpluses - at least with the SS trust fund - a level Bush would never achieve if you gave him another decade.
Posted by: M1EK at December 10, 2007 07:04 AM
Not only are the levels important, so are the gradients. Under Clinton, the spending to GDP ratio was declining, while under G.W. Bush, it has been rising.
Come on, Menzie, that's not a fair statement. Spending ratio is flat since '03. Presumably the increase from '00 to '03 was due to the recession.
I've got no problem with your larger point regarding the excessive spending during the Bush years, nor the restraint of the Clinton years (which you need to in part thank Newt for). We need to spend less, and more importantly, make senior citizens pay more. Part D was crap. No argument there.
Posted by: Buzzcut at December 10, 2007 07:15 AM
"GK, it wasn't. Grow up. Clinton was getting us surpluses"
You should learn to read charts before you aspire to comment on such lofty subjects. Clinton had a tiny surplus only at the very end of his Presidency. For most of his 8 years, this spending was more than Bush's ever was. The chart in this article proves it.
Are you really this blind to inconvenient realities? Grow up before you comment here, kiddo.
Posted by: GK at December 10, 2007 08:27 AM
"...it is interesting to note how expenditures as a % of GDP decline sharply after the 2003 tax cut kicked in - GDP growth explains most of that."
It would be just as true to say "it is interesting to note how expenditures as a % of GDP decline as GDP growth improves."
-- and would involve a less debatable assumption. Recessions end. They always have. Odds are they always will. The Fed was busy seeing to it that the 2001 recession would end, but that gets left out by tax-cut religionists. The tax-cut hard-sell is getting a bit tired.
The claim that the increase in the ratio from 2000 to 2003 is due to the recession rather ignores the fact that the ratio remains above where it was in the late Clinton years despite the being at full employment for a number of quarters. Bush is certainly more responsible for the fiscal balance now, toward the end of his term, than for that in any other period. We are running structural deficits, right now, with no recession to hide behind. CBO studies have found that Bush tax cuts account for a substantial part of the structural imbalance. His spending policy account for another substantial part. Over the past few quarters, recession has not accounted for any of the deficit.
The "grow up" and "no, you grow up" series was funny at first, but is getting tiresome now. The expression "was getting surpluses" is correct in describing Clinton fiscal performance as "was getting" implies a process, not a static state. Note the steady progress from the high ratio he inherited to the low ratio at the end. Progress. "Was getting." Pretending otherwise is a really, really weak way to set up a "no, you grow up" punch-line.
One simple notion should be kept in mind when employing partisan talking points and spin. When the people you are addressing don't share your view and also have half a brain, taking an indignant tone when delivering the spin makes you look ridiculous. Your listener knows you are spinning and will think less of you for taking a self-righteous tone. A related notion is that, if you absorbed your views from a partisan source, you may be spouting nonsense and not even know it. In that case, the self-righteous tone makes you pitiable, but still annoying. So drop the tone, already.
Posted by: kharris at December 10, 2007 10:00 AM
What happens when Hillarycare 2.0 comes, and pushes spending to Euro-style welfare levels?
probably about the same thing that happened when Bush rammed through the Medicare drug benefit.
Anyone care to bet that whatever democratic move we get on healthcare will be less expensive then the Bush drug program?
Posted by: spencer at December 10, 2007 10:01 AM
The claim that the increase in the ratio from 2000 to 2003 is due to the recession rather ignores the fact that the ratio remains above where it was in the late Clinton years despite the being at full employment for a number of quarters.
I don't think that it ignores anything. It's a fact. There was a recession starting in '00. It's effects lasted until '03.
Nobody said anything regarding why the ratio hasn't gone down since '03, only that it is in fact flat. I have no problem with the argument that the ratio would be lower without the '03 tax cuts. I also think that the economy would be a lot weaker.
I've said it before and I'll say it again. This economy is based on low taxes and cheap credit. We seem to have lost the cheap credit (and moved towards no credit). All signs point to the low taxes going away as well. Is it any wonder that forcasts are for slower growth in the near future?
Posted by: Buzzcut at December 10, 2007 10:52 AM
You need to learn how to type the following:
as in "I think this economy is based on low taxes and cheap credit." Your assertions about the economy are mere assertions. Coming out of your mouth (or keyboard) does not make an utterance a fact. It is an open question whether changes in tax rate at the level of marginal tax rates when Bush arrived in office have much impact on overall economic performance.
