30
Dec
2010
Is Big Government a Myth?
My sources say no:
Lately the supporters of big government have deployed an interesting twist to their arguments, claiming that it is a dirty right-wing lie that government has grown under the Obama administration. Unlike arguments over economic theory, surely this should be an objective exercise in looking up the facts.
As we’ll see, yes Virginia there is indeed a big — and growing — government in DC, as even that government’s own numbers confirm. Although this conclusion won’t surprise the readers of this column, it will still be fun to analyze Paul Krugman’s attempts to deny the obvious.
Now I know you Krugman lovers will be able to explain everything away; don’t disappointment me.
I’m a bit confused by some your commentary in your essay. I’m sure there is a very logical explanation because, frankly, I am not as smart as you. But I would appreciate some clarification if you have the time. You said in your essay:
“If we look at federal spending under Barack Obama, it’s not even close: it has risen more than $600 billion since he assumed office. But even if we switch to total government spending, it’s risen more than $575 billion in the same period.”
Now, correct me if I’m wrong (actually, I’m not wrong on this part, since I got the data from the source you did – the BEA)
Spending in Q109: 3227
Spending in Q310: 3760
Now, if my math is correct, that’s a 533 billion increase, or 17%, which is less than the 600 billion you stated earlier. Now, if you take a few minutes and look at the composition of that growth, 100 billion came from consumption, while 342 billion came from an increase in transfer payments, and 87 billion from other stuff.
Am I missing something, or has spending not risen by more than 600 billion? Also, since 64% of the increased spending were transfer payments, and the vast majority of the transfer payments are mandatory (minus the extensions – i.e. the 99’ers), is it your claim that the big increase in government under Obama is because he followed the law, and allowed mandatory automatic stabilizer spending to occur?
Also, here’s the data for total government spending during the current administration:
Spending in Q109: 4790
Spending in Q310: 5316
Diff: 526
Not sure where the 575 billion figure you quote came from, but I’m sure it’s because I’m missing something.
Also, just wanted to remind you on my question on where the Federal government got the funds for TARP so quickly.
http://consultingbyrpm.com/blog/2010/12/jeff-tucker-interviews-murphy-about-the-econ-textbook.html
I’m still very curious if the only way the federal government can ‘fund’ itself is with taxes and/or ‘borrowing’, then where did it come up with the TARP funds so quickly? I’m not so sure selling assets like drug dealers impounded cars could really fund TARP, as you implied in another post.
Thanks
AP I am tracking Obama’s spending by taking the starting point as 4th quarter of 2008. Under your method, if spending went up in the 3 months after Obama was inaugurated, that would be credited to Bush. (If you want to argue that Obama didn’t control that spending, fine, but that’s where my numbers are coming from.)
Well, when it comes to federal spending, it’d been very flat for decades before the bailouts began in late ’08’
http://www.gpoaccess.gov/usbudget/fy11/hist.html
Frankly, the current spending and deficits don’t concern me much at all. Perhaps it’s due to ignorance, but I think even Krugman gives too much weight to deficit fears.
If most families for have been able to successfully handle mortgages at 3x or greater annual income, along with auto loans, credit card debt, financial aid loans, etc. for decades, how much better can the government cope with its ability to tax the largest tax base in the world and devalue the dollar? We’re still at less than 100% debt/GDP, aren’t we?
As some have pointed out, Krugman among them, it’s the GDP in the debt/GDP ratio that should concern us most and lead us to spend more on an appropriately large and well-targeted stimulus to get us out of the hole we’re in. That is, if we can’t get enough monetary stimulus.
Frankly, I have little respect for extreme libertarianism, as such idealists have positions that are about as realistic as wishing humans didn’t need oxygen to breathe. As long as human nature is as it is, those with more will have to surrender some of it to those with less, no matter what the perceived morality. In fact, I find it extraordinarily arrogant to assume the default moral position should be to be able to keep all one gains. Quite the contrary, in my view morality dictates a closer to equal distribution of resources.
We no longer exist in hunter-gatherer groups in which it may have been possible, at least in principle, to stake out on one’s own and gather/hunt one’s own food, etc. outside of the local social structure. This doesn’t work so well in modern urban life, where one must depend mostly on the existing economic infrastructure to get one’s needs met.
IN any case, Happy New Year.
Was the the “Yes, virginia” thing a conscious reference to Krugman’s constant use of it or is exposure to Krugman contaminating your writing style?
I hope it’s the former since if you start doing things like quoting statements before rejoining them with “Yeah, um, no” I will be a very sad boy.
Not sure. I think it was just a Christmas reference, but it’s possible Krugman was in my head.
“AP I am tracking Obama’s spending by taking the starting point as 4th quarter of 2008”
Now wait a minute…are you trying to pull a Krugman on me!!!
According to the txt file in your essay
http://research.stlouisfed.org/fred2/data/FGEXPND.txt
Spending from January 1, 2009, to March 31, 2009 was 3227 (exactly what I wrote above). Now, if my memory serves me correctly, Barack Obama was inaugurated on January 20, 2009. So, by my numbers, I am assigning 20 days of spending before he was even president, just to be conservative. I could probably argue a fair amount of the spending from January 1, 2009 to March 31, 2009 was not spending initiated by Obama, but just to be conservative, we’ll say the entire 3227 was his spending. So during the first three months of his administration, Obama spend 3227 on an annualized basis.
