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Federal Budget

Myth #3: The Obama Spending Binge

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All’s fair in love and war, or so the saying goes. In politics as well, if US elections are anything to go by. Short of murder, American politicians can get away with almost anything on the campaign trail and could give lessons to Mr. Fantastic on stretching the truth. This includes the promotion of some of the most fantastic and unsubstantiated lies imaginable. No politician is exempt from this criticism, but Republicans in particular have taken outright deception to the next level.

It seems that facts provoke an almost allergic reaction among Republicans. The strength of the reaction is in direct proportion to the proximity of the next Federal election. Why this is so is hard to say: perhaps because so few facts seem to support anything Republicans typically stand for. Social Security is actually popular amongst Americans? Doesn’t matter, we’ll label it socialism. Unemployment actually helps prevent workforce impoverishment? Doesn’t matter, we’ll brand it hand-outs and stigmatize it.

Republicans have been perfecting the art of vapid conservatism for decades. Unlike their predecessors, the men and women who put the “Grand” in the party, the modern GOP has chosen positions rather than solutions, branding over product. Letting no good lie go to waste, the GOP machinery and that of their sometimes overly independent conservative allies bears a closer resemblance to Joseph Goebbels than William Shirer. “If you tell a lie big enough and keep repeating it, people will eventually come to believe it.” – the Minister of Propaganda would be proud.

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The latest whopper to come out of the RNC and Romney camp is the need to “rein in the Obama spending binge.” In this version of space-time, the small government, fiscally prudent and thrifty Bush Administration was replaced by another one of those darned Democrats, who immediately proceeded to spend like there was no tomorrow. The deficit is entirely the fault of this unrestrained profligacy and only the restoration of a Republican in the White House could possibly bring spending down.

There are a number of implicit assumptions in this story which bear closer investigation. They are so well established in the American psyche by now, after years of unrelenting Republican brainwashing, that they are not even questioned:

  • Republicans are the party of fiscal conservatives – this is assumed to be unquestionable, and so the record of the Bush Administration requires no scrutiny. Common Sense has scrutinized it in an earlier Mythbusters here;
  • Federal spending is always wasteful and less efficient than private spending – a vast distortion of Adam Smith. The brilliant Scotsman has had more nonsense attributed to him than any other economist. Republicans would have you believe that markets would have dealt with the Great Recession by themselves, without Federal intervention. That might be true, and we have only to look at the period 1929 to 1932 to see how markets dealt the bursting of the last huge financial bubble;
  • The federal deficit is entirely caused by too much spending – another Republican truism. Apparently tax revenues remain constant even in a depression – if only this were so;
  • The deficit can only be reduced by reducing spending – the necessary corollary of the preceding axiom. The less taxes are mentioned, except in terms of reducing them, the better. The tax dial can only be turned one way – down – and any other policy is automatically labeled “tax and spend” profligacy.

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Show Me the Money

Far from being a “tax and spend” liberal, Mr. Obama has neither raised taxes nor overseen a vast increase in federal spending. The first graph shows total Federal receipts and outlays from 2002 to 2011 in constant dollars – that means that a 2011 dollar “counts” for as much as a 2002 dollar, it is adjusted for inflation.[1]

George W Bush was responsible for every budget from 2002 through 2009: it is critical to remember that the President submits the budget for the next fiscal year in February of the preceding year, and Congress has until October to approve it. That means that the FY2009 Federal budget was submitted by the Bush White House in February 2008 and approved by Congress sometime before the end of October, before Mr. Obama had even won the election.

President Bush’s last budget called for extraordinary expenditures by the Federal government to deal with the financial crisis that had erupted full force in the summer of 2008 with the collapse of Lehman Brothers. That includes the $700 billion bailout program known as TARP. The overall budget was $3.17 trillion dollars.

Far for overseeing a rampant expansion of Federal spending, President Obama’s budgets have been lower than President Bush’s despite the fact that they included the full costs of the military operations in Iraq and Afghanistan. The Bush Administration had always kept those figures “off budget” and paid for them through extraordinary appropriation bills submitted to Congress.  So if we wanted to have a fair comparison, we’d have to add between $150 to $200 billion in expenses to each of President Bush’s budgets starting in 2004.

The above chart[2] of quarterly Federal spending confirms that President Obama’s administration has never been “spendthrift” – even at the peak of crisis in 2009, the change in spending levels was below that of the 2002-2003 surge in DoD funding for the Iraq-Afghanistan wars.

Why then is the deficit so large? Some of it does have to do with increased spending: when people are out of work, the costs of social programs like unemployment benefits and income security payments (food stamps, welfare) automatically increase as well.

A very significant portion of the deficit comes from lost revenue – there are fewer people paying taxes, because they’ve lost their jobs and have no income; tax revenue per capita falls as wages fall and capital gains evaporate; corporate income tax also falls as profits disappear during the recession. There is also the deliberate action of the President and Congress passing numerous tax credits, subsidies and remissions in an effort to stimulate the economy. These may or may not work, but they definitely lower the amount of taxes paid.

Compared to the base year of 2008, when the deficit had already increased from $151 billion to $416 billion, the yearly change in the deficit is split pretty evenly between increases in spending (around 55% of total change) and decreases in tax receipts (about 45% of the total change). This means that even if President Obama hadn’t spent a single extra dime, the Federal deficit would have increased significantly under his tenure, just from the shortfall in taxes.[3]

The truth is more complicated than this. If the government hadn’t intervened, the deficit would have been a lot worse, because the crisis would have been a lot worse. The CBO estimates that economic stimulus measures have prevented an increase of the unemployment rate of approximately 2% – about two and a half million workers who would otherwise have lost their jobs.

Republicans are nonetheless quick to counter that the government has nevertheless been hiring like mad, and the public sector bureaucracy has grown enormously.

Overall, federal employment[4] during has increased by 3.4% in the decade from 2001 to 2011. Most of this growth occurred at the beginning of the financial crisis, however: +1.0% in 2008 under President Bush, and +2.5% in 2009 under President Obama. The “spike” in employment in 2010 was due to the hiring of thousands of temporary workers for the decennial census, and employment grew by 1.0% from 2009 to 2011. Employment has since fallen by 1.1% in 2012 and is expected to fall further in 2013.

The slight increase and subsequent fall in employment during the Obama Administration is merely a blip in the historical trend of Federal employment which has been decreasing as a proportion of the US population since George HW Bush[5].

Federal employment fell sharply during the HW Bush administration and continued to fall during the Clinton and W Bush Administrations. As a percentage of the US population, federal employment has gone from 1.3% of the total population to 0.9%. The increase in federal hiring during the 2008 to 2010 crisis years represents only a slowdown in this long-term trend, which appears set to continue downwards in the last year of President Obama’s first term.

Far from being out of control, the government spending and employment remain well within the limits of historical trends. President Obama has presided over a very moderate stimulus and expansion of hiring, both of which effects largely dissipated by 2011 and 2012. In other words, Mitt Romney and Republicans have been lying.
This myth has been busted.

 

 

 

 


Sources and Notes:

 [1] Budget of the United States Government, Fiscal Year 2013 – Historical tables, Office of Management and Budget
[2] Table 3.1 Government Current Receipt and Expenditures, Bureau of Economic Analysis
[3] Budget of the United States Government, Fiscal Year 2013 – Historical tables, Office of Management and Budget
[4] Federal Reserve Bank of St. Louis – Employment Data
[5] Ibid

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