And I guess I mistyped when I wrote "ignored". I should have said "willfully avoided mentioning." You were complaining that our host was being unfair, but now you want to stamp your little feet and say whatever period you name is the period that matters, and that whatever results you feel are relevant are all that matters. Maybe to you, but in a fair-minded discussion, other views are admissible. Menzie's point about trajectory is pretty standard stuff when looking at fiscal performance. Your citing a below-trend growth period an refusing to admit the full-employment period is pretty standard data-mining. You wanna do that? Go ahead, but don't expect the rest of us to let it pass.
Posted by: kharris at December 10, 2007 11:41 AM
Omg, kh is on a tear (as in ripping right along). "Odds are..." delicious (see what you get with a little bit of English on the cue ball, people? RESULTS).
"...that gets left out by tax-cut religionists." I'm not sure I can handle another kh paragraph without visiting the fridge, you? Dang I like that Supply Side cuff. [So what's your religion again?]
But the vault over "growing up":
The "grow up" and "no, you grow up" series was funny at first, but is getting tiresome now. less successful...in my vaunted (not only grown up but possibly stogy and decadently "off") opinion. It takes immeasurable patience to listen to others who may not have the impenetrably deep and broad resources that you yourself have. But we try. We must.
Ok, I make it kh owes me a beer, you?
Posted by: calmo at December 10, 2007 11:48 AM
"I don't know. I'm still trying to figure out the PDV of our Iraq adventure "
Be sure to consider these costs and benefits as well, such as Libya giving up its WMD programs without a shot fired, Iran giving them up in 2003 (if the recent report is true), the now-removed expected value of the cost of Saddam's support for terror and WMD programs, the diversion of Al-Qaeda resources to Iraq vs. using them to plot attacks on US soil, the savings from having no attacks on US soil in the last 6 years, the value of 'democracy in Iraq', etc.
Also, be sure to do the PDV for other wars, like Afghanistan, like Bosnia/Kosovo (where we still have troops after 10 years), the cost of maintaining troops in Germany, Japan, Korea even to this day, 55-62 years hence, etc. A true economic analysis must treat all wars by the same standard of cost calculation.
I am not here to debate politics. I just want any calculation of war costs to transcend fashionable (and hence uninformed) political biases.
Posted by: GK at December 10, 2007 12:06 PM
Your assertions about the economy are mere assertions.
Seems like pretty standard Keynsian analysis to me. Do you disagree that cheap money and low taxes have been driving the economy since '03? To the extent that there has been growth, of course.
There were a lot of words in your 2 posts, but I'm having trouble extracting anything you really said, other than supply siders are evil, yada, yada, yada.
Menzie's point about trajectory is pretty standard stuff when looking at fiscal performance.
Good for Menzie. He has me at a little disadvantage, because he has the data and I don't. But judging by my calibrated eye-cromiter, a regression on that graph starting in '03 would show a flat line. So how do you use that graph to say, "while under G.W. Bush, it has been rising"?
Posted by: Buzzcut at December 10, 2007 01:18 PM
This discussion seems to have lost its intellectual tone and, well, intelligence...
Posted by: mike at December 10, 2007 03:33 PM
If cheap credit and tax cuts are meant to be an exclusive list, then I disagree very strongly. If cheap credit and tax cuts are meant to be non-exclusive, but represent the two most important factors, I disagree strongly. If putting them together is meant to imply that cheap credit and tax cuts have had influence of similar magnitude, I disagree strongly.
The pattern of growth, with housing leading and consumption based on extraction of wealth from housing, makes an awfully good case for cheap credit as the overwhelming factor. The Fed and foreign investors are the story.
If you want to make a Keynesian argument, then leaving out spending and just mentioning tax cuts is a mighty poor way to do it. The list should include government spending.
So I think your list is largely a reflection of ideology, rather than of reality. I'm very happy to disagree with it.
Posted by: kharris at December 11, 2007 08:12 AM
kudos for "eye-cromiter" Buzzy...sense of humor bein so important for those of us who are packin around disagree gauges...and for good reason, you know? [You stongly disagree or very strongly disagree?]
What of mike's tickle? I get the impression he's on the verge of joining us, you? [Paste us again mike. We can take the intelligence you can bring to this discussion...possibly not the intellectual tone though.]
I confess, Buzzy, to not only seeing your posts, but looking for them. I read most of them. Some of them right to the very bitter end...you know?
Such is my adversarial ideology...unlike kh's who is not looking for mike, the toney intellectual.
Where izat on your disagree-omometer?