Now, according to your txt file, spending during the period July 1 2010 to September 30 2010 was 3760. Now, according to my calculator, 3227 – 3760 = 533. So, my question is, how did you arrive at the statement “Yet this isn’t the case, no matter how you slice it. If we look at federal spending under Barack Obama, it’s not even close: it has risen more than $600 billion since he assumed office.” There is some fuzzy math somewhere, and it’s probably on my end since I’m a little slow when it comes to this stuff.
Also, I went back and checked the BLS data for total federal employment. I included the postal service since Krugman conveniently excluded that data to tell his story better. So:
Federal employment on January 2009: 2792
Federal employment on November 2010: 2837
Hardly a massive expansion.
So wouldn’t the more appropriate title of your essay be ‘Big Government is Not a Myth; Government Was Already Big Before Obama Took Office. Obama Maintains the Size of Government but Outside of Mandatory Transfer Payments, Does not Grow it Meaningfully’ Sure, that’s probably a mouthful for one of your essays, but you get my point.
And just be clear. I’m not defending Krugman, nor Obama. I’m defending the facts. FYI – the source for all my data is either the BLS or the BEA, and it can all be viewed on your handy Bloomberg terminal, or on the respective websites.
Also, I noticed you ignored by question on TARP. If ‘I don’t know’ is the best answer you can come up with, that’s fine. I understand you’re a busy person, but since you (literally!) wrote the book on how the government funds itself, I thought this would be a simple question.
And if you have any information on government asset sales to fund the deficit, I would be very interested. I’m in the market for a new car. Thanks.
OK AP, suppose Obama came into office and said, “My first priority is to boost spending. To that end, starting in January 2009 (and yes we have to be quick about it–only 10 days left!), the federal government will proceed to spend $10 trillion every month, until I leave office.”
According to your method, spending under Obama would have risen (thus far) by 0%.
I will try to answer your TARP question when I am preparing that stuff for the upcoming Fed course. But your recent comments suggest to me that this is all a big joke to you. So I’m curious, what do you think the answer is? Where is the government’s money coming from, if not taxes, inflation, or borrowing?
“OK AP, suppose Obama came into office and said, “My first priority is to boost spending. To that end, starting in January 2009 (and yes we have to be quick about it–only 10 days left!), the federal government will proceed to spend $10 trillion every month, until I leave office.””
Ah, so just to clarify, you were comparing spending under Obama relative to the prior administration? Got it. I thought you were comparing the increases of spending DURING his administration, which is what it seemed you were alluding to in your essay. That is where I got confused. I knew it was on my end.
“But your recent comments suggest to me that this is all a big joke to you.”
No no..not a joke at all. What confuses me is if the government must tax and/or ‘borrow’ first before it can spend, then where did the original funds come from to tax and borrow? What confuses me is when the government signs into law big spending bills like TARP, invading Iraq, the Medicare expansion under the prior administration, the stimulus, how come they are not contingent on a bond auction? Or higher taxes? How come China does not have input in spending bills, since you (and many others) seem to believe US solvency is contingent on them buying US bonds?
“what do you think the answer is? Where is the government’s money coming from, if not taxes, inflation, or borrowing?”
Well, the US government is, last time I checked, the monopoly supplier of US dollars. So I think it’s safe to assume that money comes from the government.
Also, don’t you think it’s logical that the government must spend FIRST, then tax and/or ‘borrow’ second? Otherwise, where would the funds come from? And if the government is required to spend FIRST, tax and/or ‘borrow’ second, then maybe, just maybe taxes and the issuance of government securities serve other purposes.
But hey, what do I know. I’ve only worked on bond trading desks my entire life. And the operational realities I witnessed may have been a myth…
Thanks in advance for the response, if you choose to respond!
And Happy New Year to all!
AP
“Where is the government’s money coming from, if not taxes, inflation, or borrowing?”
I think the response you are looking for from Mr. Murphy is that the government issues or creates the money first through the FED, particularly relating to TARP – the Treasury borrowed from the FED. In essence, as the issuer of the currency it controls the supply of the currency to which you are referring. However, isn’t Mr. Murphy’s point that at particular level, there needs to be some action taken by the government to address issues of inflation due to the massive creation of money, which you correctly attribute to the purpose for taxing the public or borrowing.
I understand that this is an accounting reality – championed by MMT advocates; however, while it makes sense on a macro level, I find that it does little to explain the reality that local and state governments face, who also turn to the debt markets for funding.
But in my view, I think you end up talking past one another because the focus becomes the method as opposed to the fundamental question as to who is the rightful owner and creator of wealth; if you believe that the currency issuer allows individuals to save and create wealth then you must then believe the money (paper) represents wealth. Otherwise, if the individual is responsible for creating his/her own wealth then the actions taken by the government – through credit expansion, printing of money, inflating the currency or taxing the citizenry then results in destruction or confiscation of wealth.