May 25, 2012
Budget Battles & Reality Checks
Earlier this week, MarketWatch's Rex Nutting wrote that the "Obama spending binge never happened" and that federal government outlays have recently been rising at the "slowest pace since 1950s." The claim was quickly attacked by some commentators of the Republican persuasion as a left-wing conspiracy. The motivation for trying to discredit the report is understandable, at least from a raw political perspective. The notion that federal spending hasn't exploded under Obama doesn't jibe with the political playbook these days for the loyal opposition. But facts are still facts and so the frenzy of efforts to dismiss Nutter's column don't stand up based on the numbers.
A simple review of the federal budget data confirms that the rate of spending growth has slowed recently relative to the Bush years. We can debate why that's so, and whether Obama deserves credit or not. But for now, let's just look at the numbers, as published by the Congressional Budget Office here. (In particular, note the historical data in tables F-1 and F-3 in "The Budget and Economic Outlook: Fiscal Years 2012 to 2022".)
The first chart below shows the annual percentage change in federal outlays by fiscal year. The chart speaks for itself.
There's been much discussion about fiscal year 2009. Obama took office in January of that year, and so the naive view is that any spending that immediately followed is solely a reflection of his administration's decisions. But as Nutting correctly reminds, spending for fiscal year 2009 was largely set by the Bush administration and Congress before the election of 2008:
What people forget (or never knew) is that the first year of every presidential term starts with a budget approved by the previous administration and Congress. The president only begins to shape the budget in his second year. It takes time to develop a budget and steer it through Congress — especially in these days of congressional gridlock.
The 2009 fiscal year, which Republicans count as part of Obama’s legacy, began four months before Obama moved into the White House. The major spending decisions in the 2009 fiscal year were made by George W. Bush and the previous Congress.
It's also true that over half of federal spending is automatic, or mandatory, as it's labeled. For example, spending on entitlement programs, such as social security, drift higher without a vote of Congress each year. These programs can be changed or even terminated with an act of Congress, but normally the spending growth on the mandatory side of the budget rolls on, immune to the day-to-day political haggling that otherwise engulfs Washington. That inspires looking at discretionary spending alone to gauge how much more, or less, the government agrees to spend in any given fiscal year. Here too there's been a sharp drop in the rate of spending, albeit only in fiscal year 2011. But the change is dramatic: discretionary federal outlays for fiscal year 2011 dropped slightly relative to the previous fiscal year.
Keep in mind that federal spending is a direct byproduct of Congress, albeit with a heavy hand of influence from the White House. In other words, the idea that federal spending, for good or ill, flows from the decisions of one man, or one branch of government, is misleading, to say the least. Obvious? Yes, but worth repeating in a highly charged political season.
As for the federal budget numbers, they are what they are. You can attack the data as evidence of a government run amuck, or praise the numbers as evidence of enlightened governing. But whatever you do, don't attack the messenger for reviewing the facts.
Update: Here's an excerpt from the aforementioned "Budget and Economic Outlook: Fiscal Years 2012 to 2022" from CBO (pages 4-5):
Federal spending rose by 4 percent in 2011, to $3.6 trillion—a rate of increase that is significantly less than the nearly 7 percent average rate of growth in federal outlays over the previous 10 years. About half of the $142 billion increase from 2010 to 2011 occurred because downward revisions in the estimated net cost of the Troubled Asset Relief Program (TARP) in 2011 were smaller than in 2010; those revisions were recorded as reductions in outlays. Excluding the TARP, total outlays grew by $70 billion, or about 2 percent. In 2012, CBO projects, outlays will increase by just $3 billion (or 0.1 percent). As a percentage of GDP, outlays will fall from 24.1 percent in 2011 to 23.2 percent this year—a level still higher than in any year between 1984 and 2008.
Posted by jp at May 25, 2012 8:35 AM