Posted by: calmo at December 11, 2007 08:48 AM
Please note: All the data used in the graph are available at the BEA, October 30 GDP release. I think the November 29th release has overwritten the October 30 release at BEA, but I don't think the results will change in a way that is visible.
Posted by: Menzie Chinn at December 11, 2007 09:16 AM
Under Clinton, the spending to GDP ratio was declining, while under G.W. Bush, it has been rising.
But surely one big difference there is that GDP was expanding rapidly between 1996 and 1999, while there was a brief recession during second half 2000 to 2002. Aside from that, we can agree I hope that the big difference in the graph is the cuts in military spending in the former period, and increases during the latter? A graph of non-military spending as a percentage of GDP shows much less variation.
But the main point I wanted to make is that the Bush Administration had no qualms about incurring multi-trillion dollar liabilities such as Medicare Part D, but worries about a few billions on SCHIP.
This is a very fair point, but not reflected in the graph you posted. Your graph illustrates the effects of GDP growth and military spending, not future entitlements. Unfortunately, graphs are worth a thousand words or so, so posting a graph on a different point is going to overshadow the "main point [you] wanted to make," I fear.
Posted by: John Thacker at December 11, 2007 09:29 AM
JT has some good points and triggered another thought - Menzie claims that ".. the Bush Administration had no qualms about incurring multi-trillion dollar liabilities such as Medicare Part D, but worries about a few billions on SCHIP." MZ is comparing a present value with annual costs. As best I can find, the issue was the expansion of the SCHIP program by about $35 billion (over 5 years, I believe). So it's more than a "few billions", especially since it is likely that it will be continued indefinitely, and expanded. I would guess that the likely present value of the expanded program would be in the hundreds of billions, not the few billions MC cites.
Posted by: Rich Berger at December 11, 2007 09:52 AM
I find it intriguing to see charts, like Menzie's and others, comparing the two administrations' budgets. Seldom do we see the comparison of the underpinnings of the two economies.
Recession?---St Bill---Nope! --St GW --Um, Yeaahh!
US attacked?-St Bill---Nope! --St GW --Um, Yeaahh!
War? --------St Bill --Nope! --St GW --Um, Yeaahh!
Taxes cut? --St Bill --Nope! --St GW --Um, Yeaahh!
balanced? ---St Bill---Yup! ----St GW --Almost.
Taxes raised? St Bill -Yup! ----St GW-- Nope.
St Bill's economy was largely due to a tech bubble. I say that was spurred on by Y2K spending. Others disagree, but never explain the huge drop off in IT spending after Y2K. If you don't believe there was a drop off take a look at Cisco's (or many other IT firms') revenues.
Posted by: CoRev at December 11, 2007 11:32 AM
Thank you Rich for bringing to light the reality...no, the digitality of "a few billions" ($35B over 5 yr he believes) or $7B/yr..thus confirming Menzie's correct use of the English language...unless you were counting the eggs underneath the chicken...in which case 7 would be more than a "few". [Menzie does link to his previous Sept containing a ref to Walker's GAO missive with some of that digitality (and more, that cartoon!), but do busy people in a hurry use them?...no, the 'toon is in there to attract them.]
Nicely done...and waiting in anticipation of more triggers from JT, you?
John, wonderful thought triggerer, writes:
Your graph illustrates the effects of GDP growth and military spending, not future entitlements. Unfortunately, graphs are worth a thousand words or so, so posting a graph on a different point is going to overshadow the "main point [you] wanted to make," I fear.
and I wonder (not fear, not anymore) whether JT has mistaken "GDP growth" for GDP, used here as a normalizer (to feel the impact of the Fed expenditures and not merely the nominal dollar values). Such a little ting, but the possibility of misunderstanding the graph while raising that other point about the use of graphs bein so thoughtful ("triggering" as Rich has it), I just need to make sure, you?
In other words perceive the graph as Fed Expenditures normalized...and square that with (make it coherent, if not consistent with) your current somewhat established view of Fed spending based on previous information.
Now "the main point", John, which is damn near philosophical (...meaning feel free to be as contentious as possible), that the graph only shows that Fed Expenditures are increasing...not that this Administration is hypocritical when it comes to vetoing SCHIP. That would be just an opinion, possibly even an informed one, just not totally informed. Until we have more evidence and more graphs, this is a leap, not a landing, not a "showing" --a possibility, not a probable conclusion.
I don't expect anyone to change their view of this administration on the strength of 1 post, but I do hope that each little tap in summation has some overall effect that not only exercises those little hammers, but confirms the larger picture that Menzie has of the current gang in the WH.
Posted by: calmo at December 11, 2007 01:13 PM
If I may observe, Medicare Part D does not require renewal. SCHIP will require renewal. Hence, making PV calculations regarding SCHIP going into the indefinite future and then comparing against the liabilities implicit in Medicare Part D, well, one can do it. But one should be up-front about what one is doing. So I stand by my assertion -- the President is happy to veto something that amounts to something much, much smaller than the entitlement he pushed through (after steamrolling the Social Security actuary).
Posted by: Menzie Chinn at December 11, 2007 04:54 PM
I will respectfully disagree with you regarding SCHIP. Programs like this tend to have eternal life, and I believe that it was just the camel's nose under the tent for a much larger program. I know that there was a controversy about the estimates, but the costs have been lower than originally estimated (from HHS):
"Projected Medicare Part D Costs Drop By 30 Percent
Independent estimates for the Medicare Part D prescription drug benefit for the FY 2008 budget cycle show that net Medicare costs are 30 percent less -- $189 billion lower -- than were originally predicted when the benefit was created in 2003, HHS Secretary Mike Leavitt announced today. In addition, based on strong, competitive bids by health care plans for 2007, average monthly premiums will be approximately $22 for beneficiaries, down from $23 in 2006, if enrollees remain in their current plans. The initial estimate for 2006 premiums was $37."
Posted by: Rich Berger at December 11, 2007 06:46 PM
Rich Berger: See this post. Even if costs are 30% less than anticipated (which I doubt will persist in perpetuity, but let's say for the sake of argument it is), then 70% of $8.7 trillion is still going to be a heckuva lot more than $5 billion discounted into the infinite future (taking at face value your stipulation that the SCHIP program is renewed over and over again infinitely).
Posted by: Menzie Chinn at December 11, 2007 09:17 PM
GK: Did I read you correctly as tying the lack of attacks in the US to the US attack on Iraq? I think I recall something about an NIE arguing that the occupation of Iraq was creating more insurgents, hence yielding on net negative in the effort to mitigate violent extremism (i.e., "terrorism"). Hence, while I agree a benefit-cost analysis is the right way to assess actions (see this post and this NBER Working Paper for a formal approach), the costs of this badly managed occupation have probably resulted in a net benefit-cost ratio less than unity.
Posted by: Menzie Chinn at December 11, 2007 09:51 PM
I stand corrected. I went to the BEA web site, downloaded the relevant data and did the regression from Q3 of '03 to now.
There is a small positive slope to expenditures over GDP. Slope is 0.0005.
Posted by: Buzzcut at December 12, 2007 06:43 AM
Buzzcut: Just to put things in perspective, let me make sure understand the coefficient estimate. If this is a quarterly data, then the implied annual change in the current expenditures to GDP ratio is 0.002 ( = 0.0005x4), so that the trend is for an increase in spending of 1 percentage point of GDP over 5 years. Is that correct?
Posted by: Menzie Chinn at December 12, 2007 08:31 AM
Menzie, that is correct, although I'm wondering if the data is corrected for inflation in different ways. My % of GDP numbers are high. More like 30% than 20%.
Posted by: Buzzcut at December 12, 2007 11:04 AM
Buzzcut: I divided nominal Federal current expenditures (line 19, Table 3.2) by nominal GDP, to obtain the series presented in Figure 1. I just checked my figures, and they seem to be correct, so I'm not certain why you have a higher ratio.
Posted by: Menzie Chinn at December 12, 2007 09:46 PM
Yeah, I'm doing the calculation right, but from evidently the wrong data.
I got GDP from Table 1.1.5
I got government expenditures from line 15 of Table 3.1
I can't find your reference table 3.2
Posted by: Buzzcut at December 13, 2007 07:01 AM
Never mind, I found table 3.2. I guess I was doing the calculation for all governments, not just the Feds.
The slope is only 0.0002 when doing the correct calculation. 1% increase in GDP ratio in 12.5 years.
Like I said, small positive slope.
Posted by: Buzzcut at December 13, 2007 07:08 AM
The graph of 1947 to 2007 is interesting too. The slope of that regression is 0.0003.
Conclusion is that the increase in the GDP ratio over the last 4 years is less than the long term trend.
Posted by: Buzzcut at December 13, 2007 07:20 AM
Youse guys are sooo smart it makes my brain hurt. Grow up.
Posted by: OpenYourBlindEye08 at December 13, 2007 04:59 PM